New York’s Looming Fiscal Disaster
The following is an excerpt from my forthcoming book “Dumb and Dumber: How Cuomo and De Blasio Ruined New York”
New York and NYC were already driving on the path to fiscal ruin, and the coronavirus pandemic has kicked it into overdrive as even more predominantly high income citizens are fleeing the Empire State and the Big Apple in droves.
New York had already faced a projected $4.2 billion budget gap for fiscal year 2022, but that’s likely to balloon to somewhere in the ballpark of $6–7 billion due to the pandemic. Not once in nine years as governor has Cuomo attended the annual meeting of the state Financial Control Board (of which he is the chairman). The only other governor since the 1970s who forwent those meetings was Eliot Spitzer.
For the sake of clarity, a budget gap is not a synonym for a budget deficit. New York isn’t like most states, because it lacks a balanced budget amendment requiring a legislature to pass a balanced budget and doesn’t have prohibitions on carrying over a deficit. However, while the legislature doesn’t have to pass a balanced budget, the budget the governor submits is required to be balanced. In other words, Cuomo will be forced to propose spending cuts and tax hikes, though the legislature may not pass that budget.
And it’s looking like the state will weigh tax hikes over spending cuts. Cuomo had technically frozen the wages of state employees on paper for ninety days, but the “freeze” simply defers eventual wage hikes.
According to E.J. McMahon of Empire Center, writing of New York City’s finances:
In [de Blasio’s] April budget proposal, the mayor tapped reserve funds, targeted federal coronavirus relief aid and savings from a hiring freeze to close a two-year gap of $8.7 billion. De Blasio also asked the state Legislature for authorization to borrow $7 billion to cover operating expenses—an extreme step for which he could offer no compelling justification. That idea didn’t get anywhere in Albany (although Cuomo himself had won authorization to issue up to $11 billion in deficit bonds).
In late May, de Blasio updated his financial plan to reflect a further $1.6 billion drop in revenues, warning the added shortfall might force him to lay off 22,000 city workers.
He made yet another borrowing request to the Legislature—this time seeking to issue $5 billion in deficit bonds over two years, again without demonstrating any immediate need for the money. Again, he was unsuccessful.
While the city is likely to layoff twenty-two thousand municipal workers due to the pandemic cash crunch, they still found enough money for de Blasio’s wife to continue spending $2 million a year on staffers.
Like Cuomo, the ideology of de Blasio suggests that even more tax hikes are to come to his city.
During her presidential campaign, 2016 election silver medalist Hillary Clinton proposed $1 trillion in new taxes (over the next decade). Joe Biden upped the ante in 2020 and pledged at least $4 trillion in new taxes. But to tally up all the taxes that de Blasio proposed in his short-lived candidacy for president, you had to add up all of Hillary’s and Biden’s proposed taxes and then double them to arrive at his $10 trillion in proposed taxes.
While that was his vision on a national level, not the city level, it epitomizes his mindset and vision for society. Among the various tax hikes he proposed nationally was a top tax bracket of 70 percent—though if he continues getting his way, we’ll reach a point where New York’s high earners pay as much.
Tax hikes thus far have funded an ever-growing government. Following the great recession of 2008–2009, the number of full-time and full-time-equivalent workers for the city contracted nearly 6 percent from 311,018 in 2008 to 293,550 by 2012. By the end of 2019, there were 22,841 more employed by the city than the prior peak in 2008, with employment growing 36,510, from 297,349 the year de Blasio took office to 333,859 by 2020. For each new public employee hired, he further adds to the ticking time bomb that is their public pensions.
When de Blasio took office, the city was halfway through a fiscal year where it would spend $76.2 billion. By 2019, the annual budget increased 20.5 percent to $91.8 billion. Personal income tax revenues specifically amounted to $9.2 billion the year de Blasio was elected and increased by a third (after inflation) by 2019.
As always, the problem is spending. The city’s debt exploded from $39.5 billion in 2000 to $91.56 billion by 2019. Local tax revenues increased by 174 percent over the same time period.
Overall, NYC already ranks number one when it comes to local tax burdens in the U.S. Things are still good for those in power, however, as de Blasio’s property tax bill on his homes worth a combined $3.6 million in 2020 was $9,000.