With Congress essentially gone until Labor Day and a dire fiscal update from Albany, Gov. Andrew Cuomo and Mayor Bill de Blasio are running out of time to deal with budget crises that just took another $1 billion hit.
In the short term, the state is withholding 20% of city aid and de Blasio says up to 22,000 municipal layoffs loom. In the long term, the city and state face extended problems from the pandemic-created recession that require permanent reductions in spending, fiscal experts say.
“Little to no progress is being made in closing the gaps,” said Maria Doulis, vice president of the Citizens Budget Commission. “Federal aid appears increasingly distant, and it will be harmful to wait too long to act. The governor should develop and make public a plan to close state budget gaps.”
The budget squeeze intensified when the Cuomo administration announced last Thursday that revenues had fallen $1 billion more than expected — mostly due to a decline in sales tax collections but also because of weakness in some business taxes as well as taxes and fees from motor vehicles. (The one piece of good news is that income tax collections, including 2019 payments deferred from April to July, had met projections.)
In response, the Cuomo administration has begun withholding one dollar out of every five in local aid while it sees whether federal funds will be forthcoming. For New York City, that amount would grow to $3 billion for the fiscal year that began July 1.
A spokesperson for de Blasio said, “With stimulus talks in Washington stalled, we need borrowing authority from Albany as soon as possible to avert drastic cuts and layoffs.” City Comptroller Scott Stringer did not respond to a request for comment on the withholding of aid, primarily earmarked for education, and its impact on the budget.
The mayor has set October as the date for implementing his threatened 22,000 layoffs if he cannot reach a deal with the city’s unions to reduce labor costs by $1 billion, in the absence of outside aid.
There is little doubt budget cuts will mean a major loss of jobs. State and city jobs in New York City fell by 19,000 in June compared with last year, a little more a third of them in education.
Statewide, the drop in government positions is 90,000, with two-thirds of them in education, and the national figure is 1.3 million. Moody’s Analytics estimates the national number would double without federal money.
The job cuts are likely to grow and be more severe in New York than elsewhere. When the pandemic hit, the municipal bond-rating firm Moody’s Analytics said the budget problem New York State faced was the third worst in the country, with only New Jersey and Louisiana facing a more difficult situation.
Federal Help Calls Grow
In the meantime, some programs will require more money.
For example, with unemployment resulting in the loss of health care coverage, the total of those enrolled in Medicaid statewide has increased 264,000 since February, two-thirds of them in the city. The state pays about a third of the cost of Medicaid, with localities chipping in another 17%. The program spending this year is expected to reach $83 billion.
The drumbeat for federal aid, meanwhile, grows louder and the pressure on Washington to act will increase.
In a webinar Friday by the union-based Economic Policy Institute, economists ranging from George W. Bush economic advisor Glenn Hubbard to Barack Obama economic advisor Jason Furman said money from Washington was crucial to avoiding worsening the economic meltdown.
“We just went off the fiscal cliff” for states and cities, said Mark Zandi, chief economist of Moody’s Analytics. “And there is going to be real damage to the economy.”
But aid from Washington appears unlikely to solve the long-term problems for the state and the city. Over the next four years, the Cuomo Administration estimated last week, the state faces a loss of $62 billion in revenue from what it expected before the pandemic.
“The biggest problem for the state is the enormous, recurring structural budget gap starting next year and into the future,” said E.J. McMahon of the conservative-leaning Empire Center. “Cuomo clearly hopes that starting in 2021, (Democratic presidential candidate Joseph) Biden and a Democratic Congress will provide states and local government a couple of year’s worth of added stimulus.
“But even a foreseeable Biden package won’t fully close future New York State budget gaps,” he added.