With the City Council in the thick of hearings on next year’s budget, Comptroller Brad Lander says he’ll be calling today on members and Mayor Eric Adams to increase their addition to the city’s financial reserves by almost $2 billion.
He will also propose establishing a formal system requiring annual deposits in order to build up a cushion of 16% of tax revenues. Under the mayor’s proposed budget, city reserves next year would be a little more than 7%.
Lander says the goal is to ensure continuity in city services and avoid austerity measures should the city face an economic shock, while forcing politicians to save for the future despite pressures to spend immediately.
“I was in the City Council during the Great Recession when we were eliminating teachers, closing firehouses, and cutting services,” Lander, formerly a Council member from Brooklyn and a founder of its Progressive Caucus, told THE CITY. “If building up reserves stays as part of the budget no mayor or Council will adequately prioritize the long term.”
The purpose of reserves is to avoid budget cuts or being forced to raise taxes when a recession depresses revenues or an unexpected event requires more spending.
Because New York has, since the fiscal crisis of the 1970s, operated under very strict accounting rules requiring a balanced budget each year, the city was not allowed to create a specific rainy day fund to use when revenues decline. As a workaround, the city deposited money in a fund designed to pay for retiree health benefits during good times and withdrew it to plug budget holes when the economy plunged.
Legislation passed in 2020 allowed the city to establish a rainy day fund. The mayor’s budget proposal calls for depositing an additional $700 million in the fund in the fiscal year that begins July 1. Combined with money already in the retiree fund, the city will likely have $5.1 billion at the end of the fiscal year, which is a record in terms of dollars but not a record as a percentage of the budget.
Lander says his long-term plan to require a set-aside of 16% of tax revenues could see the city through a recession that lasts about three years.
Since property taxes are comparatively stable, his plan concentrates on the performance of taxes like income and sales. Each year that growth in the proceeds from those taxes exceeds the average of the previous six years, half of the gain over the average would be deposited in the rainy day fund and half could be spent.
Lander also calls for establishing rules under what circumstances the city could tap the rainy day fund, though doesn’t offer a specific proposal for criteria. The formulas for deposits and withdrawals could be established in either state and city legislation, he adds, but could also be a policy adopted by the mayor.
The Citizens Budget Commission, a long-time advocate of putting more money in reserves and implementing formal guidelines, supports the Lander plan. But President Andrew Rein sees a broader significance in the fact that the proposal is coming from a politician who has long identified as a progressive.
“Comptroller’s Lander’s voice is important because it can broaden the group of New Yorkers who can get behind the proposition that it is important to not spend every dollar now and to save the future to protect those most in need when they need it most,” he said.
While the concept of building up reserves has widespread support across the city’s political spectrum, actually setting aside another $1.8 billion in the upcoming budget is likely to be much more controversial.
Mayor Eric Adams increased spending by $1.2 billion in his executive budget proposal compared with his preliminary plan released in February. Council members and advocacy groups are lobbying for more social services including mental health and youth programs that would add billions more to the budget.
Moreover, the Adams administration has set aside only $1.7 billion for pay raises for city workers as it begins negotiating new contracts with its unions. A 3% annual increase in pay would cost the city $4 billion over the next four years, the Citizens Budget Commission estimates — more than double the amount set aside — making a higher labor reserve a pressing priority.
Lander argues this is precisely the time to start setting aside more because sales and tax collections are much higher than expected: as much as $3 billion that has not yet been recognized in the budget. He also warns that with the Federal Reserve raising interest rates and the stock market plunging, the risks of a recession are increasing.