Contain Spending Growth 

1. Limit spending growth to inflation: City-funded spending grew 6.1 percent in fiscal year 2018, more than three times the rate of inflation, and is projected to increase 6.4 percent in fiscal year 2019. An increase equal to inflation would limit the City-funded spending increases to 2.5 percent in fiscal year 2020.²  Achieving this will require restraint in hiring and a vigorous Citywide Savings Program. 

2. Better management of personnel: Since half of the City’s expenditures are for personnel costs, reining in headcount growth is essential to bringing spending growth in line with inflation. From fiscal year 2014 to 2018, city government grew by 28,320 positions and is projected to grow by an additional 6,970 positions in the current year. No additional headcount should be authorized; improved productivity of existing personnel should accommodate new needs and initiatives. The City should also focus on managing personnel costs for current staff: Overtime spending continues at record levels, nearly $1.8 billion in fiscal year 2018, and should be reduced. 

3. More rigorous savings program focused on efficiency:  The Citywide Savings Programs (CSPs) include few savings from enhancing the productivity and efficiency of government operations. The Citizens Budget Commission (CBC) estimates efficiency measures comprise 14 percent of the cumulative savings since May 2015, the first CSP of the de Blasio Administration. Savings totaling 83 percent result from routine and important actions that the City takes as part of managing its finances—refunding debt service, updating spending estimates, and shifting expenditures to the State or federal government when appropriate.³  The CSP should generate recurring operational savings to fund fully any new or expanded programs and should be equal to at least 1 percent of City-funded spending, which would generate about $700 million per year, significantly exceeding previous efficiency savings efforts that have not exceeded 0.2 percent of City-funded spending.

Key Questions

• Does the proposed budget in fiscal year 2020 grow beyond the rate of inflation?
• Is the projected headcount in fiscal year 2020 greater than fiscal year 2019 and the previous fiscal year 2020 plan?
• Will the Citywide Savings Program feature a greater level or share of savings generated from efficiency measures?
• How much funding has been added for new initiatives such as NYC Care, NYC Ferry, and 3K; is it accompanied by additional headcount; and is it offset by efficiency savings?

Build reserves 

When spending growth is contained, surplus revenues should be directed to build reserves needed to weather a recession, or reduce long-term liabilities.   

1. Increase budget reserves: While the economy continues to grow, there are signs of softening; job growth is slowing, and the residential real estate market is sluggish. The City is not adequately prepared to weather a recession. The General Reserve and Capital Stabilization Reserve stand at $1.375 billion in fiscal year 2019. A recession, similar in scope to the previous three, could result in a revenue shortfall up to $16 billion, measured against the four-year financial plan.⁴ Spending should be reduced and budget reserves increased. 

2. Make a deposit to the Retiree Health Benefits Trust (RHBT): The de Blasio Administration deserves credit for its commitment to increasing the trust’s size to a record $4.8 billion; however, annual deposits to the RHBT are typically made at the end of the year and were just $100 million in each of the last two fiscal years. The City should plan for annual deposits at higher levels in each year of the financial plan. The long-term unfunded liability for retiree health insurance and other postemployment benefits, not including pensions, is nearly $100 billion and represents a threat to the City’s long-term fiscal health.⁵ 

3. Reduce long-term liabilities: The City’s aggregate long-term liabilities reached $257 billion at the end of fiscal year 2018; surplus revenues can also be directed to paying off outstanding bonded debt, which totaled $111.0 billion at the end of fiscal year 2018.⁶  

Key Questions 

• Have reserves in fiscal years 2020 through 2022 been increased? 
• Is the City planning to make annual deposits in the RHBT at higher levels? 
• Are surplus revenues being used to retire long-term debt?

Adapt the Ten-Year Capital Strategy to a resource constrained environment 

1. Slim down the bloated capital plan: The City releases a preliminary version of its long-term capital planning document, the Ten-Year Capital Strategy, with the January financial plan in every odd year.  The two strategies released under Mayor de Blasio reached record sizes, $83.8 billion and $95.8 billion.⁷ The scope of the ten-year strategy has been unrealistic, including far more capital investment than the City could manage to undertake, and making it difficult to discern the capital priorities of City agencies.  The City should focus on priority projects and reduce the funding level in the upcoming Ten-Year Capital Strategy. 

2. Invest in critical infrastructure:  Capital investment should be focused on projects that repair and improve the assets upon which businesses and residents rely—roads, bridges, the water and sewer system, and public facilities such as schools—and bring them to a state of good repair (SGR). New initiatives should only be included in the capital plan if they can be justified by a clear return on investment. 

Key Questions

• What is the total Ten-Year Preliminary Capital Strategy?   
• Are most of the City’s ten-year commitments for SGR? How much is devoted to expansion and purchase of new assets? 
• How much additional debt will implementation of the capital strategy require?

Strengthen finances at public authorities 

The financial health of three authorities—the New York City Housing Authority (NYCHA), NYC Health + Hospitals (H+H), and the Metropolitan Transportation Authority (MTA)—remains challenging.  Despite considerable increases in City support, substantial needs persist.   

1. Support implementation of NYCHA 2.0: City operating support for NYCHA has increased significantly; subsidies grew from $62.4 million in fiscal year 2014 to $178.9 million in fiscal year 2018, and nearly $100 million in annual payments from NYCHA to the City have been forgiven.⁸  While this has helped stabilize the authority’s operating budget, NYCHA nevertheless has $32 billion in capital needs over the next five years.⁹ The City unveiled NYCHA 2.0 in December, which provides a solid blueprint for NYCHA’s turnaround, and identifies possible sources for $24 billion in capital funding over 10 years. However, resources and actions on the part of federal, State, and City government, and the involvement of labor unions, are essential to the plan’s success. In addition, NYCHA should be incorporated fully into the City’s affordable housing plan, which would direct additional capital funds to the authority.    

2. Rightsize the H+H subsidy: When announcing NYC Care, a plan to provide care coordination to uninsured New Yorkers at H+H, the City touted the authority’s financial turnaround, citing that it closed fiscal year 2018 with $747 million cash on hand ($137.7 million more than the prior year).  H+H’s financial health ultimately depends on implementation of a substantial plan to close out-year budget gaps that reach $1.8 billion.  Part of H+H’s progress has come from increased levels of City support, which are expected to reach $1.8 billion this year, a 30 percent increase over fiscal year 2014.¹⁰  The City should support H+H’s aggressive turnaround plan while ensuring it is implemented in a fiscally sustainable and responsible manner, with spending increases offset by efficiency savings and new revenues.   

3. Support needed fare hikes and congestion pricing: The MTA’s fiscal outlook has worsened and substantial capital needs remain. The planned biennial fare increases and proposed congestion pricing plan are essential to provide recurring revenue to the MTA.  

Key Questions

• What does the City plan to spend, in operating and capital dollars, to support NYCHA, H+H, and the MTA? 
• Is the City increasing support of NYCHA and H+H by paying the cost of recent labor settlements?

Conclusion

The City has enjoyed the benefits of a sustained economic recovery that is approaching ten years, which allowed it to increase spending and headcount dramatically. Fiscal prudence calls on the City to prepare for a future economic downtown by containing spending growth, increasing reserves, focusing the capital plan, and stabilizing the public authorities.