NYC November budget update shows migrant costs to hit $12B in FY ’23-25

Bonds

While New York City’s $110.5 billion fiscal 2024 budget remains balanced, the costs associated with dealing with the influx of migrants will soar over the next several fiscal years, according to the November financial plan update released Thursday.

So far, the city has already spent $1.45 billion in fiscal 2023 to provide food, shelter and services to tens of thousands of migrants. The city said that without additional federal and state funding, new cost estimates show it may wind up spending more than $12 billion over fiscal 2023, 2024 and 2025.

New York City Mayor Eric Adams hosted a rally in August to push for expedited work authorization for migrants.

Bloomberg News

Almost 100,000 migrants have arrived in the city, officials said, and many more are expected.

“Since last year, nearly 100,000 asylum seekers have arrived in our city asking for shelter, and we are past our breaking point,” New York City Mayor Erix Adams said.. “New York City has been left to pick up the pieces of a broken immigration system — one that is projected to cost our city $12 billion over the course of three fiscal years without policy changes and further support from the state and federal governments.”

“Our compassion may be limitless, but our resources are not,” he said. “This is the budgetary reality we are facing if we don’t get the additional support we need.”

The city’s budget has increased almost $3.5 billion since June, when the mayor and city council came to an agreement on the spending plan.

In September, Adams directed every agency to implement a 5% cut in future spending for the financial update.

The cuts are being accomplished through the so-called “program to eliminate the gap” (PEG) with a 5% reduction in spending being part of the November plan update for fiscal 2024, an additional 5% cut in January’s preliminary fiscal 2025 budget and a further 5% reduction in April’s executive budget for fiscal 2025. The city’s fiscal year begins July 1. 

Under the November plan, the city will postpone hiring new police officers, reduce trash pickups as well as make cuts to its 3K and pre-K programs.

City officials said they plan to eliminate the next five classes of police recruits, which would bring the number of officers down to about 29,000 by the end of fiscal 2025 from about 33,000 now. Cuts are also planned at libraries that offer Sunday services, while the city’s education budget will be cut by about $600 million in this fiscal year and each of the next two fiscal years.

“Clearly part, but not all, of the city’s budget strain is derived from costs associated with asylum-seeker care,” said Howard Cure, director of municipal bond research at Evercore Wealth Management, LLC. “This is a national emergency and requires financial resources from the state and federal governments.”

“The state will have its own budget hurdles dealing with less federal aid for Medicaid and seeing if they will maintain K-12 school aid despite a decrease in enrollment,” Cure told The Bond Buyer.

“On the federal level, Congress may not be as willing to help alleviate the financial pressures on cities based on its own difficulty in passing the federal budget as shown by the need to enact continuing resolutions. Financing from the state and federal governments for migrant care will have a big impact on the city’s finances,” he said.

State Comptroller Thomas DiNapoli said the update highlighted the difficult steps the city needs to take to generate enough savings to keep the budget balanced this year.

“Budget choices that are not made efficiently — reducing costs without hurting services — can undermine the progress the city has made in public safety, health, education and trash management,” he said.

“The good news in the financial plan update is that revenues have outpaced projections by $775 million so far this fiscal year,” DiNapoli said. “If sustained for the rest of the fiscal year, the city will have additional resources to manage spending pressures this year and potentially even build reserves to buffer against future unanticipated spending.”

If the city had built up reserves earlier, he noted, it could have mitigated the severity of the current service cuts.  

“With private-sector job growth fully returned, the city should remain laser-focused on its efforts to stay a place where people want to live, work and invest,” DiNapoli said.

“The city has committed a budget sin in that it has used one-time federal monies for recurring programs such as summer-school, K-3 expansion, or social service nonprofit administrative costs,” Cure said. “The city is under pressure in its education budget given the learning loss inflicted by the pandemic. In addition, the city is dealing with the state’s class size reduction mandate.”

City officials said the state could take steps to support the city, including implementing a statewide decompression strategy to ensure each county is doing its part to assist with this humanitarian crisis; increasing the number of state-run and state-provided sites; and providing additional funding to help the city with the costs already incurred by the crisis.

The city again asked the federal government to help by expediting work authorizations for migrants so they can find jobs; declaring a state of emergency to manage the crisis at the border; providing more federal reimbursement for costs incurred by the city; and implementing a federal decompression strategy to ensure the flow of asylum seeker arrivals is more fairly distributed.

Citizens Budget Commission President Andrew Rein said while the plan delivers some needed savings through a first round of budget cuts, more needed to be done to close the remaining gaps and stave off a fiscal reckoning.

“Due to the city having to cover the vast majority of the increased cost of serving asylum seekers and migrants combined with the pre-existing budget gaps caused by added city spending outpacing recurring revenues, the fiscal year 2025 gap widens to $7.1 billion from the previously estimated $5.1 billion,” he said.

“To protect the city’s ability to provide key services to New Yorkers — now and in the future — the city continues to face hard choices,” he said. “The city cannot do everything for everyone. But managed well to get the basics right, the city can lay the safe, strong foundation that New York and New Yorkers need to thrive.”

New York City Health and Hospitals Corp. is an additional financial burden on the city’s finances, Cure noted.

“Due to intense competition for health care workers, the Nurses Association’s labor agreement was significantly more than the pattern agreements of the other city unions,” he said. “As the city hospital system, they are dealing with indigent care issues while Medicaid funding from the federal government will decrease, and the migrant situation becomes more dire.”

Demonstrators rally at protest against the opening of a temporary shelter for migrants in Staten Island.
Demonstrators rally at protest against the opening of a temporary shelter for migrants in Staten Island.

Bloomberg News

City Council Speaker Adrienne Adams and Finance Chair Justin Brannan said the migrant criss wasn’t the only cause for the city’s financial crunch.

“The Council recognizes that the city’s budget has serious forthcoming gaps from the expiration of federal COVID stimulus funds, economic impacts of the pandemic, and additional spending,” Adams and Brannan said in a joint statement.

“This includes expenditures on services in response to an increased number of asylum seekers arriving in the city, but those did not create our budget gaps and are not the only factor contributing to our fiscal reality,” they said.

“The mayor, as is his right, can unilaterally enact mid-year budget cuts without City Council approval. Without more state and federal aid, we will look for additional cuts in January and April and the reaction by the City Council,” Cure said.

“The other concern about across-the-board cuts is the impact on efficiency in delivering services,” he said. “Can the city reduce costs by working with labor to improve efficiency? Does this become harder as labor contracts have already been negotiated? Where is the city’s leverage?”

City Comptroller Brad Lander criticized the planned cuts.

“The budget cuts proposed today risk doing harm to the wellbeing of all New Yorkers, especially our most vulnerable,” he said in a statement. “City Hall should stop suggesting that asylum seekers are the reason for imposing severe cuts when they are only contributing to a portion of these budget gaps, much of which already existed.”

He said the city should continue to press the state and federal government for more funding.

“As my office has been proposing for nearly a year, our focus should be on helping asylum seekers file their Temporary Protected Status and asylum applications, obtain work authorizations, get jobs, move out of shelter and contribute to the economy — to avoid slashing services to them and all New Yorkers,” Lander said.

Rein agreed.

“The need for savings overall would be greatly reduced if the federal government would share a fair portion of the costs,” Rein said. “New York State has provided funds, but a greater share also would be appropriate.”

“Clearly, the expenses associated with the migrant influx are not sustainable,” John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer.

“Assuming help is not forthcoming from Congress, especially if there is a change in party leadership, perhaps there should be some consideration of changing the law,” he said. “We are at the point where we must provide some disincentives for people to seek refuge here. Allowing people to work soon after arrival is one fix.”

He said the city’s credit could be on the line if nothing is done.

“You cannot tax enough or cut enough, or some combination thereof, to make these problems go away. The ratings are at risk here,” he noted.

The city is one of the biggest issuers of municipal bonds in the nation. Its general obligation bonds are rated Aa1 by Moody’s Investors Service, AA by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.

In the second quarter of fiscal 2023, the city had about $39.3 billion of GO bonds outstanding. Separately, the city’s Transitional Finance Authority has about $45.1 billion of debt outstanding as of the second quarter of fiscal 2023, while the Municipal Water Finance Authority has around $32.3 billion of outstanding debt.

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