A few months into its third full fiscal year since the pandemic’s start, New York City’s finances have never looked so flush — and, at the same time, so precarious.
That decidedly mixed message was the main takeaway of Tuesday’s annual meeting of the state Financial Control Board.
Chaired by the governor, with other ex-officio members including the mayor and both city and state comptrollers, the board is a legacy of the city’s brush with bankruptcy in the 1970s. Although its actual “control” of city finances ended in the early 1980s, state law still requires the board to certify that the city budget is balanced under general accounting principles (a more stringent requirement than the state imposes on itself), with no delayed debt payments, deficit borrowing or other fiscally funny business.
Mayor Eric Adams used his first FCB meeting to repeat favorite budget talking points: Rolling over a big surplus in the recently ended 2022 fiscal year, he produced “manageable” out-year budget gaps and squirreled away a record $8.3 billion in reserve funds.
In reality, as the board presentations made clear, those reserves may not stretch very far.
Both state Comptroller Thomas DiNapoli and city Comptroller Brad Lander could point to their own staff estimates of cumulative city financial “risks” reaching about $12 billion over the next four years. Fully half of the unaccounted-for spending consists of higher pension costs to make up for retirement-fund investment losses in the fiscal year that ended June 30.
Add to those risks the very real possibility of a recession — which, DiNapoli noted, could reduce revenues by up to $4 billion based on historical experience. And on top of that, there’s the likelihood that the next round of city labor agreements will call for average raises exceeding the mayor’s projection of 1.25% a year.
Incredibly, however, the presentations all but ignored one very imminent, significant budget variable — a pending lawsuit aimed at reopening the budget process and forcing the city to increase school spending by up to $469 million this fiscal year, restoring “cuts” driven by falling student enrollment. Oral argument in the suit is scheduled in a mid-level state appellate court at the end of this month; until then, the agreed-to $101 billion city budget is not completely settled.
Adams missed a chance to seize on the school-funding dispute to expose the inconsistency (to put it kindly) of Comptroller Lander’s position, in particular.
Wearing his fiscal-watchdog hat, Lander has called on the mayor to put aside more money in reserves. Lander the progressive pol has been a leading advocate of higher school spending, claiming in his prepared FCB remarks that the city could use unspent federal stimulus funds to offset planned reductions to individual school budgets. This would simply be a timing change, ultimately adding to the financial “risks” his staff has already projected.
Another snoring elephant in the meeting room was state legislation, passed but not yet signed by the governor, that would reduce class-size limits in city schools — at an estimated cost of up to $1 billion a year. Locked in an election campaign, Gov. Kathy Hochul recently said she’s “inclined to be supportive” of signing but would like to “work out a few more details with the mayor.”
In fact, any version of a mandatory class-size reduction worthy of teacher union support — the chief reasons for its appeal to Hochul and other wrist, after all — would represent a significant addition to the city budget. Rather than using the control-board meeting as a platform for at least subtly making the dollars-and-cents point, Adams chose to make nice, closing the meeting with praise for “the uniqueness of having a relationship where a governor and the mayor like each other” — a not so-veiled reference to Gov. Andrew Cuomo and Mayor Bill de Blasio.
Speaking of Cuomo: The former governor broke with 35 years of nearly unbroken precedent and never chaired any of the 11 annual control-board meetings conducted just outside his office door.
Credit Hochul with at least showing up. But it’s likely to take a lot more to keep the city on an even keel over the next few years.
EJ McMahon is a Manhattan Institute adjunct fellow and founding senior fellow of the Empire Center for Public Policy.