DiNapoli: New York City and state’s recovery is falling behind

State Comptroller Thomas DiNapoli’s office spends much of its time monitoring New York’s fiscal health, providing monthly updates on the state’s economic recovery. When the coronavirus pandemic hit and many employees suddenly lost their jobs, including in the restaurant and retail industries, DiNapoli’s office created online dashboards that tracked job reports from the past 20 years about how a variety of sectors in New York City were hurt by the pandemic. The intent was to uncover weak spots in the recovery and track the progress that has been made.

City & State sat down to speak with DiNapoli on March 14, one day before his office announced the results of an audit into former Gov. Andrew Cuomo’s administration undercounting COVID-19 deaths among nursing home residents. In the interview, he discussed the work done by his office during the pandemic, how money from the Infrastructure Investment and Jobs Act and the American Rescue Plan are being prioritized and where the recovery stands two years later.

This interview has been edited for length and clarity. It will be aired in its entirety online during City & State partner Route Fifty’s State of the States event on March 21.

As the state’s chief fiscal officer, you ensure the state and local governments use taxpayer money effectively. Your office also monitors New York City’s fiscal health. Could you please provide an update on where the recovery stands?

Overall, I’d say we’re in a much better place both for New York City and New York state today than we thought we would be in, if you go back even just a few months ago. There’s no doubt that the federal money has been incredibly impactful. It’s obviously not the only reason for our stronger financial condition and the strength of our recovery, but it is a big part of it. Certainly from a government revenue perspective, both for local governments and for the state government, the money that we’ve gotten from Washington has really turned what was expected to be a year of budget cuts and retrenchment to a year of, at least at this point, budget surpluses.

As Albany works on getting the budget done for the coming year, it’s very different than it was a year ago. That is certainly directly attributed to the impact of the federal aid that we’ve gotten. You know, we have to keep in mind the broad context. New York as a state and New York City were hit first and hardest by COVID. So it’s no surprise it has taken us longer to recover than other parts of the country. The last numbers I saw from a job recovery perspective showed the state (has gained) back about 74% of the jobs that we lost. If you look at the 2 million jobs we lost at the depths of the impact of COVID on the economy, the national numbers are more like 90% or above. So we’re lagging the national numbers. And New York City, I believe, is around just around 70%. So the city’s job recovery is lagging the state. The state numbers are lagging the nation. So we have a ways to go. But there’s no question that the federal money targeted for certain industries and sectors has made a huge difference.

How has your office provided guidance on American Rescue Plan spending, and how is it being overseen across the state?

What we’ve been doing are a couple of things. First of all, for our local governments, we’ve issued a bulletin to keep them informed about how they have to account for this money. We also have with our audit team been working with the various state agencies to let them know how this money has to be accounted for. We’ve also set up what we call a federal tracker, where on a monthly basis we’ve identified the various significant federal funding streams that are coming into New York and we identify the program, by category, the amount of money allocated to New York, and then the amount of money that’s gone out the door. Certainly with some of the initial funding in some of the programs, there was some concern that the money was here, but it wasn’t getting out the door fast enough to provide the assistance and support that was expected to come with it. Doing the federal tracker is certainly not an audit in the traditional sense of what an audit would be, but it is a way to shine a spotlight on how quickly we’re processing the money and getting it out the door.

How are local governments prioritizing this funding?

Well, it’s in various ways. New York is a big and diverse state, a very complex state. Local governments range in size from our smallest one with about 20 residents to obviously New York City, which has its own multibillion-dollar community. So the priorities are different, depending on the community and what the needs are. In terms of the totality of the federal money, the big discussion right now is on infrastructure and the priorities within infrastructure. Again, it varies from community to community. Particularly in our many rural areas, roads are probably the No. 1 area of concern. But what we’re also hearing is an increased emphasis on environmental infrastructure. So, money to be spent on projects that have been delayed to deal with drinking water supply, wastewater. These issues are rising to the fore. And I think across the board, there’s a real desire coming out of COVID to prioritize support for broadband access. New York state is ahead of many other states in having broadband access, but we found that 14% of the households in the state do not have broadband access. And during COVID, we learned the hard way the importance of the internet and access to the web and cell service. It’s an interesting combination in our rural areas. It’s often the question of the physical infrastructure.

In the more urban areas, it’s very much tied to household income. So, low-income people, those living in rural communities as well as seniors are the ones who seem to be most left behind when we talk about the broadband issue. You’re even seeing in the state budget a proposal for new funding for broadband access. Certainly that is a priority.

On the other side of the ledger, local governments, particularly the state, also New York City, really have been trying to prioritize support to small businesses to have them get back on their feet – whether that’s restaurant or retail loans to small businesses that are struggling. There’s no doubt that many of our smaller businesses went out of business as part of COVID. What’s interesting, though, was that you’ve also seen a number of startups of the smallest of businesses, five employees and under. Many of the folks that may have lost their job working for a larger employer seem to be starting their own very small businesses. Support in that area has been a priority for New York City and for local governments across the state as well.

Are there any potential pitfalls ahead to watch out for regarding how this money is prioritized?

I do think the parts of the federal aid that have been the least restrictive is what the local officials have welcomed the most. Certainly for the state, the money that came in directly has helped us with our budget picture. The governor presented a budget plan and a fiscal plan for out years that for the first time in anyone’s memory has no out year budget gaps. And again, that’s not purely because of the federal funding, but that’s a big piece of it. I would say the biggest pitfall would be a concern that we’ve identified, and actually we’ve had some concern with this in regard to New York City’s budget picture, the prior administration made some new investments and programs that would be of a recurring nature, particularly with regard to education, that were being funded because of the federal money and yet the federal money is not forever. The concern we identified in New York City’s financial plan does have out year gaps. Any creation of a new program that’s because of the federal funding, if it’s going to be a recurring program, we have to back it up recurring revenue. That’s a concern that I have, and it’s certainly been what we’ve been saying to the state as our Legislature grapples with the budget right now.

What I’ve said to the local officials, when I participated in their meetings, is that it’s great that we’re seemingly across the board flush with cash right now. But there’s a lot of uncertainty in the economy, for obvious reasons right now. Inflation, the global situation, and so on. You should not be assuming that once the federal money’s spent down that overly optimistic economic projections are going to be the smartest way to ensure that you’re going to have money there down the road. With budgeting, the further out you get, the more it’s based on assumptions. So I do have some worry that it’s not fully recognized that the federal money is not forever. That notion of a fiscal cliff – we’re going this way and the federal money is going to go down. Are we expecting the programs to still have a trajectory of upward spending? How are we backing that up? That’s an important judgment call that state and local officials have to make. I do worry that we’re looking at things with perhaps too rosy of perspective right now.

After the challenges of the past couple years, what have you seen emerge as the strongest economic drivers for New York state?

New York is so big and so diverse. We have so many parts of our economy that are important. I would say this is an area where people may have mixed feelings, but from an economic generator point of view, it’s good for New York: financial services. Even during the bad times of the COVID economic consequences, we saw Wall Street firms and services doing very well. I’ll use the overused phrase, “Wall Street was doing well, while Main Street was suffering.” That’s a concern from a broad societal perspective, but from a more parochial perspective of revenue to New York, financial services generate about 18% of our tax revenue. So if Wall Street is having a rough time, it’s bad for us in terms of all of our programs that want to see support. So the fact that Wall Street has been resilient, even through the toughest time, and continues to be going strong, I think is a positive. Again, we’re not dependent on the securities industry, perhaps as much as we were in the past, but that is still a key driver. The fact that it was so strong, even during the bad times, I think was a very strong positive.

I would say particularly for New York City, the restaurant, retail, broadly defined hospitality and recreation sector, is key. I think one of the challenges to New York City’s recovery is that those sectors have had a hard time coming back, because so much of it is tied to tourism. While certainly you’re seeing more people going into New York City, domestic travelers and day trippers from the region, but a lot of the city’s tourism was tied to foreign travel. Clearly that’s not coming back because of the COVID concerns. That’s creating a struggle for those sectors.

Another piece has been office workers not coming back to 100%, and some of those jobs may never be back to 100% physical presence in an office building. It’s probably too soon to tell. Will the new normal work week be three days a week in the office? What will that mean for those businesses that were tied to having a density of population during the day in the central business district of Manhattan? It’s still an unknown. Again, that restaurant and tourism-related sector, particularly for the city, and retail has definitely been impacted by tourism not coming back to where it once was. We hope that will change, but it’s not there yet.

How about other urban centers and small towns?

They’re struggling? This is a generalization perhaps, but because New York City was hit so very hard, and went down so fast and so far in some ways, some small urban centers weren’t as strong as New York City to begin with. So they were hit, there’s no question about it. But their struggles are different. And many of the struggles predated the pandemic, and those struggles are still there. I would say, though, for our smaller communities, be it a small city or a town or a village even more dependent than downstate on smaller businesses that in addition to the federal aid that targets small business recovery there is the state support. We’ve tried to enhance the money with our pension fund. We have some lending programs and investment programs that are tied to small businesses. For them, there were struggles before the pandemic, they got worse during the pandemic, and we need to provide whatever support we can to help bring them out of it.

What are the impacts of continued rising inflation and the possibility of a prolonged war in Ukraine?

There’s a different reality setting in. Inflation has been a topic of conversation for a while. But the experts going back a few months ago were saying it’s a temporary blip. It appears not to be a temporary blip. How long and what the duration will be, and how much higher we’ll go, we don’t know. And then there’s the complication of the geopolitical situation – the horrendous invasion by (Russian President Vladimir) Putin of Ukraine creates all kinds of uncertainty that we hadn’t anticipated just a few short weeks ago. I don’t have a sense that anybody is changing direction or changing decisions right now. But we put out a report on a regular basis on sales tax collections and for local governments, especially our counties, it’s the most important revenue source and for the state, one of the top revenue sources. And we found, for last year, our local sales tax collections grew by more than 19%. That’s great. On the one hand, it shows economic activity again, consumer confidence, and so on. But part of that, obviously, is the impact of inflation and the higher prices and that drove higher collections. So you have to factor some of that in. And certainly when governments, just like households, are looking at their budgets right now, the cost for energy, fuel, gasoline, this is all something that we have to factor in that we hadn’t expected to do. I don’t think it has resulted in any dramatic shift in terms of priorities. But I do think we’re all going to have to retool our numbers a bit.