Testimony of New York City Comptroller Scott M. Stringer, Comments On New York City’s FY 2021 Preliminary Budget And FY 2020-2024 Financial Plan Before The New York City Council Finance CommitteeMarch 2, 2020Good afternoon, Chair Dromm and members of the Finance Committee. Thank you for the opportunity to discuss the City’s FY 2021 Preliminary Budget. Joining me is our Director of Budget Research, Tammy Gamerman.Each year we have an opportunity to consider how to ensure our city is best serving working families and promoting policies that give our most vulnerable residents the resources they need to succeed. The budget is a statement of our values, and I hope that my testimony today will help you craft a budget that lifts up our communities.At the same time, we must also manage our City finances for the long term. Because if we fail to put our financial house in order today, we run the risk of failing the residents of our City tomorrow.The national economy is experiencing the longest expansion on record. Since the end of the Great Recession, New York City has added close to 900,000 private-sector jobs. A booming economy and growing tax revenues have enabled us to invest in critical initiatives such as Universal Pre-K.This year we saw additional positive new investments, including the implementation of criminal justice reforms, pay parity for early childhood educators, and fair funding for our contracted social services providers.But I want to use this opportunity to address the coronavirus and its impact on our city finances and the pension funds. As the City’s chief fiscal officer, it is my responsibility to monitor events that affect the markets.Global equity markets have sold off significantly and U.S. equity markets have fallen by nearly 12 percent off their recent highs in the face of concerns about the impact of the pandemic on economic activity. Last Thursday saw the largest single point loss in the U.S. stock market in history. Conversely, U.S. government bonds and gold have rallied with the 10-year U.S. Treasury yield marking a new all-time low.Impacts to public equity and bond market returns affect our pension fund investments. We are actively monitoring the markets. Our Rebalancing Committee reviews global market trends and determines if any adjustments to the target allocation of a specific public market asset class are warranted, within the ranges set by each Board of Trustees. This committee, which ordinarily meets monthly, is now meeting daily to assess current market developments and respond if necessary.For perspective, we should recall that we are coming off one of the longest stock market growth periods in history, and historic highs. And as investors, the pension funds take a long-term view and our asset allocation is designed to protect against instability.As long-term investors, it’s worth remembering that we have gone through similar episodes many times, and the most likely outcome is that markets will resume growth and regain their losses once the outbreak has been contained and run its course. In the meantime, we continue to monitor markets carefully and are prepared to take any appropriate steps.But even setting aside the impact of the coronavirus on the economy, the rate of economic growth is slowing. We have to recognize that we will not see the level of economic growth we have enjoyed in recent years forever. Locally, my office predicts that over the next four years, job growth in the city will decline to half the rate of the last decade. Risks and uncertainties loom, from the impact of the coronavirus to the outcome of the presidential election this fall.But it is our job to manage the world’s greatest city through the good times and the bad times. Fiscally responsible management of the City’s budget requires taking the long view to be ready for the bad times: to not just balance this year’s budget, but to ensure we take actions today that protect our ability to provide the critical services that New Yorkers rely on tomorrow.I remain concerned that we simply have not done enough to hedge against future risks. We know from experience that a downturn will hurt our most vulnerable residents the most. The window for action is closing.With this in mind, I want to begin with a review of the City’s Fiscal Year 2021 Preliminary Budget and the Financial Plan.Over the City’s Financial Plan through FY 2024, spending is projected to grow at an average annual rate of 2.3 percent. In contrast, revenues are projected to grow at an average rate of 1.6 percent each year resulting in budget gaps of $2.4 billion in FY 2022 and $2.7 billion in each of fiscal years 2023 and 2024.My office expects tax revenues to rise by 3.1 percent per year on average, slightly higher than the Administration’s assumption of 2.6 percent per year average growth. As a result, we expect additional revenues of $281 million this year, $520 million in FY 2021, and higher amounts in the subsequent years. The biggest contributor to our higher forecast is the property tax, due to both higher anticipated growth in assessed values in the near term, and a lower level of reserves than what the Administration is forecasting.However, it’s worth noting that both our and the Administration’s forecasts of revenue growth rates have declined compared to last year – another indication of the expected slower economic growth going forward.In addition, we have also identified several large risks on the spending side of the budget including overtime, charter school tuition, and special education contract schools. The Fair Fares program, which I support, remains unfunded in the out years, and possibly underfunded next year.Taken together, our revenue and expense projections result in a minimal surplus in the FY 2021 budget and modestly smaller gaps in the last three years of the plan.But this Preliminary Budget was released before the State Executive Budget – and the State budget has added new reasons for concern. Since 2015, actions in the State Budget to shift costs and unfunded mandates onto New York City have piled up, resulting in nearly $800 million in higher City spending in the FY 2021 budget.The trend continues this year, with proposals that would make the City pay more for family assistance and child welfare services and for public education. Taken together with past actions, that’s over a billion dollars more in City-funded spending next year to meet critical service needs.But of even greater concern are proposals that would shift hundreds of millions of dollars of Medicaid spending onto New York City – as much as a billion dollars next year. This is untenable and wrong to balance the Medicaid budget on the backs of local governments that do not set the terms of eligibility or benefits.As you work with the Mayor to adopt a final budget, I urge you to take action to protect the important gains we have made toward creating a more equitable and just city.As I’ve said every year that I’ve testified before this body, my office has determined, based on analysis of historical experience and the advice of credit rating agencies, that the City should have a budget cushion of between 12 and 18 percent of spending. But since FY 2017, progress in increasing the cushion has stalled at around 11 percent.At the start of the last recession in FY 2009, the City’s budget cushion was equivalent to over 17 percent of adjusted spending. Despite those resources, and even with the help of the Obama stimulus bill, we were still forced to raise taxes and cut services to weather the storm.In order to be prepared to meet any future challenge, we need to generate more recurring agency savings.The most recent Citywide Savings Plan is expected to provide budget relief totaling $456 million this year, and $220 million per year on average through FY 2024. But, as in past rounds, much of the savings relies on re-estimates of spending, identifying federal, state or other funding sources, and on debt service savings, and too little from agency savings.I’m proud of the over $2.2 billion in debt service savings my office, working with the Mayor’s office, have achieved for the City over the last six years. But this cannot take the place of real agency savings. City agencies must work harder to identify recurring efficiencies. Too much of the savings from efficiency initiatives rests on just a handful of actions at a couple of agencies, and not enough on a broad-based effort to look at every nook and cranny of City agency spending to identify savings.Not only must city agencies contribute more to savings, they must be accountable for the public money they spend.Two years ago, I introduced the Comptroller’s Watch List to highlight areas of high spending growth and lackluster results. The watch list includes the Department of Correction and homeless services spending. This year we have also added the Office of ThriveNYC.This year we will spend more than double what we spent in FY 2014 on homeless services – $3.3 billion dollars across all agencies. But the shelter population remains near 60,000 people every night. We simply cannot continue to spend more than $3 billion a year without accountability for results. And we are just not seeing those results.Similarly—as we have reported for six years in a row— even while the jail population has been steadily falling, the cost per incarcerated individual is going up, and the culture of violence has not abated. Last year we spent nearly $340,000 per year to house one person on Rikers Island.With bail reform and changes to discovery laws, the jail population is declining even more rapidly. Now is the time to take the savings from reducing the incarcerated population on Rikers and invest in expanded programming and treatment, and in communities that have been harmed by decades of disinvestment, neglect, and the criminalization of poverty.With respect to ThriveNYC, I want to be clear – I fully support the intention of ThriveNYC, and I applaud the Mayor and the First Lady for bringing attention to the mental health needs of New Yorkers – especially those who have fallen through the cracks of our mental health systems in the past.But the very nature of ThriveNYC means that we need more than the usual level of information about spending and outcomes to evaluate the success of its 30-plus programs. And yet – the Office of ThriveNYC has missed its own outcome reporting deadlines, posted outdated budget information on its website, and failed to provide an accounting for FY 2019 spending – 8 months after the end of the year.If Thrive cannot provide this basic and critical information in a timely fashion, then I question whether it is the appropriate framework for delivering mental health services.To conclude, I hope my message today is clear because it’s urgent. The economic growth we’ve relied on in recent years is slowing down, especially when we look ahead to 2021. And as we have seen with the coronavirus, an unexpected shock can upend economic growth forecasts in ways that are difficult to predict today.We can, and must, do more to prepare for the risks and uncertainties that lie ahead. Today we face critical challenges in keeping our City affordable for our working families, as the costs of housing and child care soar. If we are not actively preparing today for the future, those challenges will only get more daunting. We cannot allow that to happen. We must ensure that we can continue to provide the promise of New York, today, and in the future.Thank you very much. I’m happy to answer your questions.###