Ris­ing Debt Brings NYC A Warning

The Bond Buyer - - Front Page - BY PAUL BUR­TON

New York City’s bud­get cy­cle be­gins to heat up, a fis­cal watch­dog warns of a debt spike in the im­me­di­ate fu­ture.

The In­de­pen­dent Bud­get Of­fice ex­pects debt ser­vice to rise to $8.4 bil­lion in fis­cal 2022, the fi­nal year of the city’s four-year fi­nan­cial plan, from $6.8 bil­lion in fis­cal 2020 af­ter ad­just­ments for pre­pay­ments as the city sup­ports its cap­i­tal pro­gram, it said in a fis­cal outlook re­leased Thurs­day.

Over­all, ac­cord­ing to IBO, the city’s fis­cal con­di­tion, while fairly strong, still faces sig­nif­i­cant un­cer­tainty.

“Grow­ing fed­eral deficits will in­crease fed­eral debt, push­ing up in­ter­est rates and in­creas­ing the cost of debt is­suance for all lev­els of gov­ern­ment,” IBO said. “The sta­bil­ity of the fi­nan­cial mar­kets, and re­cip­ro­cally the city’s fi­nan­cial sec­tor, has al­ready been af­fected by un­cer­tainty from poli­cies com­ing out of Wash­ing­ton.”

Mayor Bill de Bla­sio is sched­uled to re­lease his fis­cal 2020 pre­lim­i­nary bud­get, cap­i­tal bud­get and four-year cap­i­tal plan in early Fe­bru­ary.

IBO said the in­crease in the cost of pro­vid­ing fringe ben­e­fits for city em­ploy­ees and re­tirees, in­clud­ing health in­sur­ance costs, is the largest area of spend­ing growth.

On the spend­ing side, press

ing needs for the New York City Hous­ing Author­ity, Health + Hos­pi­tals and the Met­ro­pol­i­tan Trans­porta­tion Author­ity — agen­cies not di­rectly un­der the city’s con­trol — could well re­sult in de­mands for ad­di­tional city op­er­a­tional and cap­i­tal fund­ing, IBO added.

The pro­posed cap­i­tal plan of one ma­jor city en­tity, the Depart­ment of Ed­u­ca­tion, drew scru­tiny from the City Coun­cil on Tues­day.

Its $17 bil­lion plan would be DOE’s largest ever and up 3% from the 2015 to 2019 pro­gram.

It con­tains $8.8 bil­lion to fund 57,000 new kin­der­garten-through-12th-grade seats and ad­di­tional pre-K and preschool ca­pac­ity, said Lor­raine Grillo, pres­i­dent of the New York City School Con­struc­tion Author­ity, said at City Hall dur­ing Wed­nes­day’s joint over­sight hear­ing of the coun­cil’s fi­nance and ed­u­ca­tion com­mit­tees, and the sub­com­mit­tee on the cap­i­tal bud­get.

New York is jug­gling the two-pronged chal­lenge of a ris­ing stu­dent pop­u­la­tion in some neigh­bor­hoods and an ag­ing in­fra­struc­ture over­all. More than half the school’s 1,200 pub­lic school build­ings were built be­fore 1949.

“Def­i­nitely there are school dis­tricts that are over­bur­dened and grow­ing and other ones that are un­der-bur­dened,” said Howard Cure, di­rec­tor of mu­nic­i­pal bond re­search for Ever­core Wealth Man­age­ment.

Re­zon­ing school dis­tricts would be too po­lit­i­cally volatile, ac­cord­ing to Cure.

“I don’t think there’s much of a po­lit­i­cal ap­petite,” he said. “The city wants to build new schools. Po­lit­i­cally it’s a lot eas­ier but it’s not pru­dent fi­nan­cially.”

A vari­able, ac­cord­ing to Cure, is any lever­ag­ing of char­ter school re­sources. “The mayor is not a big fan of [char­ters] but I still think it’s part of the so­lu­tion,” he said.

IBO es­ti­mates that the city will need to pro­vide an ad­di­tional $25 mil­lion in the cur­rent year, $24 mil­lion in 2020, and $21 mil­lion in 2021 and 2022 for char­ter school lease ex­penses.

The DOE cap­i­tal plan con­sists of three over­ar­ch­ing cat­e­gories: ca­pac­ity, or creat­ing new seats; cap­i­tal in­vest­ment, or im­prov­ing ex­ist­ing build­ings and fa­cil­i­ties; and pro­grams that lo­cal law or city agen­cies man­date.

The ca­pac­ity cat­e­gory would re­ceive the largest over­all in­crease: $2.3 bil­lion, up 36%.

Sarita Subra­ma­nian, the su­per­vis­ing an­a­lyst for IBO’s ed­u­ca­tion team, said ad­di­tional fund­ing from the state Ed­u­ca­tion Depart­ment for the city’s Smart Schools Bond Act ap­pli­ca­tion will prob­a­bly change some al­lo­ca­tions.

The bond act au­tho­rizes the is­suance of $2 bil­lion of gen­eral obli­ga­tion bonds to fi­nance im­proved ed­u­ca­tional tech­nol­ogy and in­fra­struc­ture.

The city has rushed in re­cent years to build new school fa­cil­i­ties. As of Septem­ber, it has spent $9.1 bil­lion since 2005 to con­struct more than 98,000 seats. Still, ris­ing en­roll­ment and pol­icy choices have off­set the new seats.

“City of­fi­cials can­not con­tinue to ex­pect the city can build its way to a so­lu­tion,” said Ri­ley Ed­wards, a Cit­i­zens Bud­get Com­mis­sion re­search as­so­ciate.

CBC rec­om­mends di­rect­ing strate­gies di­rected at three goals: us­ing space more ef­fi­ciently within build­ings, re­duc­ing in­take in crowded build­ings and shift­ing en­roll­ment to un­der­used build­ings. ◽

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