Sunday, June 9, 2024

Comptroller Lander Proposes Charter Revisions to Better Manage New York City’s Finances

 

Lander calls on Charter Revision Commission to demonstrate its independence & seriousness by adopting provisions to strengthen the City’s fiscal management, build reserves, achieve long-term efficiencies, overhaul capital planning, and pay vendors on time

New York City Comptroller Brad Lander proposed a comprehensive set of enhancements to New York City’s fiscal framework to solidify New York City’s financial foundation for the future. Five decades after adopting the Financial Emergency Act (FEA) during the City’s fiscal crisis of 1975, Comptroller Lander’s proposals build upon the FEA’s core provisions for both the City’s operating and capital budgets. The proposals presented in Comptroller office’s latest report, A Stronger Fiscal Framework for New York City, could be codified through amendment of the New York City Charter. Lander called on the hastily-appointed Charter Revision Commission empaneled by Mayor Adams to place them on the ballot this fall.  

“There is good reason to doubt Mayor Adams’ motives for appointing the Charter Revision Commission, but there’s no doubt that our City needs better management—including better fiscal stewardship,” said Comptroller Brad Lander. “If the Charter Revision Commission wants to demonstrate that it is independent and serious, here are five constructive proposals to improve the way our City is run. Fifty years after the City’s fiscal crisis, it’s past time to ensure that we accumulate sufficient reserves for times of economic recession, run City agencies more efficiently while avoiding cuts to vital services, maintain the affordability of the City’s debt, and overhaul our capital planning to better face the future in an era of aging infrastructure and climate crisis. This is also a critical opportunity to start paying our vendors on time – including our nonprofit human service providers and MWBEs – something we have failed to do for many years.”  

New York City has the largest municipal budget in the country by far, with an annual operating budget of more than $110 billion, a capital budget with $88.1 billion in expected commitments, and debt issuers projected to borrow $70.6 billion over this and the next four fiscal years.  

In 1975, following the near bankruptcy of the City during its worst fiscal crisis caused by a combination of shifts in the global economy and the City’s own weak financial practices, the FEA established a framework that guided the City out of its fiscal crisis and put in place strong practices that credit rating and oversight agencies consistently praise. Nearly fifty years later, the City should reflect on the FEA framework (the emergency elements of which largely expired in 2008) and how it can be improved. Comptroller Lander’s proposals to better manage the City’s finances, which build on the FEA’s core provisions, include:

1. Adopt a policy to govern the target size, deposits, and withdrawals from the City’s rainy-day fund. Although voters established the rainy-day fund in 2019, there are no policies to govern its target size or deposits. As a result, the deposits into the fund are subject to the vicissitudes of annual budget negotiations, are far below what the City would need to get through a recession, and could be rapidly depleted by the mayor outside the context of a genuine economic downturn. The City Charter (Chapter 58, Section 1528) should be amended to require the adoption of a formula-driven policy to determine the City’s rainy-day fund target size, deposits, and withdrawals. The Mayor, the City Comptroller, and the City Council should determine the parameters and features of the policy. Reporting on implementation of the rainy-day fund policy should be required annually to the City Comptroller, the State Comptroller, the Financial Control Board, the City’s Independent Budget Office, and the public.

2. Mandate regular efficiency reviews and long-term savings targets, including making agencies accountable for judgments and claims against the City which are their responsibility. While the FEA mandates quarterly updates of the City’s financial plan, efficiency reviews and savings plans are not a part of that process. Instead, the Mayor can propose Programs to Eliminate Gaps (PEGs) on an ad-hoc basis and are predominantly comprised of short-term savings, budget re-estimates, and personnel accrual savings. At the same time, the City’s budgets often structurally and unreasonably underestimate recurring and non-discretionary expenses. To address these weaknesses, the Charter should be amended to require and facilitate the Office of Management and Budget (OMB) to work with City agencies to set multi-year savings targets, implement efficiencies that produce recurring savings, eliminate the chronic underbudgeting of recurring and non-discretionary expenses, more accurately budget the cost of the City’s workforce, establish a regular framework for reporting on savings with oversight, and move financial responsibility for judgments and claims from central budget to agency budgets. On the same timelines, agencies could propose new programs for OMB and City Hall’s consideration, along with metrics for determining whether these programs are meeting their outcomes. These programs could then be funded with savings achieved through the efficiency planning process.

To provide the institutional framework for the achievement of these goals, the Comptroller proposes the following amendments to the City Charter: 

  • The budget process (Chapter 10) should be modified to include the formulation of annual efficiency reviews and long-term savings initiatives for City agencies. The Charter should mandate annual reporting to the City Council, the City Comptroller, and the City’s other fiscal monitors on the implementation of these efficiency measures and long-term savings initiatives, and allow fiscal oversight entities to access information that is necessary to provide independent assessments.  
  • The expense budget (Chapter 6) should be amended to require the creation within each agency’s expense budget of a unit of appropriation for judgments and claims. 

3. Require that debt service does not exceed 15 percent of City tax revenues and that the Capital Stabilization Reserve be used to ensure this target is maintained. Annual debt service (consisting of New York City General Obligation bonds, New York City Transitional Finance Authority Future Tax Secured bonds and City-related subject to appropriation debt) as a share of local tax revenue is a key measure of debt affordability. While the City’s 15 percent threshold is included in the City’s Debt Management Policy and is a widely accepted benchmark, there is currently no procedure for ensuring that the target is maintained.

The City Charter (Chapter 10, Section 258) should be amended to require that:

  • Annual debt service does not exceed 15 percent of City tax revenues in each year of the financial plan.
  • The financial plan includes a Capital Stabilization Reserve in each year of the plan in a minimum amount to be indexed over time. This reserve is already included by the Mayor in each year of the financial plan as a matter of policy.   
  • The City deploys the Capital Stabilization Reserve to pre-pay debt service in any fiscal year within the financial plan where debt service is projected to be above the 15 percent threshold.

4. Modernize the City’s approach to infrastructure assessment, capital planning and budgeting to comply with Government Finance Officers Association (GFOA) and Municipal Finance Officers’ Association (MFOA) best practices. The City’s Asset Inventory Management System (AIMS) should provide an annual condition assessment of the City’s capital infrastructure, but the AIMS report does not accurately identify the true costs of maintaining the structural integrity of the City’s major infrastructure assets. Meanwhile, the Ten-Year Capital Strategy serves more as a list of agency-generated projects than a strategic set of priorities. The City needs to modernize its capital planning and budgeting process to include better infrastructure assessments (including more effective use of technology) and a process for prioritizing long-term infrastructure investments based on clear criteria that address aging infrastructure, climate resiliency, criticality, and the cost of deferred maintenance. 

The Office of the Comptroller proposes to amend Chapter 49, Section 1110-a of the City Charter to:  

  • Explicitly state that the purpose of the infrastructure assessment is to inform the Ten-Year Capital Strategy.  
  • Require the inventory to include pertinent details about the function, location, structural dependencies, estimated useful life, and most recent condition assessment of each asset.  
  • Require that each agency conduct a realistic assessment of its capital assets based on a protocol developed by the Office of Management and Budget.   
  • Require the identification of the capital needs to be included in the Ten-Year Capital Strategy based on considerations including the level of deterioration (particularly any asset conditions that jeopardize public safety), the criticality of an asset to an agency function or mission, and federal and state requirements that may apply to certain types of assets.   
  • Require a justification for the exclusion of recommended capital needs from the Capital Commitment Plan. 

5. Mandate timeframes for each stage of the contracting process. Late registration and payment of contracts is a longstanding flaw within the City’s financial management practices. Over three-quarter of the City’s contracts with nonprofit organizations are registered late, with an average retroactivity of eight months. As a result, nonprofit human service providers, MWBEs, and other vendors struggle with cash flow and face severe financial difficulties. 

In February 2022, Mayor Adams and Comptroller Lander released an Action Memo: A Better Contract for New York: A Joint Task Force to Get Nonprofits Paid On Time. The first recommendation was to establish timeframes for each stage of the procurement and contracting process in order to hold the City and vendors accountable for the timely registration of contracts, and in turn, so that the City has the ability to pay its vendors timely. Currently, there are no mandated timeframes that govern the City’s procurement process outside of the 30-day review period that is mandated by the City Comptroller’s Office as set forth in the Charter. Over two years later, the City has yet to implement this recommendation. 

The Office of the Comptroller proposes to amend Chapter 13, Section 311 of the City Charter to require that the Procurement Policy Board set prompt contracting timelines for each step of the procurement process and report regularly on how well each contracting and oversight agency is complying with those timelines. 

In addition to the five proposals to amend the New York City Charter, the Comptroller’s fiscal framework calls for making the core features of the FEA framework permanent. The core features of the FEA framework will expire after November 15, 2037, or earlier, if outstanding bonds that contain the State Covenant from subdivision one of section 10-a of the FEA were to be refunded. State law should make several of the main features of the FEA framework permanent, including:  

  • The General Debt Service Fund, which retains the City’s property taxes upon collection and prioritizes them for payment of GO debt service and any short-term debt.  
  • The FEA provisions that were added over time to the City Charter (budget balancing, GAAP accounting, four-year planning, etc.) 
  • The fiscal monitoring functions and the annual certification of the Financial Control Board (FCB), with the addition of provisions enabling fiscal oversight entities to collaborate more effectively.

In response to Comptroller Lander’s report, numerous fiscal watchdogs voiced support for its proposals. 

“This Charter Revision Commission presents an opportunity to review and improve the rules that govern our City,” said Independent Budget Office Director Louisa Chafee. “As an independent agency with a steadfast commitment to sound fiscal management, transparency, and government accountability, the IBO welcomes the proposals shared by the Comptroller as an important contribution to this effort. IBO looks forward to participating in a robust and wide-ranging examination of ways to enhance New York City governmental functions through this Charter Revision Commission process.”   

The Comptroller plans to present this fiscal framework to the Charter Commission in the coming days. Read in full here.

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