Mayor de Blasio announces his revised budget today; it could bring us back to the ’70s. The mayor will borrow a good $2½ billion to pay for operating expenses — precisely the practice that led the city to bankruptcy four decades ago.
Luckily, one budget reform that came out of the ’70s crisis was a state Financial Control Board — with the power to nix such schemes before they lead to default. The board should tell the mayor now that it won’t allow this dangerous fiscal trick.
In 1975, New York needed a federal and state bailout. For years, the city had spent more — on workers and welfare — than it took in. It managed this by borrowing from banks — which didn’t care about the city’s plight, because they figured they’d get a bailout.
How craven were the banks and the advisers who supported this foolish borrowing?
Richard Ravitch, an informal adviser to Gov. Hugh Carey back then, notes in his new memoir that “in those six months” before the city went bust, “Merrill Lynch and the city’s six largest banks underwrote more than $4 billion in city debt despite New York’s lack of a truly balanced budget in over a decade.”
We won’t make that mistake again.
Or will we?
Last week, de Blasio announced a new nine-year teachers’ contract stretching back to the fall of 2009.
Teachers will get 18 percent pay hikes. The deal will cost $5.7 billion, says Moody’s, the bond-rating agency, although the city expects to save $1.4 billion in health-care costs by doing things like ordering drugs online.
But the biggest raises are in the past, not the future — 8 percent pay hikes for work done in 2009 and 2010, costing about $2.5 billion. (The mayor hasn’t really said how much, punting repeatedly on the question.)
Where’s de Blasio going to get that cash?
After Lehman Bros. collapsed in 2008, Mayor Bloomberg said the city couldn’t afford raises. That was true. Bloomberg barely balanced those years’ budgets. A year from now, New York faces a $1 billion budget deficit. But de Blasio has reached to the disco-era for a solution: borrowing.
He won’t start paying for the $2.5 billion or so worth of 2009 and 2010 raises until 2015 — and he won’t finish ’til 2020, in the next mayoral term.
No, de Blasio’s not borrowing from banks. He’s borrowing from the teachers. But that doesn’t make it better.The city is taking on a real debt — it will sign a legal agreement — to pay for work done 11 years prior to 2020.
This isn’t just borrowing to pay for operating expenses. It’s borrowing to pay for past operating expenses. It’s like taking out a car loan to pay for a fat tip to your building super for last Christmas.
The city’s bondholders should wonder at this novel way of taking on extra debt. Instead, they — or their advisers — are complacent.
On Wednesday, the rating agency Moody’s noted that the city is paying for past raises in the future because paying “a lump sum” now “would have been unaffordable.”
Well . . . yeah. It’s still unaffordable. That’s why we’re not paying now.
The Financial Control Board should kill this plan. Created to clean up the ’70s crisis and ensure it never happens again, the board meets every year to certify that the city’s budget is in balance — that is, that the city hasn’t borrowed long-term for short-term expenses.
The control board also has the duty of ensuring that the city’s budget conforms to “generally accepted accounting principles” — one of which is that you pay for expenses in the year they happen, not a decade later. If the city runs afoul of these rules, the board can take over.
Two decades ago, in 1991, the board did step in to warn then-Mayor David Dinkins off a plan to defer wage payments past the recession.
This time around, we’re not even in a recession — yet we’re resorting to a similar trick. Will the board be as brave now?
Gov. Cuomo controls the board. And Cuomo paved the way for de Blasio’s bad deal, allowing the MTA to commit its own fiscal sins to provide union raises last month.
But the board has independent members: state Comptroller Tom DiNapoli and city Comptroller Scott Stringer. They — and the governor’s appointees — must make clear that borrowing from the future to pay for the past is still forbidden.
CBGB and Studio 54 are long gone, sure, but this is not the way to get our nostalgia fix.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.