A report by the state comptroller recommends that New York City tap into its reserves and hope for substantial federal aid instead of borrowing money to battle through the pandemic-fueled financial crisis.
The report, “Lessons from Past Recessions: Borrowing for Operations,” was issued Thursday by state Comptroller Thomas DiNapoli. Currently, New York City is $9 billion in the red because of revenue shortfalls caused by the pandemic, which effectively shut the economy down for months. The city currently has just over $1 billion in its general reserve fund.
“The scope and devastation of the COVID-19 pandemic has created a significant revenue loss for the city while driving up costs to deal with its effects,” DiNapoli said in a release. “The challenges are certainly daunting, but are mitigated by reserves the city built up before the current recession. Past experience indicates the city would be well-served by developing and considering all options, in order to identify if and when deficit financing is truly needed. Washington, for its part, can, and must, help the city weather this colossal economic storm.”
The economic effects of the pandemic on New York City’s economy has been severe enough that for the first time in three decades, Moody’s Investors Service downgraded the city’s credit rating to AA2, the third highest investment grade rating, on October 1st. The new rating came as Moody’s “warned of a long return to normal as the region tries to rebound from the pandemic,” Bloomberg reported.
Mayor Bill de Blasio has insisted that New York City can recover from the economic fallout if it obtains borrowing authority from Albany, though Governor Andrew Cuomo has resisted his request. The mayor had also proposed laying off 22,000 city workers by October 1st to stave off more fiscal disaster, though the layoffs have yet to happen.
DiNapoli’s report said there are signs that the economic fallout can be handled without long-term borrowing—the city’s budget gaps are better than they were compared to the 2008 recession or immediately after September 11th, 2001. The comptroller pointed out that the city still owes $430 million of the $2.5 deficit bonds it issued after the terrorist attacks. The report also found that the city’s reserve and surplus levels going into the pandemic were “among the highest on record, as a result of robust economic and revenue growth and a commitment from the administration and city council to boost reserve levels after the Great Recession,” according to DiNapoli.
In addition, DiNapoli's report said “officials anticipate a rebound in growth and revenues in fiscal years 2022 and 2023 with a return to normal economic activity,” though it also warned “the recovery may be slower than anticipated and its pace will depend on numerous factors that may be out of the city’s control.”
The number of unemployed New Yorkers also set records, with a loss of 944,000 jobs as the pandemic spread in March and April but DiNapoli anticipates a return to pre-recession employment in less than three years.
“Building on Mayor de Blasio’s record of strong fiscal management, the Administration continues to take critical steps ensure a robust recovery for New York City, including achieving billions of dollars in cuts and savings in the most recent financial plan," said de Blasio's spokesperson Avery Cohen in an email statement. "We need the federal government to step up and provide additional aid, and for the state to allow borrowing, to avoid further cuts to services, save jobs and ensure New York City comes back stronger than ever before.”