Beating the legally mandated July 1 deadline to produce a balanced budget, New York Mayor Eric Adams and City Council have agreed on a $107 billion spending plan for fiscal 2024.
“The agreement we reached today comes in the midst of a budget cycle dominated by great challenges and unexpected crises, but I am proud to say that we have successfully navigated through these many crosscurrents to arrive at a strong and fiscally responsible budget,” Adams said in announcing the handshake agreement at City Hall on Thursday.
The $107 billion adopted budget for fiscal 2024 maintains a near-record $8 billion in total reserves while restoring funds to libraries and cultural institutions.
The budget also keeps funding for each public school at fiscal 2023 funding levels even if enrollment declines.
The budget was negotiated during the ongoing asylum seeker crisis, which is now projected to cost the city $4.35 billion in fiscal 2023 and 2024. The city has cared for more than 81,000 migrants since last spring.
So far, federal and state assistance has been deemed inadequate by the city, which will have to add $465 million to make up for less-than-expected aid.
Some definite progress was made in plugging growing budget holes caused by the recent influx of migrants, said John Hallacy, founder of John Hallacy Consulting LLC.
“Adding $465 million for unreimbursed federal asylum seeker aid is real money,” Hallacy told The Bond Buyer.
City Comptroller Brad Lander said while recent strong tax receipts allowed some of the previous service cuts to be restored, the final budget still left many long-term challenges unaddressed.
“This agreement rightfully restores funding to our public libraries and increases funding for Fair Fares and for Promise NYC, a program that removes barriers to care no matter a child’s immigration status,” Lander said.
“Yet other short-sighted cuts like restorative justice programs at Rikers will undermine the city’s public safety goals,” Lander said, adding that cuts to City University of New York harm “our best vehicle for upward economic mobility.”
Lander said that as economic uncertainty grows, he is urging the mayor and Council to adopt a formula and a goal to guide deposits into long-term reserves.
“This budget fails to add to rainy day funds and they remain far from our recommended 16% of tax revenues that can weather the length of an average recession without major service disruptions,” Lander said. “The umbrella we need to protect essential services during the next fiscal storm cannot be left to buckle under political winds.”
Howard Cure, director of municipal bond research at Evercore Wealth Management, told The Bond Buyer the city didn’t increase its reserves despite the threat of economic uncertainty.
“The city didn’t add to its various reserve funds which stand at about $8 billion, or 7.5% of the total budget, even though based on the city’s progressive tax system, potential recession, and burdens on the commercial property tax base due to declines in office occupancy, a recommended reserve level should be 10%-16%,” he said.
Cure said the city is required to provide budget forecasts over the next four years — and this indicates budget gaps in the outyears have grown since Adams’ executive budget was introduced, to $5.1 billion in fiscal 2025, $6.8 billion in fiscal 2026 and $7.9 billion in fiscal 2027.
“Therefore, there should be more of a focus on recurring programs in areas such as MTA subsidies and rental vouchers,” Cure said. “Additionally, the mayor needs to control the Program to Eliminate the Gap (PEG) so as not to reverse protected savings,” he said.
“The out years have gone by about close an average of $1 billion, ranging from $5 billion in fiscal 2025 to about $7.9 billion, I believe, in fiscal 2027,” Jacques Jiha, director of the Mayor’s Office of Management and Budget said at a press conference at City Hall Thursday.
He added that OMB did enough to sustain and control possible fiscal cliffs ahead.
“We’ll continue to manage the fiscal cliffs. As you can imagine, it’s a very difficult situation,” Jiha said. “We have to provide for about $4.3 billion in expenses to cover the asylum seekers. That is on the low end of the estimate because we have indication that it could be even higher.
“We are watching the trend to see whether or not it’ll be sustained over time, but we continue to manage and as we manage on a yearly basis, we’re taking decision steps to try to identify savings, identify ways to generate additional resources so we could meet the challenge in the out years,” he said.
Citizens Budget Commission President Andrew Rein said the new budget agreement will please many stakeholders — at least for the next fiscal year.
“It is essentially a one-year budget that again unfortunately delays the wise but hard choices needed to stabilize the city’s fiscal future,” Rein said. “With the coffers temporarily bulging, the budget increases fiscal cliffs, widens future budget gaps, and misses the opportunity to deposit money into the rainy day fund.”
He said the budget uses $2.3 billion in available resources to add billions of dollars of spending without the offsetting savings needed to sustain them.
“The city should not wait until it slams into a fiscal wall to spend within its means,” Rein said. “It should prioritize programs, reduce spending on those with lower impact, and restructure operations to increase productivity.”
Cure also noted the lack of savings from recent union contract agreements.
“The city has been finalizing collective bargaining agreements, but hasn’t required any productivity savings in exchange for pay raises,” Cure said.
While Rein lauded the mayor for taking steps by reducing vacancies and implementing a PEG, he said that so far this has mostly been pruning low-hanging fruit.
“This burgeoning habit of funding major programs one year at a time is effectively putting the budget dance of years’ past on steroids, potentially creating massive annual service crises. Cliff dancing is dangerous and should stop,” Rein said.
The city has also been dedicating more resources to fund the housing crisis, Cure said.
“I am not sure how effective these programs will be in providing affordable housing and addressing the homelessness issue,” Cure said. “The state should intervene on the city’s behalf with tax incentives and zoning change requirements to alleviate the problem since there needs to be a regional approach. The state has neglected dealing with this controversial issue and has let lapse development programs.”
The city is one of the biggest issuers of municipal bonds in the nation. Its general obligation bonds are rated Aa2 by Moody’s Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.
In the second quarter of fiscal 2023, it had about $39.3 billion of GO bonds outstanding. Separately, the city’s Transitional Finance Authority and Municipal Water Finance Authority have $45.1 billion and $32.3 billion outstanding respectively.
“If the economy does careen towards recession, expenditures will need to be revisited,” Hallacy said. “So far, the capital plan has not been affected.”