The coronavirus pandemic has plunged New York City into the most dire fiscal crisis it has faced in generations. More than 900,000 people have lost their jobs since February, and thousands of businesses have closed.
The streets remain empty of workers and visitors: Nearly 117,000 people filed new unemployment claims in the second week of May, a staggering 2,206 percent increase from the previous year. Tourism, which generates roughly $70 billion a year in economic activity, has disappeared.
The real estate market is stagnant; sales are projected to be down by a third. People are not spending money; sales tax revenue is expected to drop by $1 billion — part of an anticipated $9 billion shortfall in city tax revenue that could force drastic cuts to essential city services.
The grim outlook has forced top officials to contemplate a maneuver that has been inconceivable ever since it brought New York to disrepair and the brink of bankruptcy in the 1970s: allowing the city to borrow billions of dollars to pay for its basic operating expenses.
Numerous fiscal experts and public officials, including Gov. Andrew M. Cuomo, are leery of giving the city permission to solve its budget problems by taking on significant debt, sensitive to the reckless borrowing that began more than 50 years ago under Mayor Robert F. Wagner and accelerated under the city’s next two mayors, John V. Lindsay and Abraham D. Beame.
The shortsighted economic strategy — Mr. Wagner blithely called it a “borrow now, repay later” philosophy — was one reason New York City reached the brink of bankruptcy in 1975, leading to the creation of the New York State Financial Control Board, which was given broad oversight of the city’s financial management.
Mayor Bill de Blasio, who has asked legislative leaders to grant him permission to issue bonds to cover the city’s operating costs, has said he would only do so as a “last resort.”
Doing so, however, has increasingly become a real possibility: Legislative leaders, returning this week from a nearly two-month hiatus to vote on a raft of coronavirus-related bills, are discussing the issue with the governor’s office and city officials.
“What do you do if you don’t have the option of some amount of borrowing? You have to do massive cuts, massive cuts to all city agencies,” Mr. de Blasio said on Thursday. “That will undermine any possibility of the right kind of restart and recovery. So, borrowing the right way, it makes sense.”
The city is far from alone in confronting an economic collapse. New York State is expecting as much as $13 billion less in tax revenue this year; California faces a $54 billion budget deficit, and Los Angeles has a 24 percent unemployment rate. Nine states, including New York and California, have borrowed from the federal government to reinforce their unemployment insurance trust funds.
And in New York State’s recently passed budget, lawmakers included a provision that gave Mr. Cuomo the ability to borrow up to $11 billion, giving budget officials increased flexibility amid uncertain revenue forecasts. State Senator Liz Krueger, chairwoman of the Senate Finance Committee, said the city is merely asking for the same leeway that the Legislature recently granted the governor.
But New York City’s problems, and its request to potentially borrow its way out of them, have added resonance because of how disastrously that scenario played out in the mid-1970s, the city’s last and most famous brush with the fiscal abyss.
The Financial Control Board forced the city to absorb drastic spending cuts: Workers were let go and hospitals were closed. Crimes and disorder rose; tens of thousands of residents fled the city, as New York turned into a national symbol of urban decay.
Mr. Cuomo, who prides himself on being fiscally conservative and would need to sign the legislation, referenced the 1970s nadir as he cautioned against granting New York City borrowing capacity. He said on Thursday that although government has long issued bonds to pay for long-term capital projects, doing so for operating expenses was fiscally questionable.
“We don’t want to create a situation where the state or any local government borrows so much money that they can’t repay it, and then you have to start to cut service and now you’re in that vicious downward spiral,” Mr. Cuomo, a third-term Democrat, said during a briefing at the New York Stock Exchange in Manhattan on Tuesday. “New York City has been there before.”
Indeed, economists frown on borrowing to cover operating expenses, saying that debt should ideally only be taken on for large, long-term projects — ideally those, like tolled bridges and roads that generate income. Borrowing for short-term needs, much like taking a loan to cover rent, does nothing to fix the cause of the deficit while shifting the debt to future generations.
Scott M. Stringer, the city comptroller, said that if the city borrowed $7 billion to cover current expenses, it would most likely be on the hook for more than $500 million a year in debt payments for the next 20 years. “That $500 million means less for teachers, child care and restricts our ability to borrow for needed infrastructure improvements,” he said.
But the mayor said on Wednesday that he cannot make further reductions without leading the city to a “horrible place where we would be cutting back basic services, cutting back personnel, furloughs, layoffs, things we do not want to see, things that go against everything that we believe is right for New York City.”
Mr. de Blasio, a Democrat, said that his $89.3 billion executive budget, released in April, already included $2.7 billion in cuts to a bevy of municipal services, including traffic safety enforcement, tree pruning and a program that provided thousands of poor young people with summer jobs.
The city has also had to spend $1.4 billion to fight the pandemic, a sum that officials anticipate will rise to $3.5 billion by the end of the year.
In the negotiations over whether state lawmakers should give the city the latitude to borrow money, the possibility has been raised of giving the Financial Control Board, whose broad control over the city’s budget expired decades ago, the added power to formally approve any bond issuances.
The board has seven members, three of whom are appointed by the governor, who also serves on the board. City officials oppose giving the board any added oversight power.
The state last authorized the city to take on debt for operating costs after the terrorist attacks on Sept. 11. The move — which followed an appeal from Michael R. Bloomberg, who was then mayor — gave city officials financial breathing room and allowed them to issue so-called recovery bonds.
Lawmakers from the city, who dominate the Democratic-led Legislature, say that the current situation calls for similar measures.
In February, before the economy shuttered, the city had 4,669,000 million jobs, according to the Independent Budget Office. By April, the city had 3,756,900 jobs — a loss of 912,100. Certain sectors like the hospitality industry were hit particularly hard: Hotel occupancy plummeted to 15 percent in the last week in March, down from an average of 88 percent in 2019.
“The city is in distress,” said Michael Gianaris, a Democratic state senator from Queens who serves as deputy majority leader. “And we should do what is reasonable to avoid billions of dollars of service cuts.”
Senator Krueger, a Democrat who represents the East Side of Manhattan and introduced the borrowing bill, said that giving the city the authority to borrow up to $8 billion “doesn’t mean they’re actually going to use it,” adding that it was “not an unreasonable ask for the city to make.”
Legislators don’t plan to vote on the bill this week after failing to reach an agreement with the governor and city officials, but negotiations continue, and the proposal could be brought up for a vote in the coming weeks.
Both the mayor and the governor have said that without substantial federal recovery funds, essential city and state services, like policing, health care and education, would be endangered.
Indeed, Republican resistance to additional financial support for the states has increased in Washington, particularly for states led by Democrats. Last month, the Senate majority leader, Mitch McConnell, sparked a furious retort from Mr. Cuomo after referring to possible additional federal funding for state and local governments as a “blue-state bailout,” chastising such states for past fiscal irresponsibility.
That line of attack was echoed by President Trump, who met with Mr. Cuomo in the White House on Wednesday.
Mr. Cuomo said that allowing the city to borrow could dissuade Congress from giving New York the billions of dollars in federal funding the governor and mayor have said are critically needed.
Mr. de Blasio is already relying heavily on reserve funds to balance the budget. The city is drawing $2.6 billion from the retiree health benefit trust, $900 million from general reserves and $250 million from the capital stabilization reserve to balance the 2021 budget, according to the Independent Budget Office.
Andrew Rein, the president of the Citizens Budget Commission, a fiscally conservative watchdog, said the city could still find additional savings in its budget. Getting permission to borrow could lead city officials to avoid “making the hard choices today,” he said.
“Borrowing, it seems painless, but it’s not at all,” he said. “Basically what you do is make future New Yorkers pay for your bills. It’s pretty clear to us that the city should not go there yet. There is a lot more that it could do.”
Progressive lawmakers, whose election in 2018 helped Democrats regain control of the Legislature for the first time in nearly a decade, have proposed another potential solution: a series of new taxes on the wealthy — from taxes on the superrich and stock buybacks to a levy on pieds-à-terre — which activists say will raise billions of dollars in new revenue.
Those proposals, however, are not on the Legislature’s agenda this week.
“This form of shared sacrifice is totally appropriate when you’re in a time of crisis,” said Michael Kink, the executive director of Strong Economy for All, a coalition of progressive groups and unions. “Mitch McConnell is not going to save New York. I think we are going to have the wealthiest New Yorkers pay more at some point.”
Mr. Cuomo’s budget officials have argued that high-income New Yorkers already pay some of the nation’s highest taxes and that new taxes could lead many of them to decide to flee, shrinking an important part of the state’s tax base.
Source: NY times