Playing the Trump card: Threat of federal funding cuts dominates NYC budget talks

Mayor Bill de Blasio blasted President Donald Trump’s proposed budget last month, saying it would have “a hugely negative impact on his hometown.” Even before Trump was elected, New York City Council Speaker Melissa Mark-Viverito said last year that he would “drive New York’s economy into a ditch.” Now, one City Council member is even warning that slashed federal funding over the next four years could return the city to its fiscally precarious past.

In the face of such a threat, City Councilman James Vacca said his colleagues should reject funding requests and instead stockpile savings. Vacca went so far as to invoke the Daily News’ “Ford to City: Drop Dead” headline from 1975 when President Gerald Ford refused to back bonds to a city on the brink of bankruptcy.

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“Some people are going to have to hear the word ‘no,’” said Vacca, a member of the City Council’s budget negotiating team. “We have latitude, but going down the road, it might not be an issue of latitude; it might be an issue of resources. … I was a district manager to a community board when we laid off policemen and firemen and teachers back in the ’70s and ’80s, and those were very difficult days for our city. And it was about that time, the president, Ford, that famous headline, when he told us to drop dead.”

But is New York City’s financial situation really so dire?

In short, no. To begin with, New York City’s current fiscal outlook simply does not compare to the tumult it experienced in the 1970s, experts say. Even during its more recent crises, the city weathered much deeper declines in revenue. In the wake of the 9/11 terrorist attacks, for example, the local economy was hammered. “I mean you're talking about a period where the city was in a recession compounded by a terrorist attack within the city to compound the effects of the recession,” said Maria Doulis, vice president of the Citizens Budget Commission. “We're not looking at anything of that magnitude.”

Some even argue that City Hall’s Trump-centric message distracts from the fact that local budgeting practices, if improved, could provide the fiscal flexibility needed to adapt to looming federal cuts. “The city budget (and) the state budget have a lot of problems and challenges, but now they can just point to these cuts and say, ‘Well this is our big problem,’” said Nicole Gelinas, a senior fellow at the right-leaning Manhattan Institute. “Proposing this level of unrealistic cuts just adds a whole new level of distraction.”

"If Donald Trump unleashes an assault on the city of New York, we’re not going to be able to make all of that up in savings or efficiencies, nor should we have to." – New York City Councilman Jimmy Van Bramer

Yet city officials have been almost singularly focused on the specter of federal cuts when discussing their own budget for the upcoming fiscal year, which begins July 1. And budget experts acknowledge that pushing back against the federal cuts makes sense: If the president’s plan were enacted, the city would struggle to make up for every federal dollar they lost.

New York City politicians have been especially critical of Trump targeting sanctuary cities that limit how personnel and resources are used to enforce federal immigration law. Trump issued an executive order which would ensure that sanctuary cities “do not receive Federal funds, except as mandated by law,” although it’s unclear how far that will go.

New York City is expected to receive $8 billion in total federal funding, excluding money related to Hurricane Sandy recovery. That amounts to 10 percent of the city’s budget this fiscal year, according to the New York City Independent Budget Office.

But losing that entire chunk of money seems unlikely, since legal experts believe Trump can only pull funds related to the specific policies his administration is trying to enforce, in this case, money tied to immigration and deportation. Much of that funding comes from the U.S. Department of Justice, and U.S. Attorney General Jeff Sessions recently said sanctuary cities could be disqualified from the department’s grants. But de Blasio contends this sort of blacklisting would not be permissible, and pledged to challenge it in court. De Blasio’s office said $52.7 million in Department of Justice grant funding is included in the city’s current budget.

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Sanctuary city status aside, it’s no surprise the president’s proposal provoked a backlash in New York City, Gelinas said. For one thing, it targets urban areas with more public housing, child poverty and mass transit. The proposal also calls for curtailing money the city uses for counterterrorism, public health, teacher training and after-school programs. It would completely eliminate the Community Development Block Grant program, which is expected to fund nearly 30 percent of the city’s Department of Housing Preservation and Development next year and has funded everything from literacy courses to parks’ administrative offices. Trump’s plan also endangers capital funding pools the city has dipped into for transit, traffic safety and public housing projects.

But at most, Trump’s current plan could cut between $535 million and $760 million of the city’s roughly $85 billion operating budget, according to analyses from the de Blasio administration, the city comptroller’s office and the IBO. These estimates assume only U.S. Department of Justice grants are at risk for sanctuary cities. Outside of the city’s operating budget, New Yorkers stand to lose funding for the New York City Housing Authority, capital projects and Section 8 housing vouchers.

That infamous Daily News headline has been revived as “Trump to City: Drop Dead,” but fiscal experts agree that the budget pinch facing the boroughs today is nowhere near as dire as what transpired in 1975. At the time, banks would not lend to the city because they did not believe there were real resources behind the obligations. Municipal unions chipped in by backing the city’s debt with their pension funds, and Ford later signed legislation making federal loans available to New York City. Meanwhile, the state placed the city’s budget under a virtual receivership while taking over city colleges and other organizations. The city laid off a significant portion of its workforce and severely cut services.

“I actually was at negotiations with the Treasury Department, and they provided, in November of that year, just what was essential to avoid the bankruptcy of the city of New York,” said Richard Ravitch, who represented New York City during that crisis. “And there isn't any city, major city … that I know of, on the verge of bankruptcy. There are a lot of cities that are broke. But nobody expects the federal government to provide the kind of assistance – and nobody's asking for the kind of assistance – that New York got from the federal loan guarantees in 1975.”

Similarly, the revenue hits the city endured in recent years are much more substantial than the $535 million to $760 million sought by Trump. At most, this amounts to 1.3 percent of today’s city-funded budget, which by and large contains money the city is free to spend as it chooses. Federal and state funds, on the other hand, typically are directed for specific purposes. After the 9/11 attacks, city tax revenues declined by $1.6 billion, or about 7 percent, according to the IBO. Tax revenues dropped about 7.2 percent during the Great Recession. Currently, tax revenue is growing and the city is on track to end the fiscal year with a $3.3 billion surplus.

Still, the implications of Trump’s proposal are difficult to gauge. For instance, some federal funding streams are matched by the state, which could magnify the city’s losses. Albany may pass off other federal funding cuts to local governments. At the same time, many believe the Republican-led Congress will restore funding to some of the programs on the president’s chopping block before the federal budget is passed, which could be as early as October.

“Right now, we just have to be very creative in looking at the budget, and acknowledge that we have an X-factor,” said City Councilman Jumaane Williams, a member of the body’s budget negotiating team. “The people are counting on us to get through it. I think they’re counting on us to reject the knee-jerk austerity cuts, to reject cutting back on programs we believe in, and to do that, we have to plan. And we should start now.”

Jumaane Williams during a City Council public safety preliminary budget hearing. (William Alatriste/New York City Council)

Others are less optimistic. City Hall has wide latitude in allocating the roughly $60 billion city-funded portion of the budget, but it has its limits. City departments typically spend the bulk of their budgets on their employees, whose compensation and benefits can typically only be changed through union negotiations – or trimmed through layoffs. The city can raise fees, fines and property tax rates, but cannot modify other taxes without consent from the state. As a result, the first casualties of city budget cuts have often been library hours, arts and cultural organizations as well as after-school and summer youth programs. And some of these frequent targets are already in Trump’s crosshairs.

Every year, hundreds of New York City groups receive funding from the National Endowment for the Arts, the National Endowment for the Humanities and the Institute of Museum and Library Services – all of which Trump has proposed eliminating. The money does not generally flow through the city budget, but tax revenues could drop if tourism dips as museums, art venues and cultural institutions whither, said New York City Councilman Jimmy Van Bramer. “So cultural (organizations) and the arts – the primary driver of tourism in the city – generates the revenue that then pays for all of the programs for the most vulnerable New Yorkers,” he said. “If Donald Trump unleashes an assault on the city of New York, by devastating public housing, public health – I would add as chair of (the Committee on) Cultural Affairs and Libraries – the arts and the humanities and culture, we’re not going to be able to make all of that up in savings or efficiencies, nor should we have to.”

But others argue that the city is capable of cobbling together funding for critical initiatives – and that targeting Trump is a convenient way for local politicians to deflect blame. Assemblyman Charles Barron, who served on the City Council when it drafted budgets in the wake of 9/11 and during the Great Recession, pointed out that the city’s budget is now bigger than all but three states and some countries. “We’re talking about a city budget that’s over $80 billion,” he said, suggesting that superfluous capital projects and certain tax benefits could be mined for money. “They hide behind Trump. Yes, it’s going to be devastating, but we have enough finances in the state and the city to compensate – as a matter of fact, we should have been doing way better, many, many, many years ago.”

Williams noted that some city services said to be threatened by Trump, such as public housing, have been plagued by disinvestment for years at the hands of politicians on both sides of the aisle. “I’m hoping that there’s a lesson here: that in the good times … if we believe in these things, then we should do them,” he said, arguing that funding for NYCHA, enforcement of building codes and heat and hot water provisions, and Section 8 vouchers – or a city alternative – must be maintained. “Our residents and our constituents are expecting us to keep these things funded and going. We have to.”

“They hide behind Trump. Yes, it’s going to be devastating, but we have enough finances in the state and the city to compensate.” – Assemblyman Charles Barron

The city’s next budget will be hammered out by the end of June, months before lawmakers get more clarity on what funding will flow from Washington, D.C. – and, in turn, from Albany. Lawmakers say they want to bolster rainy day funds, so they are ready for anything. City Council Finance Committee Chairwoman Julissa Ferreras-Copeland said she and her colleagues would like to see the city work toward placing about 14 percent of what it spends in reserves. While testifying before the City Council, city Comptroller Scott Stringer said that under de Blasio’s preliminary budget, the city would start the next fiscal year with a cushion of 10 percent of spending, or $8.6 billion. Some budget watchdogs disagree with his calculation method because it includes money saved for retiree health benefits, and the Citizens Budget Commission puts the reserves as low as $1.25 billion. Going by either estimate, the reserves will not get close to the longer-term 14 percent target if de Blasio’s team achieves its goal of finding $500 million in savings across city agencies before the mayor releases his executive budget this spring.

The City Council has presented some cost-cutting ideas as well in its annual budget response, including a potential $35 million in savings by directing all agencies to reduce their energy expenses by 5 percent and another $15 million by renegotiating and consolidating data processing equipment contracts.

On the other side of the ledger, the City Council called for the state to give the city “stand-by authority” to raise $500 million in taxes. Gov. Andrew Cuomo and the Republican-led state Senate have shot down tax plans put forward by de Blasio in recent years. The City Council floated a hike on the personal income tax for New Yorkers earning more than $500,000, a surcharge on e-cigarettes, a sales tax on tickets to theater performances and nixing an exemption on unincorporated businesses’ carried interest.

Ferreras-Copeland told City & State she plans to scrutinize several business tax breaks, including the Industrial and Commercial Abatement Program. Some have questioned whether ICAP and a similar program are needed because they have gone to projects that do not seem to need the help, and they are expected to cost the city $734.3 million in foregone revenue in 2017. “I wouldn’t sound all the alarms right now, but definitely, I think it’s a time for caution,” Ferreras-Copeland said. “Some of the tax breaks that we’re giving, that’s a great opportunity to save. And some of this we can’t legislate ourselves, we’re going to use our partners in the state to give us authorization to accomplish some of these revenue savings.”

Independent of the state, the city could negotiate workforce changes with unions, according to Doulis of the Citizens Budget Commission. “It is difficult, but it is the sort of change that’s necessary if you’re really going to see savings and efficiencies in government on a grander scale,” Doulis said. For instance, the IBO estimated the city could save $664 million within three years by increasing employees’ work week from between 35 and 37.5 hours to 40 hours. The contract for the largest municipal union, DC 37, is slated to expire in July, when elected officials will be gearing up for primaries. Bob Linn, the city’s labor relations commissioner, said federal funding uncertainty may hinder his ability to begin negotiating and reach agreements to quickly replace expiring ones.

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The biggest impact on the city’s coffers will come from other factors entirely beyond its control, such as broader economic trends and federal tax policies, experts said. And in that sense, Gelinas said the president might actually turn out to be as threatening as city lawmakers are trumping him up to be.

“The incompetence in not being able to get a budget done is probably good for the city,” Gelinas said, referring to the federal budget process. “The incompetence in not being able to get anything through Congress is a bigger risk on the tax side and the infrastructure side. … All of these investors have expected deep tax cuts, and tax reform and a big federal stimulus. If those things don’t seem to be coming through, we could see the investors start to adjust their expectations, the stock market go back down, and that could really hurt the city.”