De Blasio wants to take a big loan to close a hole in the city budget: analysts sound the alarm

New York ended up in a budget hole that it hasn't been in since the 1970s. And New York Mayor Bill de Blasio wants to take a big loan to cover the deficit. However, everything is not so simple, and most likely the city will have to look for another way out of this situation. This can greatly affect the quality of life in the city. This publication writes Politico.

Back to the 1970s

New York Mayor Bill de Blasio wants to take a big loan to get the city out of the budget hole - the same as it was four decades ago. However, budget supervisors believe this to be the wrong move.

In 1975, New York's budget was disastrous. Then the 38th US President Gerald Ford made a speech in which he refused federal assistance to save New York from bankruptcy. Later, the newspapers wrote: “Ford to City: Drop dead” (English Ford to City: Drop dead). Ford later said that the headline played a role in his loss in the 1976 presidential election.

Now New York Mayor Bill de Blasio says the city, whose budget is larger than many states, may soon return to similar positions.

After many years of free spending that provided his liberal agenda, Bill de Blasio is looking for ways to solve a massive problem. During the pandemic alone, the city’s budget deficit increased by $ 1,6 billion.

De Blasio said he wants to be able to borrow funds from the Trump administration. But for this, the mayor must first obtain state approval, and Albany has so far refused to cooperate.

Austerity or borrowing: pros and cons

Fiscal supervisory authorities call for more stringent savings in the first place.

Scott Stringer, the city controller, estimated that borrowing to cover $ 7 billion would cost the city nearly $ 11 billion over the next two decades.

He supports the idea of ​​a loan in general, but calls on the city hall to moderate requests.

“New Yorkers should know that at the Mayor's suggestion, our children will pay more than $ 500 million in debt a year over the next 20 years,” Stringer said. "I call for extreme caution."

Andrew Rein, head of the Civil Budget Commission, believes the city has not done enough to put its financial affairs in order. In his opinion, borrowing is the last thing New York should resort to.

Why quality of life in New York could fall

The state legislature did not pass the borrowing bill last week - and it is unclear if it will pass before July 1, when the city's spending plan for next fiscal year is due to be approved. In Washington, contradictions between parties made any federal aid questionable.

Today, the mayor hopes to get through this crisis without significant budget cuts. He refuses to cut city services or delay increases in workers' wages. According to him, layoffs and vacations are a last resort.

City officials say the mayor is concerned about the potential outflow of millionaires who continue to support economic engines, and understands that some New Yorkers cannot afford to pay real estate tax bills, not to mention higher ones.

In a similarly difficult financial situation, Bill de Blasio's predecessor, Mike Bloomberg, relied on politically unpopular tax increases: he raised property taxes by 18% after the September 11 attacks and insisted on a 7 percent increase after the financial crash many years later. He repeatedly cut social services and tried to close fire houses and centers for the elderly. He even wanted to get rid of the position of public defender, which later served as a launching pad for Bill de Blasio as mayor.

On the subject: 1 million New Yorkers risk being on the street due to a pandemic if the city does not intervene

Instead, the current mayor of New York has hopes that Washington will replenish the city treasury.

“We are now in a $ 9 billion gap between the current fiscal year and the one starting on July 1,” de Blasio said on May 27. - Unfortunately, we are projecting additional lost income for the period after the next financial year, which will keep us in the future. There is literally no way that we can solve this problem without federal assistance or making very, very painful choices that will affect the quality of life in this city. ”

Bill de Blasio predicted a $ 7,4 billion revenue deficit when he published his revised budget totaling $ 89,3 billion in April.

Prohibition of borrowing funds

The city regularly incurs debts to pay for long-term construction and infrastructure projects, but it is not allowed to borrow funds for its annual operating budget. This ban was introduced during the financial crisis of the 1970s. New York then borrowed money to stay afloat, and then borrowed even more to pay off previous loans.

In the spring of 1975, banks blocked the flow of cash to the city.

“The city's top bankers, who were its main creditors, went to the mayor and the governor and told them both that no one would lend the city a cent on any terms,” said Eugene Keilin, who was then general counsel for the budgetary management, in a recent panel discussion. "The loan amount became so high and the explanations so vague that they didn't trust the city."

The administration still pays some of these loans.

Dean Fuleihan, First Deputy Mayor, acknowledged the rarity of de Blasio’s last request. According to him, such loans are taken only at extraordinary times, and now it is precisely such times.

Bill de Blasio noted during a recent briefing that Bloomberg was able to provide similar capacity in Albany after 11/XNUMX, and Cuomo went in the same direction to deal with financial problems amid the coronavirus crisis. “This is not what we want or intend to use in the first place, but this is what we need as a last resort if our federal government is not around,” he said. "If we're going to support basic services here in this city, we need borrowing opportunities."

Month to solve the problem

Nearly 1 million city dwellers have already applied for unemployment, Broadway has not hosted the show for several months, and shops and restaurants in five districts remain largely closed.

And while officials in Washington, DC are fighting for a package of assistance for local governments, the administration of Bill de Blasio has about a month to develop a balanced spending plan for the start of the new fiscal year on July 1.

“Their main strategy is to just take out a loan and hope for a new federal administration,” said Nicole Gelinas, a senior fellow at the Manhattan Fiscal Conservative Institute. "But in the long term, and with changes in the economic well-being of the city, this will not go far."

Meanwhile, the city hall is set to pay retroactive payments of $ 1,5 billion of its workforce in October, Gelinas said. She criticized for a long time the mayor’s practice of allocating future funds for past work, which he did when concluding contracts, which Bloomberg allowed to terminate.

Gelinas and Citizens Budget Commission also proposed that the city further reduce its costs.

But the mayor never accepted budget cuts. Year after year, he called on agencies to voluntarily come up with savings plans, arguing that forced spending cuts were a hallmark of Bloomberg’s harsh years, which he tried to reverse.

Only a small part of Bill de Blasio's recent plan to cut spending by $ 2,7 billion is the result of regular cuts. The biggest programmatic damage - the annual summer jobs program for teens - will be returned to next year's budget, provided the coronavirus pandemic is under control.

Although the city saved $ 50 million in snow removal thanks to a virtually snowless winter, there is no guarantee that the weather will be just as soft next year.

Only once did the administration instruct its departments to “tighten their belts,” presenting the so-called “Program To Eliminate The Gap” (PEG). “It involves carefully squeezing out the cellulite that builds up in every department,” said Alair Townsend, former Mayor Ed Koch's budget director. “If you don't push it out, it just keeps growing and growing. The mayor never wanted to implement the PEG program. He thought it sounded like a cut in services, and cut in services is not progressive. "

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