A mixed budget message

Mayor Bill de Blasio’s executive budget and accompanying four-year financial plan send a mixed message about New York City’s fiscal outlook.

For the short term, economic performance and local revenues are exceeding expectations this year. As a result, a surplus of nearly $3.4 billion can be “rolled” into next year to create a reserve and support increased spending that accommodates a variety of campaign commitments and new priorities. For the longer term, it warns of more difficult times with less revenue growth and the need for more efforts at savings through efficiencies. The mayor’s plan is that the increased spending next year will be sustained in a less prosperous future through implementation of an enhanced Citywide Savings Program and other gap-closing measures; but the potential danger is that many of the anticipated savings are uncertain, putting future budget gaps at risk of mushrooming.

City-funded spending in fiscal year 2017 will be $2.5 billion greater in than fiscal year 2016 (not including $1.5 billion in reserves). Some of this increase had already been planned, but the executive budget adds $1.2 billion to agency appropriations in fiscal year 2017, including $339 million more for a newly integrated Department of Homeless Services and Human Resources Administration reporting to a single commissioner of social services; $217 million more for the Department of Education; and $160 million more for New York Health + Hospitals. The city will also forgive Health + Hospitals’ debt service payments, worth $180 million in fiscal year 2017, and more in later years. In most cases the new funds support important administration goals to improve social services and education, but the additions also include efforts to support City Council priorities such as $17 million more for parks staffing.

The added spending creates problems beginning in fiscal year 2018, when the $3.4 billion “surplus roll” from good times is exhausted and revenue growth slows. Recognizing signs of a slowing national economy, the financial plan cautiously relies on conservative revenue projections. Tax revenue growth is projected to slow from 4.7 percent in fiscal year 2018 to 4 percent in fiscal year 2020 compared with growth averaging 6.5 percent from fiscal year 2009 to 2016. The mayor plans to cope with the squeeze by including a $1 billion reserve in each year and by nearly tripling the scale of the recently initiated Citywide Savings Program’s goals for future years. That plan is expected to reduce spending in fiscal year 2020 by nearly $1 billion, a big jump from the $279 million anticipated in January. However, even with the more ambitious savings plan, the city faces budget gaps ranging from $2.2 billion to nearly $3.0 billion after fiscal year 2017.

Two major risks that could cause the gaps to mushroom are a failure to achieve all the savings in the Citywide Savings Program and an inability to implement a viable financial plan for Health + Hospitals. The former risk is serious because a significant portion of the new elements in the Citywide Savings Program is speculative. Notably, $300 million in annual savings depend on the city convincing the state to share Medicaid savings derived from provisions of the federal Affordable Care Act that increase federal funding for some Medicaid enrollees. However, an agreement about this initiative with the state – which controls the Medicaid program – has not been reached.

The mayor’s plan also counts on identifying and implementing a solution to Health + Hospitals’ current fiscal crisis. This fiscal year the mayor has bailed out the hospital system with $497 million in emergency support, and the plan commits $180 million annually in future years. But the agency faces projected deficits growing to $1.8 billion in 2020, and its previous plan to close that gap has not been working. A plan developed with the aid of consultants was released along with the mayor’s budget, but the document identifies general strategies rather than specific savings initiatives. A newly appointed commission is being asked to fill in the blanks to create a viable plan; failure to follow up effectively and move quickly to stop the bleeding of cash at Health + Hospitals will impede the mayor in his efforts to keep the city’s budget balanced in the potentially difficult years ahead.

Charles Brecher is the director of research at the Citizens Budget Commission.