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State Budget Crisis Part Two: UPDATE-NYC WANTS TO BORROW LONG-TERM TOO

I wrote on my blog on May 28th https://jimbrennanscommentaries.com/2020/05/28/state-budget-crisis-part-2-budget-cuts-loom-as-dc-aid-stalls-but-nys-can-fill-gap-without-tax-increases/  advocating New York State address its looming budget deficit by borrowing long-term to help avoid severe cuts to schools,hospitals, and local governments, especially with aid from Washington stalled. The State’s budget adopted in April specifically permits the State government to do this.

New York City is reported to be seeking permission from the State to allow it to borrow up to $7 billion long-term to cover part of a $9 billion deficit spread over the City’s current fiscal year and the new one beginning July 1st,2020 https://www.nytimes.com/2020/05/29/nyregion/budget-borrow-coronavirus-ny.html . The City must adopt its budget this June. Governor Cuomo expressed misgivings about the proposal, which needs approval from both him and the State Legislature. He also worried allowing the City to borrow might dissuade Congress from providing New York the massive financial relief it needs at all levels of government, State, City, and other municipalities.

Concern about avoiding giving Congress any excuse not to help New York is certainly a point worth considering for New York’s leaders. The State and City can always restore cutbacks if aid from Washington finally materializes. The State’s Financial Plan also backloaded implementation of about 40% of the State’s $10 billion in budget cutbacks to the final quarter of the State’s fiscal year, in Jan.-March 2021. New York City could execute a similar plan.

New York State will likely hold off on making any decision about how much to borrow long-term until it finally sees how much Federal financial relief is going to come through. It can postpone a similar decision about the City’s borrowing request for the same reason- knowing how much Federal aid is forthcoming.

New York State and City could make very modest cutbacks now and hold on for as much Federal aid as possible. If the Federal aid comes through but fails to fully cover the State and City’s deficits, the decision to borrow long-term can be made even as late as early next year.

If the State does finally decide to cover some of its deficit by borrowing long-term, it should not discriminate against the City and refuse to grant it the same authority. That would be unfair and ultimately counterproductive- in recent years the City’s economy has been producing 80% of all the new jobs in the State https://jimbrennanscommentaries.com/2019/08/22/new-york-city-dominating-state-job-growth-rest-of-state-still-growing-slowly/  and New York State as a whole needs a healthy New York City. If the State spares itself pain by borrowing some money it needs to let the City do the same thing.

 

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