Urban Matters: George, Mayor Eric Adams and the City Council need to get to ‘yes’ on the next City budget in June. When you helped guide the Independent Budget Office you watched this process unfold many times. Is the Council likely to win major changes to what the mayor wants, and, if so, where?

George Sweeting: The horse trading leading to an adopted budget will go on behind closed doors. As always, the mayor has the stronger hand. His administration determines the revenue estimates for all taxes except the property tax, and that sets the basis for how much might be available for additional spending beyond the mayor’s Executive Budget.

In a typical year, the Council adds at least several hundred million dollars to the budget. This year is likely to follow the same pattern. But there’s a lot of uncertainty about the City’s fiscal condition in the coming years. That could result in smaller changes than usual.

For now, the Council has identified additional revenue it expects to be available, along with priorities for spending a portion of it. These include funding for rental assistance, supports that help families stay in their homes, and more generous vouchers to help people move from shelters to private apartments. They want restoration of cuts to programs they’ve made a priority in the past. They want more money for various education programs, including to allow some [pre-school] 3-K slots to extend to full-day and year-round operation, and address a pay disparity between 3-K teachers in DOE [Department of Education] sites and at sites run by community-based organizations. 

UM: Mayor Bill de Blasio substantially increased City spending and expanded the payroll. It stood at about 313,000 employees near the end of his tenure in 2021. Today the City’s authorized headcount is 303,000 and there are reportedly over 20,000 fulltime vacancies. Where has the shrinkage come, and does it matter?

Sweeting:  The reduction in actual headcount began in 2019, when de Blasio imposed a one-in-three ratio (later loosened to one-in-two) when replacing staff who left an agency. There were also reports that OMB [the mayor’s Office of Management and Budget] introduced greater scrutiny of hires and promotions and forced agencies to offer new hires the lowest salary designated for a given title. 

So vacancies began to pile up even before the pandemic. They grew as municipal workers reported being burned out by the demands of the pandemic and trying to maintain performance with fewer staff. Lack of flexible work schedules, and salaries that were increasingly uncompetitive, also made it difficult to fill vacancies and complaints continue about OMB’s review process of hires and promotions.

Vacancies are spread unevenly across City agencies. Some of the highest rates are in HPD [Housing Preservation and Development], where a shortage of expert staff is bogging down affordable housing projects, and in Social Services, where they’re reportedly running out of people to process SNAP [food stamp] and public assistance applications, making it harder for needy families to obtain benefits they are entitled to. The City Comptroller’s Office has put the spotlight on links between agency vacancies and lagging performance.    

UM: Adams also has negotiated far more generous raises with two large City unions – District Council 37 and the Patrolmen’s Benevolent Association – than he originally said he’d go for. Are we now headed for a better-paid but smaller City workforce? How will that solve the vacancy and services-gap problems you just described? 

Sweeting: Given the challenges municipal workers had to overcome to help keep New York functioning during Covid, and the jump in inflation last year, few observers believed the City’s target of 1.25 percent annual raises for workers would stick. DC 37 won three percent annual raises over five years; it sets the pattern for other civilian City workers. The PBA deal is for eight years, with the final five establishing the pattern for other uniformed services. As usual, it includes raises slightly higher than in the DC 37 deal. 

At the same time, the contracts may also contain the seeds for a recovery in the size of the workforce. Both contracts contain provisions for experimenting with more flexible work schedules. Until now, the City has required most office workers to be at their desks five days per week, which has contributed to an exodus of workers and hampered efforts to recruit replacements. If these experiments are successful and the City adopts more flexible work schedules, it should help retain and recruit staff. With fewer vacancies, agencies should be better positioned to meet performance targets. 

UM: Final question. A budget is just a plan, and plans oft go awry. Earlier you said that there’s a lot of uncertainty in the City’s finances. What might knock the budget off-kilter?

Sweeting: The City has balanced its budget every year since the 1970s and is on track to do so again. Still, there is no shortage of factors to worry about in the months ahead. 

In the short term, so far largely unmet calls for the State and Federal government to bear more of the costs of dealing with the influx of asylum-seekers has left the City potentially on the hook for billions of dollars. 

There also are technically independent entities critical to the city’s functioning such as NYCHA [the public housing authority] and the MTA, both of which face serious financial challenges. In the past, the City has stepped up (sometimes at the prodding of the State and/or Federal governments) when additional funding is needed. How much it could afford to contribute given other demands is unclear.

The economy is another factor. A slowing economy in calendar year 2023, which is expected to limit tax revenue growth for Fiscal Year 2024, could make for an even bumpier ride.

OMB’s economic forecast also assumes slow growth over the next few years, with the Fed [Federal Reserve central bank] succeeding in bringing inflation down without triggering a recession. But the likelihood of that decreases with each additional interest rate increase. The recent disruption in the regional banking sector has prompted banks to tighten credit standards, amplifying the Fed’s actions. 

Finally, the debt ceiling cliffhanger is likely already raising the Federal government’s borrowing costs – they went up by $1.3 billion during the 2011 debt ceiling negotiations which also cost the U.S. its AAA credit rating with Standard & Poor’s. But the real uncertainty is what happens if a negotiated deal fails to get approval and the U.S. defaults. Predictions range from modest disruptions to a catastrophic global financial crisis. 

George Sweeting is a Senior Fellow at the Center for New York City Affairs at The New School. For more than two decades he managed research, analysis, and economic forecasts at New York City’s Independent Budget Office, ending his tenure earlier this year as IBO’s acting director.

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