While federal aid and vaccine distribution has boosted New York City’s finances and optimism for an economic recovery, risks linger at the national, state and federal levels, said the watchdog Independent Budget Office.
“New York City appears poised to emerge from the economic calamity caused by the COVID-19 pandemic,” IBO said in its evaluation of Mayor Bill de Blasio’s $98.6 billion executive budget for fiscal 2022. The 51-member City Council must approve the plan by July 1.
The spending plan is the last for term-limited de Blasio, with 28 council members also prohibited from seeking re-election.
New York received roughly $6 billion of direct aid through the American Rescue Plan and a further $7 billion of education funding from Washington. The city must use both by 2024.
“The influx of stimulus funding makes this plan one of the most consequential city budgets produced in years,” IBO said.
“The priorities set forth and decisions made regarding the current financial plan, specifically with respect to how these stimulus funds are spent, are decisions whose effects will reverberate well into the next administration.”
IBO estimates that about a third, or $4.2 billion, of the federal stimulus funding added to the executive budget is proposed for baselined initiatives that will continue past current plan years, and the expiration of the stimulus funding.
Fringe benefits for city employees and debt service account for much of the spending growth. IBO estimates that from 2021 average of 10.2% annually, adjusted for prepayments of future year debt service costs with current year revenues. Fringe benefits will rise annually by 4.3% on average, according to IBO.
After adjusting for the prepayment of current-year debt service costs with prior-year resources, IBO estimates that the city’s debt service expenses will total $6.3 billion in 2021, or 6.2% of total spending, and that adjusted city debt service will reach $7 billion in 2022, up 10.3%.
IBO projects a $4.1 billion shortfall for fiscal 2023. By law, the city must pass a balanced budget.
By the end of the financial plan period, according to IBO, debt service costs will total $9.4 billion, or 9% of total adjusted city expenditures, an increase averaging 6.1% a year from 2020 through 2025.
In contrast, from 2014 through 2019, actual debt service costs increased an average of 3.2% annually. The projected increase in debt service costs is almost entirely a product of OMB’s estimate of new long-term bond issuance.
The city expects debt service on new long-term bonds issued during the plan period to add about $2.7 billion to debt service costs by 2025, less any savings accrued from the retirement of older debt and refundings that may occur.
OMB’s debt service forecast assumes the issuance of $9.2 billion of new debt in 2022, increasing to $11.4 billion of new debt in 2025, for a total of $42.9 billion of new long-term debt issued during the financial plan period.
City Comptroller Scott Stringer estimates that by 2025, the city will have $23.4 billion more debt outstanding than at the end of 2020, compared with the $12.9 billion increase in the prior five years.