Testimony of New York City Comptroller Brad Lander on NYC’s FY 2024 Preliminary Budget and FY 2023-2027 Financial Plan
Good afternoon, Speaker Adams, Chair Brannan, members of the Finance Committee and City Council. I’m glad to be here today to discuss the Preliminary Budget, the state of New York City’s economy, and how we can budget for a thriving future. Joining me today are Executive Deputy Comptroller Francesco Brindisi and Deputy Comptroller for Budget Krista Olson.
This morning we released our report on the Preliminary Budget and Financial Plan (90+ pages which I will briefly summarize here), as well as a report on the impact of City staff vacancies on outcomes per the Mayor’s Management Report.
The City’s fiscal outlook differs significantly from that depicted in the Preliminary Budget for three main reasons: additional costs from the collective bargaining agreement the City recently reached with DC 37, the provision of shelter and services for asylum seekers, and cost shifts proposed by the Governor in the State’s Executive Budget. As a result, before the potential fiscal impact of asylum seekers and of the State Executive Budget, budget gaps are modest and manageable for Fiscal Years 2023 and 2024, and they become significant in the outyears of the Financial Plan.
At the same time, as the “New New York” panel convened by the Governor and Mayor outlined, New York’s future economic thriving depends on significant investments in affordable housing, child care, mass transit, and the public realm. How to navigate these competing realities is the challenge facing the Council and the Mayor in the years ahead.
New York City’s Economy
New York City’s economy has proven resilient despite the disruption of the pandemic and tighter monetary policy. Our updated forecast projects an economic “soft-landing,” in which the national and New York City economies slow down but avoid a recession.
Last month, Fitch Ratings upgraded the City of New York’s General Obligation bonds, which fund our capital program, to AA from AA-, citing our strong recovery and the long-term reserves the Council funded at my urging last year.
Jobs have returned to 98% of their pre-pandemic peak. Health care and information technology are above pre-pandemic levels. However, jobs in the arts, retail, and accommodation and food services all currently remain 13% below pre-pandemic levels.
Cost of living, and specifically housing affordability, is a key challenge for New Yorkers. After a dip at the beginning of the pandemic, asking rents rose to above their previous peak averaging $3,500 over the last few months. Nearly 30% of New Yorkers spend over half of their income on rent. Local inflation has risen 12.8% since January 2020, while the minimum wage has not grown since 2019 – a strong rationale for raising the minimum wage.
New York City is still adjusting to hybrid and remote work, which poses ongoing questions: What to do with now-vacant office space that historically generates a significant share of the City’s property tax revenue? How to fund a public transit system that sees two-thirds of the use it did prior to the pandemic? These questions are opportunities as well as challenges. How can we convert office space to needed housing, or other productive uses, in a timely and cost-effective way? Can we increase bus service to provide transit between neighborhoods as commuting patterns shift?
Comptroller’s Assessment of the Preliminary Budget
The Mayor’s FY 2024 Preliminary Budget totals $102.7 billion. The budget gap of $4.2 billion in the Adopted Plan was resolved through a combination of revenue increases, pre-payments, and a PEG program totaling $1.95 billion of savings. These savings programs resulted in a reduction of 4,374 city-funded positions.
The FY 2024 budget reflects a continued drop in spending with the ramping down of COVID federal grant-related spending. New York City has spent $18.8 billion through FY 2022, with an additional $7.6 billion remaining in the current financial plan. This funding drops from $4 billion in FY 2023 to only $7 million in FY 2027.
City revenues are above plan
On the positive side, with updated property tax receipt information that was not available at the time the Preliminary Budget was released, we project that overall revenues will come in higher than the City’s projections in each year of the Financial Plan. In total, we project that City revenues will be higher than OMB’s projections by $1.38 billion in FY 2023, $2.23 billion in FY 2024, $1.9 billion in FY 2025, $2.19 billion in FY 2026, and $3.61 billion in FY 2027.
Unfortunately, that’s about the extent of my positive fiscal news. To begin with, since OMB released the Preliminary Budget in January, three significant things have changed:
Labor agreement with DC 37
First, on February 17, the City and DC 37 announced a tentative contract agreement. While the January Financial Plan projected raises of 1.25 percent per year for four years, the agreement includes four annual raises of 3 percent, a fifth yearly raise of 3.25 percent, and a signing bonus of $3,000. The raises do not appear to be offset by savings or productivity increases. If this were to be pattern for all other unions, it would add costs of $2.5 billion in FY 2023, $1.8 billion in FY 2024, $3.4 billion in FY 2025, $3.9 billion in FY 2026, and $4.7 billion in FY 2027 for a total of $16.3 billion.
Rising costs for shelter and services for those seeking asylum
Second, the cost for shelter and services provided to asylum seekers is escalating. The January Financial Plan assumed the annual cost to be $1 billion in FY 2023 and zero in FY 2024 and beyond, and also assumed these costs would be covered in full by Federal aid. By February 7, City Hall had projected the cumulative cost for FY 2023 and FY 2024 would be $4.2 billion. State and Federal aid are currently projected to cover only one-quarter of that. And there are still no expenditures projected for the outyears.
New York State Executive Budget would negatively impact New York City
Third, the NY State Executive Budget, while providing partial funding for the cost of sheltering asylum seekers and an increase in school funding, also includes substantial cost shifts, unfunded mandates, and revenue cuts that would negatively impact New York City. The Governor’s Executive Budget proposes to take an additional $526 million from the City to fund the MTA. The demand for additional City contributions to the MTA, beyond what we currently pay, is both unrealistic and unfair. Other localities and their residents who depend on the regional transit system are not being asked to contribute to the MTA’s current crisis.
In addition, the Governor is proposing to take the Enhanced Federal Medical Assistance Percentage (eFMAP) that we and localities across the State have come to depend on to help support the local share of Medicaid costs. Appropriating these funds would be a $468 million hit to our budget over the current and upcoming fiscal year.
The Governor has also proposed lifting the charter school cap and reviving zombie charters, which could ultimately cost the City an additional $1.3 billion a year if fully implemented.
In total, the Governor’s proposed budget would cost NYC $1 billion in cuts and unfunded mandates growing to over $2 billion by 2027 – exacerbating our already widening budget gaps. And that still does not include the cost of implementing the State’s class size mandate legislation enacted in 2022, which requires the City to reduce class sizes in its schools over the next five years.
Additional risks
As in past years, my office has identified many areas of underbudgeting by OMB that are likely to significantly increase expenditures above what is projected in the financial plan. These include funding shortfalls for tuition at existing charter schools, the City’s underfunding of Carter special education cases, pupil transportation, the City’s contributions to the MTA (even before the proposed increase in the Governor’s Executive Budget), and uniformed overtime.
Overall, the Comptroller’s estimated additional expense risk is $2.68 billion in FY 2023, $3.83 billion in FY 2024, $5.81 billion in FY 2025, $7.40 billion in FY 2026, and $8.80 billion in FY 2027.
As a result, despite the revised revenue projection, budget gaps are estimated to grow from modest and manageable amounts this year and next — $1.30 billion (1.2% of expenditures) in FY 2023 and $1.51 billion (1.5%) in FY 2024 – to significant levels in the outyears of the plan — $7.07 billion (6.7%) in FY 2025, $10.22 billion (9.6%) in FY 2026 and $11.66 billion (10.6%) in FY 2027.
And these gaps do not include the additional risks deriving from the cost of services provided to asylum seekers or the fiscal impact of the Governor’s executive budget.
For FY 2023, the City has access to $1.8 billion in the General Reserve and Capital Stabilization Reserve, and the Mayor’s Executive Budget later this spring will likely include additional savings and resources to balance the FY 2024 budget – with some room for restorations of harmful cuts.
In the outyears, however, the size of these budget gaps, along with the need for substantial additional investments in affordable housing, child care, and mental health necessary for the city’s economic thriving, indicates the need for structural interventions on both expenses and revenues.
Critical Needs for FY 2024
Within the City’s FY 2024 Preliminary Budget, I’d like to highlight a few critical needs that can and should be addressed within the contours of a balanced budget.
First, we must make a pivot in how we are approaching the influx of people seeking asylum. For the past nine months, the City has rightly focused the overwhelming share of its efforts on scaling up shelter capacity.
Now, the City must shift its focus to helping people get out of shelter. By rapidly scaling up immigration and employment services, including applications for work authorizations (through a mix of legal representation and pro se assistance from volunteers); and also by accelerating pathways for individuals and families – not only asylum seekers, but beginning with long-term shelter residents – to permanent housing, the City can both help families get on a pathway to economic stability and significantly reduce our long-term costs for the provision of shelter.
Reversing the unnecessary and counterproductive cuts to CUNY and our public libraries is essential to preserving critical programming and resources that New Yorkers rely on. While big picture risks are large, the $20.5 million to prevent cuts to library hours can be found.
To help address high levels of chronic absenteeism for students in temporary housing, I urge the Council to find the funding for the 25 shelter-based education coordinators who are set to lose their jobs in June, and baseline support for the remaining staff into the outyears.
I also encourage the Council to work with the Administration to fund $3 million to strengthen the 6 new English Language Learner transfer school programs put in place this past year (to pay for bilingual social workers, wraparound supports such as legal services, mental health, learn to work) and $10 million over the next 3 years to expand this program to help young adult newcomers get their high school diplomas and continue on to college and/or better paying jobs.
Demand is also high for Promise NYC’s child care for undocumented children. The $10 million this Council allocated last year funded vouchers for half a year (the program launched in January) and we’ve heard there are now waiting lists. Long-term, the State should step in to support this program, but this year the City should allocate $20 million in the FY24 budget for a full year of the program.
A universal curbside composting program is scheduled to roll out in four out of five boroughs over the next twelve months. The success of this program will depend on a sufficient investment in operations and staffing, as well as a robust outreach and education effort preceding implementation.
Making Rainy Day Fund Deposits Automatic
Last year, my office advocated for a new formula for making regular deposits into the City’s Rainy Day Fund, as well as codifying the requirements for withdrawals. While the Council and the Mayor made the largest deposit ever into reserves, you did not move forward toward adopting a formulaic approach, to remove these deposits from the budget dance. I continue to urge you to do so.
City Agency Vacancy Challenges
The FY 2024 preliminary budget includes the impact of several rounds of savings initiatives, primarily through blunt vacancy reductions. While an annual review to identify efficiencies is a necessary component to budgeting, I believe that the across-the-board, eliminate-half-the-outstanding vacancies approach adopted by the Administration is a penny-wise, pound-foolish approach, particularly at agencies where staff reductions are having a demonstrable impact on critical services, as delays in processing food stamp applications at HRA have shown.
In a new brief we are releasing today, Understaffed, Underserved, we identify areas where direct services to New Yorkers and the City’s long-term planning and risk management are being affected by high vacancy rates. Among the 15 agencies with the highest vacancy rates, we found that the Department of Small Business Services, Department of Health and Mental Hygiene, and Housing Preservation and Development are falling farthest behind on the critical indicators they set for themselves in the Mayor’s Management Report.
The Department for the Aging is seeing poor performance on home-delivered meals and case management services. The Department of Finance is taking longer to process SCRIE and DRIE applications. NYC Emergency Management is conducting fewer emergency preparedness drills and tabletop exercises, and – a perennial City Council bone of contention – the Parks Department is completing fewer capital projects on time.
I was glad to see flexible work arrangements, including hybrid/remote work, and targeted salary adjustments for hard-to-recruit positions included in the recent tentative agreement between OLR and DC 37. Both my office and the 5BORO Institute have recommend expediting hiring, allowing hybrid work for appropriate positions, focusing on/considering compensation levels for key hard-to-recruit slots, and designating Chief Talent/Recruitment/Retention Officer(s) to drive this work.
Capital Budget
A few words about the Capital Budget (which, as many of you know, is really my favorite part). The January 2023 Capital Commitment Plan totals $96.55 billion in all-funds authorized commitments for FY 2023 – FY 2027, a $551.2 million (0.6%) increase compared to the September 2022 Capital Plan over the same fiscal years. The major increases are in projects related to water pollution control, sanitation, and citywide equipment, resiliency, and energy efficiency.
The City also released its required Preliminary Ten-Year Capital Strategy, which totals $159.33 billion for FY 2024 – FY 2033. This is an increase of $25.59 billion (19.1%) from the last Ten-Year Capital Strategy published in April 2021. The categories with the largest changes are the Department of Transportation with an increase of $8.43 billion, housing (HPD and NYCHA) with an increase of $7.92 billion, Department of Environmental Protection with an increase of $6.38 billion, and the Parks Department with an increase of $3.13 billion. Offsetting these increases is a projected decrease of $4.80 billion in Education/CUNY related projects.
New York City also has a once-in-a-generation opportunity to draw down funds from the federal Infrastructure Investment and Jobs Act (which, for the first time, allows a focus on local hiring), the New York State Environmental Bond Act, and the Inflation Reduction Act for decarbonization.
These resources, collectively, represent an extraordinary opportunity to improve our infrastructure, to improve our economy, to address the affordability crisis, to get the city ready for climate change, and to create good, union jobs for New Yorkers.
But for that to work, we have to reform the City’s capital process to deliver projects on-time and on-budget. Last week I was in Albany with leaders in the Administration, talking with state legislators about changes needed to streamline capital approvals, improve procurement processes, and manage projects more effectively. My office was proud to update and modernize Comptroller’s Directive 10, and we are registering contracts in record time. Later this spring, I’m looking forward to seeing the first iteration of the long-awaited Citywide Capital Projects Tracker, required by Local Law 37 of 2020, which I was proud to sponsor when I was a Councilmember.
The City must also ensure that projects are equitably distributed to diverse contractors. Our report last week on the still-abysmal share of City contracts going to M/WBE vendors showed that construction lags even farther behind other sectors when it comes to contracting with firms owned by women and people of color.
Strengthening NYC’s Capital Investments in Affordable Housing
The unaffordability of housing represents a real threat to NYC’s short- and long-term economic growth. Unable to find apartments they can afford to rent, let alone buy, more and more young people delay moving out of their parents’ home or starting a family of their own. Business owners have consistently told me that lack of affordable housing for workers across the income spectrum, is a challenge to growing their businesses here. There’s evidence that as many as 10% of Black New Yorkers have left our city, in part to seek more affordable housing options in Southern cities, over the last decade.
As NYC confronts a housing crisis, investing capital dollars at scale in the housing New Yorkers need must be a top priority. I sincerely hope the Governor and State Legislature will agree on a package that includes an ambitious expansion of housing supply, the Housing Access Voucher Program, and good cause eviction protections for tenants. But for the affordable housing NYC families need, significant capital investments are required. As recommended by United for Housing and the New York Housing Conference, the City should allocate at least $4 billion this year for housing, including $1.5 billion for NYCHA, to meet the need. And as we know from past years, allocating that capital funding is not enough, HPD must be adequately staffed to get projects reviewed and construction underway.
We also have an opportunity and an obligation to ensure that City spending on housing construction is making the biggest impact for the people who most need affordable housing. That means targeting our affordable housing dollars to the level of affordability – not subsidizing market-rate development – and investing in housing outside the speculative marketplace that will remain permanently affordable.
New York has a long history with social housing – permanently affordable housing removed from the speculative marketplace – like Mitchell-Lama cooperatives, community development corporations, and supportive housing. In recent years, however, more than 80% of our public land and funding subsidies for housing have gone to private developers. It’s time to reverse that trend and put more of that funding towards nonprofits and community land trusts that will provide housing at price points affordable to poor, working-class and middle-income families.
One place to start in this year’s budget would be revitalizing the Neighborhood Pillars program, which provides low-interest loans and tax exemptions to nonprofits and mission driven organizations to acquire and rehabilitate unregulated or rent-stabilized housing for low- to moderate-income households. What if we added a Mitchell-Lama 2.0 model to the Neighborhood Pillars program, allowing developers to receive capital subsidies, tax breaks, and density increases to create permanently-affordable, multi-family, shared-equity cooperative homeownership?
With an ambitious strategy, I believe we could double the footprint of social housing in New York City in the coming years, and enable a new generation of working-class New Yorkers to become cooperative homeowners.
Planning and Investing for the Long Term
Last fall, the Governor and Mayor brought together 59 business leaders and policy experts to craft a plan for the city’s future. The “New New York” proposal they came up with agreed that we must first invest in the fundamentals that make the city a stimulating place to live, work, and play. They recommended significant investments in affordable housing, transit, child care, climate resiliency, and the public realm in order to insure New York’s long-term economic vitality. For just a moment, let’s allow ourselves to imagine following and building upon the recommendations of that report, to make the investments that we know would help bring about a truly thriving city.
Affordable Childcare
Beyond housing, childcare is one of the largest costs that New York families bear. Working parents need safe, affordable, and reliable childcare. In the years ahead, we must turn our attention to providing affordable care across the age and need spectrum. We should fulfill the promise of universal 3K, by ensuring that adequate outreach is conducted and seats are available in every neighborhood. As providers still struggle to come back from the devastating impacts of the pandemic, we have to do more to ensure childcare providers are paid on time and childcare workers are paid a livable wage.
Mental Health
The pandemic both highlighted and elevated the need for the significant expansion of evidence-based mental health programs, including expanded mental health care in our schools, crisis intervention teams staffed by behavioral health professionals, respite care and drop-in centers, and additional psychiatric beds in our hospitals.
Public Education, Youth Development, and CUNY
During the pandemic, we were able to launch or expand an urgent array of programs using federal COVID-19 funds, including Summer Rising, DOE mental health services, and Community Schools Expansion and Sustainability. As federal stimulus ends, it will cost over a half-billion dollars to preserve these programs.
There is widespread agreement that we need to dramatically scale up our investments in special education. For example, the Chancellor’s recent announcement of $350 million in new special education investments is wonderful, but it only funds literacy supports and dyslexia screening efforts in 160 schools. There are more than 30,000 students in NYC with autism or an emotional disability, and yet only 75 ASD Nest and Path inclusion programs citywide. We need more special education classrooms, services, and preschool seats in every neighborhood.
And imagine what it would mean for New York City’s families, our economy, and our multiracial democracy if we invested in CUNY the way we should – so that any student could attend without worrying about the cost, to expand its career and technical education programs, to offer every student a paid internship that could serve as a gateway to career placement post-graduation, to strengthen and restore it as a world-class institution of upward mobility.
We could be a city that provides pathways for working-class families to affordable homeownership, universal child care, first-class mental health, and high-quality education for all kids. If we did, our families, our economy, and our city would flourish.
Let’s be clear: While savings and efficiencies are necessary, they won’t be near enough to allow us to invest in the ambitious programs we need to secure NYC’s economic success, while also closing the budget gaps we face. New funding will be necessary.
This budget cycle is the time to start thinking about asking Albany for the resources and the authority to raise revenues that we need to invest in NYC’s future. Any new revenues should come from those who can afford to contribute more (New York State saw the number of millionaires rise this year as the wealthy became wealthier), and who will continue to benefit from a thriving city. And we sure can’t let the State short-change the City on our own revenues and obligations. My office will be working on these questions over the ensuing months as we move toward budget adoption; I would welcome conversations with you on these questions.
As we look to the long-term, we have very real challenges, and also very real opportunities. The best path forward is to build a city that spends wisely and prudently, that sets aside adequate resources for a rainy day, and that invests in the future that New Yorkers deserve, this year, and for the years to come.
Thank you.
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