Pandemic Budget Band-Aid Could Help Plug Gaps. But Here’s Why It’s No Cure-All

Greg David, THE CITY

Mayor Bill de Blasio and Governor Andrew Cuomo hold a joint news conference at the start of the coronavirus outbreak, March 2, 2020.
Mayor Bill de Blasio and Governor Andrew Cuomo hold a joint press conference at the start of the coronavirus outbreak, March 2, 2020. | Ben Fractenberg/THE CITY

This article was originally published, on by THE CITY

Only a few months ago, the state and the city faced disaster in their budgets for the current fiscal year.

The state passed a budget with an $8 billion hole. The city approved a precariously crafted spending plan that depended on $1 billion in labor savings and the state holding off on a threatened 20% cut in aid.

Today, both budgets are well on their way to being balanced, thanks to stronger than expected tax revenues, fiscal maneuvers and some cuts, even as the MTA teeters on the brink of financial disaster.

But the mayor, governor and fiscal experts are headed to a new confrontation over how to use federal aid that could come if a compromise aid package clears Congress soon.

“The bill being discussed would provide needed relief in the short term but wouldn’t come close to solving the fiscal crises facing the state, city and MTA,” said Andrew Rein, president of the Citizens Budget Commission. “It would be the beginning of a bridge, but not the whole bridge, and the state and city need to take the actions needed for that bridge to land on stable fiscal shores.”

Congress is working on a new federal aid package, with negotiators laboring to complete an agreement next week. While many details are lacking, a compromise plan proposed by a group of centrist Democrats and Republicans would provide $160 billion in state and local aid nationwide, plus $45 billion for transportation.

More immediately pressing for New York’s economic health, as THE CITY reported Monday, are funds to extend unemployment benefits for almost 700,000 people and to boost small businesses on the brink of closing.

The bill being discussed doesn’t directly address the national eviction moratorium, which is set to expire at the end of the month — threatening a major housing crisis if it’s lifted. Meanwhile, COVID-19 infections and hospitalizations are growing in the city, raising the specter of new restrictions on public life.

A Delicate Balance

Still, the state’s fiscal picture has improved — primarily because of a now-expected surge in tax revenues.

State Comptroller Thomas DiNapoli has projected tax revenues will be $4 billion above estimates, cutting the much-discussed $8 billion hole in half. Most of the previously unanticipated windfall is due to the pandemic recession’s modest impact on higher-income taxpayers who have continued to work remotely.

E.J. McMahon of the Albany-based Empire Center, a nonpartisan think tank, believes that state spending on operations has been reduced by more than what the Cuomo administration has let on. The state could tap reserves to fill the gap without imposing a threatened 20% reduction in local aid, McMahon added.

Barring another major shutdown, the city is also on course to end the fiscal year on June 30, 2021, with a balanced budget. The result has been to end discussion — at least for now — of possible borrowing to cover operating expenses, a practice that almost landed the city in bankruptcy in the 1970s.

Carson Kessler/THE CITY
A shuttered souvenir store in Manhattan, Sept. 9, 2020.

City tax revenues are projected to exceed estimates by about $1 billion, while state aid cuts appear unlikely. Mayor Bill de Blasio has also reduced labor expenses by almost $1 billion by pushing payments to next year.

De Blasio has already turned his attention to using federal aid for fiscal year 2022, which begins July 1 and whose budget is currently projected to have a $3.8 billion gap.

“The deficit could be magnified if there’s no stimulus, and the state will be put in an awful place as well,” he said at a recent news conference. “And that’s going to mean additional cuts. The $3.8 billion could go up really quickly.”

The $3.8 billion deficit and estimates for 2023 and 2024 assume de Blasio achieves $1 billion in labor savings that will recur annually and are not merely pushed forward as he did this year. De Blasio is set to leave office in a little over a year.

McMahon noted that DiNapoli’s projections mean the state budget gap for fiscal 2022 is now $12.6 billion, down from the latest Division of the Budget estimate of $16.7 billion.

Trouble on Track

Unlike the city and state, the MTA’s current budget is mired in an immediate crisis: The agency has said it needs $12 billion to avoid doomsday budget cuts.

Compared to the same period in 2019, ridership was down 72% on the subway and 58% on buses for last week, according to the City Comptroller’s office.

It isn’t clear how much of the transportation funding being contemplated in the new pandemic relief bill could come to the MTA.

Ben Fractenberg/THE CITY
An MTA bus heads past signs of struggling businesses along Harlem’s 125th Street, Dec. 1, 2020.

The CBC has noted that the federal aid in the Great Recession of 2008-2010 fell short of the needs of the city and state, and expects the same result this time.

Ronnie Lowenstein, executive director of the city Independent Budget Office, is worried that long-term changes to the city economy could permanently reduce New York’s tax base.

Working from home is no longer a theoretical concept, she said, and no one knows when the restaurants, clubs and theaters that make the city attractive will fully reopen or will be considered safe by tourists.

“Lots of people are living work at home now and finding it enriches their lives, which has big implications for both residential and commercial real estate,” she said. “With tourism, one possibility is that visitors do not come back immediately or visit the city in ways that means less economic activity from an area that has done so much to fuel the economy.”

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