With time running out on his chances of securing federal relief aid in a lame-duck congressional session, Governor Cuomo is (again) demanding that Washington send him more money—or else.
Cuomo made his needs known in a joint letter to the New York congressional delegation co-signed by New York City Mayor Bill de Blasio, Senate Majority Leader Andrea Stewart-Cousins and Assembly Speaker Carl Heastie. Also signing: New York’s 16 most powerful public- and private-sector labor union leaders, who have the most obvious stake in keeping the state and local spending spigots wide open.1
Referring to a $908 billion COVID-19 relief package now reportedly being negotiated by congressional leaders, the letter said the bill “should address states’ immediate and pressing needs, and it is essential and fair that New York receive at least a minimum amount of funding necessary to stop further massive damage.” The specifics were in the closing paragraphs:
New York’s need is dire. If the [Metropolitan Transportation Authority] does not receive $4.5 billion this year, 9,000 workers will be laid off, and subway and bus fares and tolls on crossings will be increased beyond the level of inflation. If New York State does not receive a minimum of $15 billion in aid, or if New York City does not receive a minimum of $9 billion in direct aid, then tax increases, layoffs of essential workers, and significant borrowing will all be necessary. This is no time to be imposing more burdens on hard-working New York families, nor is this the time to lay off essential workers, moments before we undertake a complicated and labor-intensive vaccination program.
We understand that you hope this initial package will fund states through next March at which time a more substantial package will be passed. However, we will not make it to March without the necessary funding outlined above. [emphasis added]
Self-serving rhetoric aside, a solid case can be made for providing relief geared to the sudden and unforeseeable revenue losses of state governments and localities across the country, whose revenue estimates were severely disrupted by a pandemic with consequences far more severe than anything they could have planned for in 2019.
But Cuomo has not helped his case by playing games with the numbers involved, repeatedly exaggerating the amount he actually needs—and by avoiding any action to permanently reduce spending, lest it suggest to Congress that he actually needs less.
As framed in this week’s letter to the congressional delegation, the real budgetary needs of the state and the city (but not the MTA, which is in truly dire shape) are exaggerated.
Cuomo’s own Mid-Year Financial Plan update showed disbursements and receipts to be balanced assuming an $8 billion “budget balance reduction” in local aid, not further detailed, which Cuomo has yet to actually make (see table on page 80). In other words, at most, New York needs $8 billion, not $15 billion, to “make it to March.” And even that $8 billion figure is on the high side, failing to fully account for the temporary offsetting impact of previous federal coronavirus relief aid to the state.
For the sake of argument, assume Cuomo actually meant that $15 billion to signify the state’s gap over the rest of this year and through fiscal 2022, when he currently projects a gap of $16.7 billion. In that case, $15 billion from Washington would reduce the combined two-year gap to $9.7 billion. A revenue shortfall that large in a state operating funds budget of $102 billion or so would represent a very serious and challenging problem—although not as large as the $10 billion gap Cuomo closed when he took office in 2011.
But wait—there’s more. Based on actual trends through September, state Comptroller Thomas DiNapoli has estimated that state tax receipts will exceed Cuomo’s projections by $3.8 billion this year and $4.1 billion in FY 2022. If that’s correct, this year’s gap is only $4.2 billion, next year’s gap will be $12.6 billion, and an injection of $15 billion from Washington would leave the governor only $1.8 billion short of what he needs to balance his budget before making any effort to reduce projected current-law spending increases. (The Senate and Assembly fiscal committees were required to make public their own revenue estimates in November. In what’s become an annual tradition, they flouted the law, ignored the deadline, and released nothing.)
As for the city, its projected gap for the current year is … zero, growing to $3.7 billion in FY 2022. To be sure, these numbers are wildly optimistic, assuming among other things no reduction in state aid. But even assuming the worst, the city will not need $9 billion in the short term—especially if the state is receiving $15 billion at the same time. The long-term is another question, depending on how quickly—if ever—the city’s economic engine resumes revving at 2019 levels.
Out on a limb
From the moment he initiated his New York State on PAUSE emergency order back on March 22, it was clear the pandemic would blow a huge hole in state and local tax revenues. Cuomo nonetheless chose to put off dealing with the state’s looming budget problem. Back in April, with the health crisis at its worst in New York, he applauded the Legislature’s passage of a state budget that actually increased spending over last year. At the same time, he readily acknowledged that the budget essentially contained a $10 billion revenue hole, saying the feds would have to make up the difference. In the following months, he loudly threatened, over and over, to cut local aid by up to 20 percent if the feds didn’t pony up.
As spring turned to summer with no new relief aid in sight, Cuomo began implementing his added powers this year to temporarily withhold scheduled local aid payments to municipalities, school districts and nonprofit agencies, but avoided making permanent across-the-board cuts. At this point in the fiscal year, further large cuts in aid—especially school aid—would be almost unthinkably disruptive. If the feds fail to deliver any added aid soon, Cuomo would probably seek to temporarily minimize cuts by rolling over his revenue anticipation notes (RANs) for another year.
Cuomo seemed to grow more concerned about the city’s failure to control its own spending, prompted by de Blasio’s repeated request for state authorization to issue up to $5 billion in deficit bonds. The mayor kept asking for permission to borrow even after the City Council passed a supposedly balanced city budget in June.
In July, after nine years of virtually ignoring the state Financial Control Board for New York City (FCB), Cuomo finally got around to filling his three private-sector appointees to the board—including Steven M. Cohen, his former chief of staff and close adviser. At the board’s August meeting, Cohen said he agreed with a suggestion by the FCB’s acting executive director, Jeffrey Sommer, that the board should hold a highly unusual special meeting after the city released its first quarter update. It looked as if the governor was open to reviving the FCB as a useful tool for enforcing limits on city spending.
However, although the city’s November financial plan update was released two weeks ago, the response from the FCB has been a deafening silence. And the board’s staff has been leaderless since October, the respected Sommer having retired after serving more than 20 years in an “acting” capacity.
Meanwhile, amid a threat of tighter business restrictions amid a feared second wave of COVID-19 infections, New York City’s credit was downgraded this week by Fitch Ratings, while S&P Global Ratings reduced its outlook on city debt to “negative” from “stable.”
For now, it seems, Cuomo is focused entirely on Washington—where there’s little sign of progress. As Politico reported this afternoon:
After a flurry of momentum over the last week, the stimulus talks are back to where they’ve been for months: nowhere. Congressional leaders have retreated to their corners, blaming each other for inaction as the economy stumbles and the U.S. nears 300,000 dead from the virus. Time is running short in the lame duck [session], with as few as nine days for Congress to deliver much-needed relief.
Senate Majority Leader Mitch McConnell is loath to divide Republicans as he confronts two years with, at best, a slim majority. And the bipartisan $908 billion framework includes $160 billion in aid to states and localities that is attracting pronounced GOP opposition — just as a liability shield is being shunned by Democrats.
Banking on Biden
The “hope” cited at the end of the Cuomo-orchestrated letter—that “a more substantial package will be passed” by Congress next spring—hangs on the Jan. 5 special election for Georgia’s two U.S. Senate seats. If Democrats win both seats, President-elect Biden will have the votes to pass a much larger stimulus package with more aid to states.
But if Republicans remain in control of the U.S. Senate, chances of a “more substantial package” of aid to states next spring drop to roughly zero. In that case, Cuomo has said he will close his budget gap with a combination of borrowing, spending reductions and tax increases—offering no specifics on what he has in mind in any of those categories.
1 The union signatories were Mario Cilento, President, New York State AFL-CIO; John Samuelsen, International President, Transport Workers Union of America; Anthony Utano, President, Transportation Workers Union of Greater New York Local 100; Gary LaBarbera, President, Building and Construction Trades Council of Greater New York; Henry A. Garrido, Executive Director, District Council 37; Gregory Floyd, President, Teamsters Local 237, Vice President-At Large, International Brotherhood of Teamsters General Board; Michael Mulgrew, President, United Federation of Teachers; Wayne Spence, President, NYS Public Employees Federation; Mary E. Sullivan, President, CSEA Local 1000, AFSCME; Richard Maroko, President, New York Hotel and Motel Trades Council; Harry Nespoli, Chair, Municipal Labor Committee; Dennis Trainor, Vice President, Communications Workers of America District 1; Kyle Bragg, President, 32BJ SEIU; Mark Cannizzaro, President, Council of School Supervisors & Administrators, New York City; George Gresham, President, 1199SEIU United Healthcare Workers East; and Andrew Pallotta, President, New York State United Teachers.