NYC Comptroller Brad Lander Proposes Formula for Annual Deposits into City’s “Rainy Day Fund,” Requiring Additional $1.8 Billion in Reserves This Year

New York, NY— New York City Comptroller Brad Lander proposed a policy framework to govern the City’s Rainy Day Fund, including a formula for annual deposits. According to this formula and the Comptroller’s Office projections, the City should deposit a total of $2.5 billion to the Revenue Stabilization Fund in FY 2022, $1.8 billion above the $700 million already allocated in the Executive Budget. The Comptroller’s office projects a $3.1 billion surplus this year, which makes this deposit possible. Comptroller Lander will discuss the City’s fiscal cushion, tax revenues, and spending plans during his testimony to the City Council on Tuesday, May 24.

“As we end this fiscal year amidst uncertain economic times, our City’s tax coffers have done remarkably well: property values have rebounded, job growth has continued strongly, personal and business income taxes have reached new peaks, and the sales tax have grown as we re-open our economy. Yet despite much better-than-anticipated FY 2022 tax collection, this year’s executive budget only adds drops to the Rainy Day Fund bucket. With rising inflation, still-too-high unemployment, a declining stock market, and so much long-term uncertainty, our economy is facing headwinds. New York City will need strong reserves to weather future fiscal storms,” said Comptroller Brad Lander.

State legislation authorized the City’s Revenue Stabilization Fund (aka the Rainy Day Fund) in 2020, but there is neither a target size for the fund nor guidelines for annual deposits and withdrawals. Comptroller Lander proposes a policy framework that would shield the Fund from the vicissitudes of the annual budget process, which historically fail to prioritize long-term needs.

The Comptroller proposes establishing a target of sixteen percent of the City’s total tax revenues for the Revenue Stabilization Fund (RSF) in order to weather the full length of a recession. A lower-level target of 10 percent of taxes would stabilize tax revenue for two years into a recession. To reach this target, he proposes a model—based on a Commonwealth of Virginia policy that is viewed as a best practice—that would base annual deposits on excess tax revenues. Each year when the City’s non-property taxes (i.e. personal income, sales, business and other taxes, which tend to fluctuate year-to-year more than the property tax) grow above the previous 6-year average, 50 percent of the difference would be deposited into the Rainy Day Fund.

For FY 2022 ending on June 30 due to strong non-property taxes revenue this year, the formula would require depositing $2.5 billion into the RSF, which is $1.8 billion more than the $700 million currently set aside in the Executive Budget. This is both reasonable and prudent, as the Comptroller’s office forecasts a $3.1 billion surplus for this fiscal year. For FY 2023, both OMB and the Comptroller project lower non-property tax collections, and therefore the City would not be required to make additional deposits into the RSF, according to the formula. However, if those tax collections were to grow above the previous 6-year average, 50 percent of the difference would be deposited.

Placing $2.5 billion into the RSF this year would bring the Fund to $3 billion. Combined with the projected balance in the Retiree Health Benefit Trust, both Funds together would reach 10.0% of total tax revenues and be enough to weather two years of a recession without drastic cuts to urgently needed City services. At present, based on the Executive Budget proposed by the Mayor in April, the RSF and the Retiree Health Benefit Trust together will have a combined balance of $5.1 billion, or only 7.3% of projected tax revenues, enough for less than 18 months of revenue stabilization.

Lander continued, “Rather than allowing our reserves to be dictated by the vagaries of annual politics as we have done for too long, we should establish and hold ourselves accountable to clear rules for savings in times of growth to ensure we have enough to fund critical services in times of hardship. The lesson of this pandemic and its economic ramifications is that we must be prepared to lessen the harm of future crises. New Yorkers are resilient; our City’s reserves should be resilient as well.”

The analysis, prepared by the Comptroller’s Bureau of Budget, focused on the necessary fiscal cushion to provide stability to the City’s tax revenues through a recession without severe austerity measures. The analysis proposes a formula for annual deposits in RSF and stresses the need for clear guidelines for withdrawals during economic downturns. The recommendations include:

1. Adopting formal, long-term rule-based guidelines to achieve and maintain target size of the Revenue Stabilization Fund—including deposits and withdrawal conditions.
2. Setting a target of 16% of total tax revenues deposited into the RSF to stabilize tax revenues for the full length of a recession, based on the experience in the 2000s.
3. Establishing a minimum annual deposit formula of 50 percent of the growth in the City’s more volatile tax revenue streams—personal income, sales, business, and other non-property taxes—above the previous 6-year average.
4. Depositing $2.5 billion in the RSF for FY 2022, $1.8 billion above the $700 million already scheduled in the Executive Budget, based on this formula.
5. Ending the use of the Retiree Health Benefit Trust as a rainy day fund, and returning it to its original purpose of securing retiree health and welfare benefits.

“The City Comptroller’s report further impresses a point fiscal monitors have been making for some time: the city has a chance to be more systematic in saving when its finances are strong so that it can be better prepared to continue to deliver necessary services when it faces unexpected challenges. The current revenue windfall expected before the end of Fiscal Year 2022 offers a significant opportunity to prepare for an uncertain future. My office has highlighted the importance of strengthening the rainy day fund in the past, and the City Comptroller’s report offers important thoughts on formalizing the mechanism setting aside funds for when they are most needed,” said NYS Comptroller Thomas P. DiNapoli.

“Implementing the Rainy Day Fund right—with mandatory deposits, a target size, and withdrawal limits—is critical to the City’s ability to weather the next storm,” said Andrew Rein, President of the Citizens Budget Commission. “CBC has long championed a true Rainy Day Fund. Comptroller Lander’s proposals and recommendation for a significant deposit this year are smart and will help get New Yorkers behind the proposition that it is important to not spend every available dollar now, but to save a significant sum for the future to protect those most in need when they need it most.”

“The Comptroller’s proposed guidelines for determining the target size and amount of annual deposits into the City’s Rainy Day Fund are thoughtful and should be the basis for the prompt development of legislation. Specific policies and rules for withdrawals are needed as well. But perhaps the most important of the Comptroller’s recommendations is that the adopted budget for FY’22 should include a total of $2.5 billion in reserves—$1.8 billion more than was set aside in the Mayor’s Executive Budget. It is critical that our elected officials refrain from spending all the revenue that is coming into the City in the short-term and set aside enough to protect against the downturn that could well be on the horizon,” said Carol Kellerman, former President of the Citizens Budget Commission.

Read the full report here: https://comptroller.nyc.gov/reports/preparing-for-the-next-fiscal-storm/

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