The New York City Council opened hearings Monday into the preliminary $102.7 billion fiscal 2024 budget with testimony from some of the city’s top financial officials.
The 51-member Council focused on the city’s efforts to fill vacant positions across its agencies, and to address union wage demands and hybrid work rules. It is holding a series of public hearings this month on the preliminary plan that Mayor Eric Adams released in January.
The mayor will release his revised executive budget by the end of April; the council will issue its response and then hold a second round of hearings in May.
After that, they will negotiate adjustments with the mayor and his Office of Management and Budget. By law, the council must vote on a balanced budget by July 1.
“The preliminary budget is balanced by closing a projected $2.89 billion gap in fiscal 2024 with $1.46 billion in additional resources from fiscal 2023, along with increased revenues in fiscal 2024 of $738 million and $690 million in expense savings,” Council Speaker Adrienne Adams said at the Finance Committee meeting.
“While the increased revenues are promising, a key component of the administration’s approach gives reason for concern. As part of the preliminary budget, the administration directed certain agencies to eliminate half of their vacant positions,” Adams said. “These reductions call into question the city’s ability to provide essential services that support New Yorkers.”
Dr. Jacques Jiha, director of the Mayor’s Office of Management and Budget, said the preliminary budget was a product of its times.
“The preliminary budget was crafted in response to economic headwinds and fiscal uncertainty,” he said. “While the city’s tourism industry and labor markets rebounded, record high commercial office vacancies and weakness on Wall Street were a drag on tax-revenue growth.”
The city also has to fund “the asylum seeker population,” which continues to increase, with no “real” financial assistance from the state or federal government, he said.
Almost all of the savings in the plan came from a vacancy reduction initiative, he said, but city agencies will still have the ability to fill the more than 23,000 positions currently vacant.
Since the preliminary plan was released, Jiha said, the city reached an agreement with District Council 37, one of the city’s largest municipal labor unions, for 2021 through 2026, providing 3% annual raises retroactive to May 2021 and 3.25% in May 2025.
The $4.4 billion cost “is offset by funding already in the city’s labor reserve, for a net budget impact of $2.9 billion through fiscal 2027,” Jiha said. “The cost to the city of applying the DC37 framework across the workforce is about $16 billion and will be reflected in the upcoming financial plan.”
Elizabeth Brown, communications director at the NYC Independent Budget Office, said the union agreement also includes a $3,000 one-time ratification bonus for members as well as implementing a work from home pilot program.
She said if all unions were to settle for a similar pattern, IBO estimates the additional cost to the city would be about $2.4 billion in 2023, $2.0 billion in 2024 and grow to $4.8 billion in 2027.
“Assuming no other changes to the budget, this would sap all but $318 million of our 2023 projected surplus, and result in a budget shortfall of $1.9 billion for 2024,” she said. “Outyear gaps would increase to $6.2 billion in 2025, $7.9 billion in 2026 and $7.6 billion in 2027.”
Comptroller Brad Lander said the city’s economy has proven resilient despite the pandemic’s disruption and tighter monetary policy from the Federal Reserve.
“Our updated forecast projects an economic ‘soft-landing,’ with national and city’s economies slowing down, but avoiding a recession,” he said.
Jiha said the budget has $8.3 billion in reserves, which includes $1.6 billion in the general reserve, $250 million in the capital stabilization reserve, $4.5 billion in the retiree health benefits trust fund and $1.9 billion in the rainy-day fund.
Both Jiha and Lander noted Fitch Ratings upgraded the city’s general obligation bond rating to AA last month, citing a strong economic recovery and rising long-term reserves.
The city’s GOs are also rated Aa2 by Moody’s Investors Service, AA by S&P Global Ratings and AA-plus by Kroll Bond Rating Agency.
Lander urged more work on the reserve front, including “regular deposits into and codifying withdrawals of the city’s rainy-day fund,” he said. Acknowledging “the council and the mayor made the largest deposit ever into reserves,” he still urged adoption of a formulaic approach.
Jobs have returned to 98% of their pre-pandemic peak in the city, he said, with health care and information technology above pre-pandemic levels.
“However, jobs in the arts, retail and accommodation and food services remain 13% below pre-pandemic levels,” Lander said.
Jiha noted that since the preliminary plan was released, the city faces new challenges, like proposed cuts in the governor’s budget and the rapidly growing asylum-seeker costs.
“For perspective, the [mayor’s] executive budget will be released in just 51 days, giving us limited time to marshal the substantial resources we will need to stay balanced in fiscal 2023 and 2024,” Jiha said.
The city will also see the ramping down of COVID federal grant-related spending. The city spent $18.8 billion of this money through fiscal 2022, with $7.6 billion remaining in the current financial plan, according to the comptroller’s office.
Jiha also pointed out the possible negative effects the proposed state budget could have on the city’s finances.
“We did not foresee the over $1 billion in annual cuts and cost shifts that are proposed in the governor’s fiscal 2024 executive budget, which will significantly impact the city’s Medicaid reimbursement and our annual MTA contribution,” he said.
State lawmakers are currently negotiating Gov. Kathy Hochul’s $227 billion executive budget proposal for fiscal 2024, which she unveiled in January. The state’s fiscal year begins on April 1; last year, the state budget was approved a week late.
“We have now welcomed almost 50,000 asylum seekers and are caring for over 30,000. To be blunt, meeting these obligations is rapidly consuming a massive level of resources,” Jiha said.
“We face these unplanned, new, and ongoing needs at a time when the city’s tax revenue growth is slowing, and many economists fear that the economy is on the verge of a downturn,” he added.
The city is one of the biggest issuers of municipal bonds in the nation. In the fourth quarter of fiscal 2022, it had about $38.8 billion of general obligation bonds outstanding. That doesn’t include various agency debt, such as the Transitional Finance Authority or the Municipal Water Finance Authority, which have $44 billion and $32 billion outstanding, respectively.