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Budget Watch

If New York's economy slows, reality-based budgeting must prevail

Two years ago, the outlook for New Yorkers was bleak on the political side but brighter on the economic front. Today, the trends appear to have reversed. The midterm election results portend more hopeful changes in Albany and, the effects of the partial federal government shutdown notwithstanding, Washington. On the other hand, Wall Street’s recent wild oscillations reflect growing economic uncertainty concerning trade tensions, Brexit, and the Federal Reserve’s raising interest rates as the blunt instrument of choice to contain market excesses, whatever the consequences for workers.

While a recession doesn’t appear to be around the corner, the local economy certainly seems to be shifting into a lower gear. How should City Hall respond? For some observers, the prospect of slower revenue growth means the City must tighten its belt and reduce its workforce. But before budget axes start swinging, let’s keep some facts about City spending and headcount in mind. And let’s stay focused on the real challenges, fiscal and social, that New Yorkers face.

During Mayor Bill de Blasio’s first term, a strong local economy translated into robust tax collections, rising by over 5.1% annually. That’s an increment of $2.1 billion in budget capacity each year. That revenue growth helped make possible new contracts with municipal labor unions, as well as increased funding for homeless, youth, and senior services, more police officers on the beat, expanded affordable housing investments, and set-asides of substantial budget reserves.

I’m sure if you polled pundits on whether City spending has grown faster under de Blasio than under former Mayor Michael Bloomberg, most would say de Blasio. However, City-funded expenditures (i.e., minus spending from State and Federal categorical grants) grew 3.5% annually after adjusting for inflation during Bloomberg’s three terms versus 3.2% during de Blasio’s first term.

With about 300,000 employees, it’s true that the municipal workforce is at its highest level ever. But with some 8.7 million people, the city’s population is also at its highest level ever. And the size of the municipal workforce in relation to total payroll employment in the city over the last five years has been at its lowest share (6.6%) in 30 years, that is, since the City began adding back staff following the sharp post-fiscal crisis retrenchment in the late 1970s. While City government may have added 30,000 jobs in the past five years (with most of that among teachers and support staff at City schools and CUNY campuses), the private sector has added over 500,000 payroll and independent contractor jobs in that time.

With a bigger city (more people, workers, public school students, visitors, and buildings), and more gentrification-related displacement, it’s not surprising that more City government workers are needed. These investments in public services have contributed to the quality of life and vibrancy that make New York so attractive to newcomers, and a beacon for expanding tech companies, among others.

There is also misunderstanding regarding the cost of recently negotiated settlements with District Council 37 and the United Federation of Teachers, the two largest municipal unions. The agreements, which will set the pattern for all other City labor contracts, include wage increases over 43- and 44-month periods that work out to average annual increases of about two percent, essentially the same as the metropolitan-wide inflation rate the past two years. The cost of the new bargaining round will be offset in part through an agreement with the Municipal Labor Committee to generate $1.7 billion in additional health insurance savings over the 2017-2021 period. Moreover, the City had already set aside in its labor reserve funds to cover one percent annual increases (half of the new pattern) for the four years of the financial plan.

In a November modification to the current City budget, the mayor added the additional funds needed to cover the citywide wage increases (and associated pension contributions) through Fiscal Year 2022. This means that there likely will be only slight further changes over the next three years in the “personal services” costs that account for 55 percent of the overall budget.

The City is also holding healthy reserve funds; in total, they exceed 10 percent of annual expenditures, and should be sufficient to weather plausible tax revenue shortfalls in the event of economic weakening.

None of this is to say, however, that the City doesn’t face significant budget challenges. These include:

  • The need for the State and the City to increase funding for the MTA to improve service and to more adequately fund long-term capital needs. This past June, the State pressured the City to match the State’s $418 million contribution for the MTA’s Subway Action Plan to address deteriorating transit service, and that pressure will continue in the coming year.
  • Unfinished business in early childhood education. Establishing universal pre-kindergarten was a watershed achievement in the mayor’s first term. Next up: achieving compensation parity for teachers in community-based organizations and improving the availability and quality of child care for infants and toddlers.
  • The aftershocks from the State-City Amazon subsidy. Legislators in City Hall and Albany need to quickly revisit the State-authorized as-of-right tax breaks administered by the City — the Industrial and Commercial Abatement Program and the Relocation and Employment Assistance Program — that the City is providing to Amazon at an estimated cost of $1.3 billion. It is fairly clear that the reason the company chose to locate in Long Island City, Queens was the city’s attractiveness to high-tech professionals and the site’s proximity to the Cornell-Technion engineering campus on Roosevelt Island. While they’re at it, legislators should also revisit and similarly curtail wasted commercial property tax breaks handed out in the Hudson Yards area during the Bloomberg Administration. Going forward, neither the City nor the State can afford to squander resources for big corporate developments that would have occurred anyway.

Mayors don’t have a lot of control over the ups and downs of the economy, but they can try to influence how broadly the fruits of growth are shared, and not just through tax and budget policies. While de Blasio’s immediate predecessors, Mayors Rudolph Giuliani and Bloomberg, also experienced boom years during their tenures, they did little to channel gains to the less well-heeled.

De Blasio, on the other hand, advocated raising minimum wages, including significantly increasing pay for low-wage nonprofit workers employed under City-funded human services contracts. With the City Council, he also provided more benefits and protections for vulnerable workers, including paid sick days, fair scheduling practices in retail and fast food businesses, and safeguards for independent contractors and against wage theft. The recent enactment by the Taxi and Limousine Commission of a minimum pay standard for app-dispatched drivers broke historic ground in boosting annual earnings by nearly $10,000 for 75,000 independent contractor drivers.

This expansion, and sustained State minimum wage increases, have provided historic gains for New York City’s low- and moderate-income workers and their families in terms of rising wages and incomes and reduced poverty. In the event of a serious economic slowdown, City policymakers need to prioritize how to preserve these gains — a challenge that will be every bit as important as balancing the budget.

James A. Parrott is director of Economic and Fiscal Policies at the Center for New York City Affairs at the New School. This is a revised and updated version of an Op-ed originally published in December 2018 by the online news and opinion website City Limits. This article was originally published by the Center for New York City Affairs.

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James Parrott

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