TESTIMONY
Brad Lander, New York City Comptroller, on the City's Preliminary Budget, Economic Recovery, and Strategic Investments
4:01:13
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18 min
Brad Lander, New York City Comptroller, critiques the preliminary budget and economic conditions while offering recommendations for strategic investments and improved transparency in budget processes.
- Highlights issues of transparency in the budget process and criticizes the administration's handling of budget projections for asylum seeker services.
- Discusses the gradual economic recovery, focusing on job growth in lower wage sectors and the need for a focus on housing affordability.
- Advocates for significant investments in affordable housing and better fiscal management to avoid future service cuts.
- Stresses the importance of strategic long-term planning to ensure the city's economic growth and manage the affordability crisis.
- Concludes with recommendations to improve the efficiency of budget allocations and investments in critical areas such as housing, education, and services for asylum seekers and undocumented children.
Brad Lander
4:01:13
Good afternoon, chair Brennan, and members of the finance committee and the council.
4:01:17
Thanks for having me here to talk about the city's preliminary budget, current economic conditions, transparency in the budget process, or more precisely the lack of it, and an appropriate management response to our city's most pressing needs.
4:01:31
I'm joined today by executive deputy controller Francesco Brindisi and deputy controller for Budget.
4:01:35
Krista Olson.
4:01:37
We released our report today on the preliminary budget and financial plan, and I understand the council now is doing electronic reports on those fancy new tablets.
4:01:45
In the future, we won't bring the reports.
4:01:47
But today, we have the last printed copies.
4:01:50
You guys have special editions.
4:01:55
Despite the whiplash that we've experienced since the last budget was adopted in June, largely as a result of the mayor doing quite a few twists turns and two step in the budget dance all by himself, and the associated lack of transparency around the city's finances are reported whether in print or digitally provides clarity about where we are and how those financial conditions have evolved.
4:02:18
We also look at how critical circumstances have been impact by Adams Administration budget cuts and at how the city could do better at managing spending on overtime claims, Carter cases, and emergency procurement.
4:02:31
The city continues a gradual economic recovery.
4:02:34
Jobs have rebounded and are now slightly above pre pandemic levels.
4:02:38
But growth has been largely concentrated in lower wage health and social service sectors, and we project that growth will continue at a modest pace.
4:02:47
As we spend a lot of our time discussing, rent remains critically high, not just burdening families, but burdening the city's future economic growth potential, urgently need a deal in housing, on housing, in Albany this year to increase housing supply at all income levels with a focus on affordability.
4:03:05
To better protect tenants from eviction with good cause protections, and especially to fund housing vouchers to help people escape homelessness into permanent housing.
4:03:13
And we do also need and can afford more city investment in affordable housing.
4:03:18
I'll come back to that at the end.
4:03:20
Turning to the preliminary budget.
4:03:22
I first want to identify 2 ways in which the Adams administration's approach to the process has really unhelpfully muddled budget conversation first.
4:03:31
Last June, at the time of FY 24 budget adoption, the administration presented the 5th year 25 budget gap as being $5,100,000,000.
4:03:41
Then just a couple of months later in November, They projected that to increase to $77,100,000,000 even after a round of PEG Savings And then just a few weeks later in January, presented it as a balance budget, that $7,000,000,000 gap disappearing entirely.
4:04:00
Now Some of those changes are due to increases in revenues, although I'll note that both the council's projections and our projections were closer to reality than the administrations.
4:04:10
And some due to savings, largely reestimates of personnel as a result of vacancies, but a large part of that dramatic shift is due to the administration's wild swings in the estimate of costs for services for asylum seekers.
4:04:25
At budget adoption last June.
4:04:27
They projected the 2 year cost for FY 2425 at $3,91,000,000 than just 2 months later in August outside the normal budget schedule.
4:04:37
And without any particular new information about border policy or migration shifts, they increased projection is $6,900,000,000, a whopping 177 percent increase to a total of $10,820,000,000 And then more recently, they lowered it to 9,000,000,000, and they've indicated that they plan to lower it further still in the executive budget.
4:04:59
Meanwhile, the level of actual spending that has already occurred cannot be reconciled in the city's own financial manage system with the numbers that they've given to you and to us indicating that they've spent.
4:05:11
So those dramatic variations make it difficult to accept these projections, their projections with confidence.
4:05:18
And given the timing of those announcements, it's quite reasonable for the council to believe that they were made for the purpose of establishing a rationale to order large pegs from city agencies and then reverse the worst of those pegs in show of magnanimity.
4:05:33
And indeed, just after adjusting the forecasted gap up by $7,000,000,000 in August, the administration announced in September that PEG Savings would be in the 3 upcoming plans, each of them at 5%.
4:05:46
Combined with hiring freezes and other spending was freezes and then restored a small number of the initiatives that were cut in the November plan, canceled the 3rd round of pegs in the executive budget, and pulled back hiring and spending freezes.
4:06:01
These unnecessary twists and turns in the budget dance muddle the budget process and needlessly confuse the conversation.
4:06:11
Further clouding that picture is the significant under budgeting of many predictable expenses in the adopted budget, including rental assistance, special education, harder cases, and over time.
4:06:22
This pattern of under budgeting expenses despite knowing that these costs will be incurred has become a habitual part of the city's budgeting, but it is not a good practice.
4:06:33
A more accurate reflection of those expenditures would have added $3,970,000,000 in expenditures over the 2 years of the plan in the budget that you adopted last year.
4:06:44
And roughly that pattern of about $4,000,000,000 of under budget expenses is continued in the current preliminary budget.
4:06:52
In addition, the mayor has not yet been clear on which federal fund which programs funded with federal stimulus dollars will be continued or will be ended.
4:07:02
So where does all this leave us?
4:07:04
And this is the bottom line of this report.
4:07:07
The controller's office projects that the city will end the current fiscal year in June with a small surplus of $214,000,000.
4:07:14
However, where OMB projects a balanced budget for fiscal year 25 The controller's office projects a gap of $3,300,000,000 in fiscal year 2025 that will need to be closed.
4:07:29
By the time of budget adoption as well as through that year.
4:07:34
In the longer term, fiscal projections are challenging because that's structural under budgeting is compounded by 2 significant areas of long term uncertainty, spending for asylum seekers where long term projections are in many ways to guesses, and the cost of reducing class sizes per state legislation, which is fully unbudgeted in the preliminary budget.
4:07:55
If you leave those expenses out and go basically with projections for the near term and carry them forward, then my office projects out year gaps of about $8,500,000,000 or about 7.5% of total revenues for the out years for fiscal years 26 through 28.
4:08:13
If you include projections of asylum secret costs and the class size mandate, then those restated gaps grow to $10,500,000,000 in fiscal year 26 and could reach $13,500,000,000 in fiscal year 28, nearly 12% of total revenues.
4:08:32
How should we approach those gaps?
4:08:33
So we released another report last week that you'll have to get online, the bottom lines, which outlines a better approach.
4:08:43
Rather than cuts to essential services that New Yorkers rely on, we should work harder to cover those growing future year gaps through stronger fiscal management.
4:08:52
As I've advocated before, the city's fiscal health would be much better served by implementing efficiencies and cost savings in each budget modification with incentives for agencies to achieve structural and long term savings without cutting core services rather than through erratic surprise announcements of Peg exercises that emphasize short term cuts.
4:09:14
It continues to be imperative that we reserve our rainy day funds for true recessionary times despite current fiscal challenges.
4:09:22
The New York City economy is projected to grow at a moderate pace, so I urge the council to adopt a target for the rainy day fund and rules for deposits and withdrawals that remove the fund from the back and forth, budget dance, budget negotiation process.
4:09:39
There are places though where long term savings really can be achieved, and we've outlined several of them in this report and past reports.
4:09:47
We've offered a plan to reduce Carter case settlements by providing better special education services in the public schools so people don't need to go outside them.
4:09:57
We urge age making agencies responsible for claims payments and settlement payouts as we recommended in an analysis of collisions that we did earlier this year.
4:10:07
Last year, the city paid out over $1,500,000,000 in settlements.
4:10:12
But the agencies that are responsible for the harms that are being settled.
4:10:16
Bear no responsibility on their budgets for those payments so they don't have any incentive to reduce them.
4:10:23
If you put the claims responsibility on the books of the agencies, then you'll get commissioners involved in saying, how could we have fewer crashes?
4:10:31
How could we cause less harm and have fewer payouts?
4:10:34
We think you could save 100 of 1,000,000 of dollars.
4:10:39
We've also repeatedly identified significant opportunities for savings through better management of emergency procurement.
4:10:45
Last week, our now has found that 4 separate city agencies had entered into 4 separate emergency contracts, 4 asylum seekers staffing service for the folks who staff the various asylum seeker facilities, but for many of the exact same services, but 3 of those contracts were issued without competitive bidding, and the result is wide cost variation in one particularly egregious instance.
4:11:10
SLISCO, an emergency contractor procured by New York City Emergency Management, charged hourly rates that were 237% more than a similar contract procured by DHS.
4:11:23
Looking at just one facility in Midtown, we found that hiring new city employees instead of going with the contract that was in place could have delivered as much as $50,000,000 in savings.
4:11:35
And we also in addition to claims Carter It's an emergency procurement, identify uniformed over time, especially on planned events as another area that we consistently under budget but could achieve real savings on.
4:11:50
And those reductions would be far better than many of the short sighted cuts that are included in the preliminary budget.
4:11:56
I'm not gonna go through these in as much detail because you went through them in your questions with the budget director, but CUNY has faced a communicate of $95,000,000 in annual cuts when all of the various rounds have had of administration pegs.
4:12:11
Are taken into account and it is having a real impact on their budget.
4:12:15
Libraries still face the impact of earlier cuts and can't afford to stay open 7 days a week.
4:12:21
The administration's cuts to alternatives to incarceration and slow walking, the construction of the outposted therapeutic beds that are supposed to be coming online, similarly shortsighted those programs keep our community safe and they save money in the long run and ATI is much less.
4:12:39
Than a comparable amount of time.
4:12:41
At Ryker said to call that a re estimate when it reduces the number of people who can be served in the program is misleading.
4:12:48
It is a I also hope the council will continue its strong advocacy to maintain adequate funding for 3 k and ensure the number of seats meets demands in neighborhoods across the city as I heard from several council members.
4:13:00
In questioning, similarly, Promise NYC has become a critical program for young undocumented children and their families that funding should be baselined.
4:13:11
And for early childhood professionals, we really do need to amend.
4:13:15
This is the previous administration, the De Blasio administration's broken promise and ensure true pay parity.
4:13:21
We'll have more on that in the coming days.
4:13:23
I urge the council to maintain funding for community schools, a 155 critical programs for 40,000 high need students all across the city to support funding for shelter based education coordinators.
4:13:36
We have so many schools now where you have a greater number of kids and shelter who are homeless.
4:13:42
We cannot lose that critical program when stimulus funds that are paying for it, run out, and there are critical investments to be made in accessibility in our schools so that they can serve students and parents with disabilities.
4:13:56
Finally, rather than evicting individuals and families from shelter just 30 or 60 days after days have arrived.
4:14:03
The subject of legislation that you heard last week.
4:14:06
We should invest in the legal services, case management, assistance to obtain work authorizations and workforce development that enable these new New Yorkers to get on their feet and move out of shelter into meaningful self sufficiency.
4:14:19
We need to scale up and prove coordination and job placement and better measure the impact of programs like the temporary protected status clinic and the asylum seeker application help center Of course, if you're getting evicted from shelter after just 30 or 60 days, the likelihood you're going to succeed through those centers and programs is dramatically diminished.
4:14:40
And I'll conclude with just a couple of comments on the capital budget, which I noticed were of significant comment back and forth.
4:14:47
During the budget director's testimony.
4:14:50
The preliminary budget reduces the city's capital commitment plan by $5,900,000,000 for the plan period from fiscal year 24 to 28, and does not fully reflect the needs as you discussed for the school construction authority, Burrow based jails, the portion of the BQE owned by the city and other needs.
4:15:09
But I wanna just address a little here about the debt limit Because the budget director said a couple of times, you know, that that was a reason why we can't put more money in affordable housing or we can't meet the diversity of needs that we have.
4:15:23
First, I will say that the remaining debt capacity as of fiscal year 2024 is not $10,000,000,000 as I think I heard him say it's $26,700,000,000.
4:15:35
That's the remaining capacity we have under the current debt limit.
4:15:39
Now it is projected to narrow in future years because more commitments will come into the plan for all of those needs.
4:15:46
And what paces the debt limit is the o a a kind of very convoluted estimate of the overall value of city property and that has slowed as a result of the pandemic.
4:15:56
So the gap is narrowing.
4:15:58
However, The Governor Hochol has put a $12,000,000,000 increase in the city's debt limit in her executive budget.
4:16:06
And assuming that that is adopted and we believe that is reasonable and appropriate to do so, neither OMB nor the controller's office.
4:16:15
Project that the city would hit its debt limit, even including all of the Ryker's expenses, the additional money from the SCA plan, and the BQE in the budget anytime in the next decade.
4:16:28
So we believe that the governor's proposal for the $12,000,000,000 and the debt limit is needed, but the debt limit is not a reason that the city can't invest an additional $1,000,000,000 or $2,000,000,000 in affordable housing or meet reasonable capital expenditures.
4:16:45
Now we should strengthen the provision to make sure we stay below 15 per percent debt service against tax revenues in our budget every year.
4:16:56
That number currently is at about 10%.
4:16:59
So we have meaningful room between that 10% we're currently spending on debt service and that 15% limit that it's critical to stay below.
4:17:08
We'll be offering some suggestions about how we can do better to strengthen our policies, to make sure we stay below 15%.
4:17:14
But we can do that consistent with the spending that's been discussed in the capital plan with the $12,000,000,000 increase that Governor Hochol has proposed in the executive budget.
4:17:24
I wish I believed that the city could actually achieve the capital commitments that we're talking about.
4:17:29
Every year, we wind up spending less than we project.
4:17:33
That has gotten a little better in recent years, and I wanna give DDC and OMB credit for improving those procedures.
4:17:41
But I don't believe we will be able to hit every dollar that we're projecting to spend.
4:17:45
And even if we did, as long as we get the $12,000,000,000 increase proposed by Governor Hochol, neither OMB nor the controller's office project breaching the debt limit anytime in the next decade.
4:17:56
That means there is room to do things like put some additional capital into affordable housing, which I really believe, as I said at the beginning, should be our number one priority.
4:18:06
It's making it impossible for families to live here and it impacts business growth in a significant way.
4:18:12
In my mind, it is the most significant limit on the city's economic growth going forward.
4:18:17
So I urge the council to fight for much larger investments in permanently affordable community controlled rental housing, like the neighborhood pillars program that helps save affordable housing and put it in, nonprofit ownership, ex expanded limited equity cooperative homeownership program, 21st century vision of the Mitchellama program.
4:18:39
We'll have more to say about this incoming days.
4:18:42
But in addition to the action, we need an Albany, in addition to the ability to build a lot more housing and protect tenants Investments in genuinely affordable housing is one of the biggest things that the city can do to confront our affordability crisis.
4:18:58
I will note that to convert those dollars if we make them into real projects.
4:19:02
HPD does need additional resources to clear its backlog, develop, and train new staff.
4:19:07
And expand the housing footprint, and we've offered some ideas for how it can do that in a recent report building blocks of change.
4:19:14
To conclude, our short term decisions must not shortchange the city's future, sound management and strategic investments are required to face the city's fiscal challenges, confront the affordability crisis, and ensure strong economic growth in the years ahead.
4:19:31
Thank you very much.