Yahoo Finance New York City’s Fiscal Crisis That Never Was
(Bloomberg) -- Ten months ago, New York City Mayor Eric Adams warned of the need for “painful” cuts to the city’s budget, affecting everything from early education to trash pickup. He spoke of a looming fiscal crisis spurred by the cost of caring for tens of thousands of migrants flooding the city from the Texas border.
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Turns out, those fears were dramatically overstated. Spending on migrants leveled off after the city began limiting their stays, and an economic recession that was poised to curb tax revenues never materialized. On Sunday, the City Council finalized a $112 billion budget for the fiscal year that started Monday that restores hundreds of millions of dollars in cuts that Adams once said were necessary to help address a $7 billion deficit that’s since been wiped away.
It marks a fourth year that the city’s official revenue projections were markedly underestimated. It also comes after months of contention between officials over a disruptive round of cuts already implemented in November. The New York Public Library, which suspended its Sunday service, pleaded for donations to help offset the loss in funding, while some museums and cultural institutions that rely in part on the city struggled to maintain staff and programming.
“The smaller organizations, some of them were just devastated,” said Lucy Sexton, the executive director of New Yorkers for Arts and Culture. She cited Kyoung’s Pacific Beat, a small theater reliant on public funding, which dissolved itself earlier this year. “Many got zeroed out, so they got nothing. They’d received tens of thousands of dollars for many years in a row, and they got nothing.”
Under the new budget, public libraries will be able to remain open seven days a week and the city’s cultural institutions will recoup $53 million dollars slashed from their operating budgets. New recruit classes for the police department are going forward and trash pickup at thousands of litter baskets has been restored. Early childhood education programs will recover three-quarters of $400 million in cuts that have been made since Adams took office.
While the reversal was first signaled in a preliminary proposal Adams put forth in January, the finalized budget is far rosier, and larger, than even the most optimistic prognosticators estimated. A mix of cost reductions related to sheltering migrants, other money that was budgeted but unspent, and a windfall of almost $7 billion in higher than anticipated revenues from taxes and fees for the two years ending July 2025 have virtually wiped away the $7.1 billion deficit the city faced this coming year.
“You always want to do things differently, but life is not about looking in the rearview mirror. It’s the front windshield that matters,” Adams said in a television interview on PIX 11 Monday. “We sit in a room and we look at the money coming in and the money coming out, and then we make these tough decisions.”
The alarm-ringing began in the middle of last year, when Adams warned the city faced dire financial circumstances and the potential for multibillion-dollar deficits because of its legal obligation to provide shelter for the migrants. Officials resorted to unprecedented measures to reconcile with a surge of what is now more than 200,000 people in two years, including setting up a 2,000-person shelter tent complex on Randall’s Island and opening hundreds of emergency shelter sites.
Soon after, the Adams administration began implementing time limits on shelter stays and struck a deal to temporarily modify the city’s right-to-shelter mandate, allowing officials to deny housing extensions on a case-by-case basis. The number of migrants in the city’s care has since leveled off — at about 65,000 — as have the costs.
Meanwhile, nearly every category of tax revenue — personal income, corporation, property and sales taxes — has performed better than anticipated, an outcome budget and city officials attribute to expectations of a recession that never materialized.
Too Conservative
City budget officials tend to budget conservatively, a practice that has helped ensure the city’s financial stability since the fiscal crisis of the 1970s, and many economists were still predicting a national recession last fall, when Adams first proposed his drastic budget cuts.
But revenue forecasts have also been consistently understated by a larger degree since the Covid-19 pandemic, according to data compiled by Bloomberg of projections from 2012 through 2023. Under director Jacques Jiha, the Office of Management and Budget has underestimated city revenue by about 10%, or about $7 billion, each year since 2020.
Other city entities including the comptroller’s office, City Council, and the Independent Budget Office, have also struggled in their forecasting since the pandemic, but to a lesser degree. In recent months, they’ve been increasingly voluble about the disparity with the OMB. City Council finance chair Justin Brannan blasted Adams’s rhetoric for being “out of step with the math,” he said in January.
In March, the City Council released a revenue forecast for the fiscal year 2024 and 2025 that overestimated tax revenues by $140 million, while the OMB’s November estimate fell short by $5.8 billion.
In an apparent jab at the difference in forecasts, City Council Speaker Adrienne Adams — who has clashed with Adams over cuts — touted her council’s prognostications.
“We believed in the strength of this city and our resilient economy,” she told reporters Friday. “We were clear about the challenges but we were also clear that we have the resources to invest in New Yorkers and protect what they rely on.”
The city faced extraordinary financial challenges in addition to the swelling costs related to asylum seekers, such as unsettled contracts with unionized workers and programs that had been funded with federal stimulus dollars from the pandemic that have since expired, according to Adams administration officials.
“We must make cautious revenue forecasts because we cannot afford to be wrong — vulnerable New Yorkers count on the stable delivery of city services, which could be risked by fiscal mismanagement,” City Hall spokesperson Amaris Cockfield said in a statement. “Independent fiscal monitors and rating agencies routinely cite cautious revenue estimates as a critical element of the strong fiscal management practices that have guided this city through more than 40 consecutive years of balanced budgets.”
Last month, the nonpartisan outside budget watchdog group the Citizens’ Budget Commission, which typically advocates for conservative budgeting, raised the question of whether the Adams administration was being too cautious in its revenue projections.
“The question is whether OMB has been so overly conservative that it’s distortionary,” said CBC President Andrew Rein. “At a certain point it gets so conservative that it’s not accurate.”
Election Year Budget
This budget is the last one that will be finalized before the Democratic primary for mayor in June 2025, which may draw a slew of potential challengers, including former city comptroller Scott Stringer, Brooklyn State Senator Zellnor Myrie and current comptroller Brad Lander. In recent months, they’ve used Adams’s planned spending cuts as a cudgel to question his leadership.
A Slingshot Strategies poll of 1,424 New York City Democratic voters taken in June found 55% of those polled disapproved of Adams’s performance as mayor, and 51% disapproved of the way he handled the city’s budget.
About 70% of voters said they disapproved of his cuts to the city’s public libraries, which led the libraries to end service on Sundays.
Adrian Benepe, president and chief executive of the Brooklyn Botanic Garden, said while he’s grateful the city has restored the proposed cuts to his budget, “that doesn’t bring back all the things we didn’t do,” including the institution of a workforce development program and a program for people with cognitive issues. The garden also froze hiring, which resulted in a 7% reduction in staff.
“It was such a small piece of the overall budget,” Benepe said by phone. “I understand why they did it, but it impacted a lot of people.”
--With assistance from Fola Akinnibi and Esme Fox.
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