Rising Debt Brings NYC A Warning
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. ◽