Joseph Krist
Publisher
NYS BUDGET
The budget stalemate under way in Albany is a disappointing return to past practices. Under the Cuomo administration, several factors contributed to a string of on time budgets. That improvement in timely budget adoption helped to support rating upgrades for the State and its related issuers. Now, with one party super majority control in the Legislature, a number of non-fiscal items are delaying budget adoption.
The two sticking points have been charter school expansion and bail reform. With super majorities, progressives in the Legislature are holding out for resolution of those two issues before enacting a budget. This in turn puts pressure on the underlying municipal entities most especially for New York City. Even without budget adoption, the City knows that its hopes for reimbursement from the State for the costs of the massive influx of immigrants in 2022 and 2023 have not been realized.
The stalemate comes as the State faces some significant demands going forward. The MTA remains a significant potential fiscal problem, massive capital allocation decisions regarding the Gateway Tunnel still await, and the public housing crisis in NYC remains. At least debt service will continue to be paid on state debt and an additional temporary funding bill (to get workers paid) is likely.
NEW YORK CITY
The Adams administration has completed labor negotiations with its biggest non-uniformed union (DC 37) as well as with its Police Department. Prior analyses of the Mayor’s budget proposals were limited by the lack of hard cost information associated with those contracts. Now that those negotiations have concluded, the City’s Independent Budget Office is able to assess the budget plans based on real numbers. So how much will the contracts cost the City?
The five-year contract ratified by DC 37 last week includes 3 percent raises for each of the first four years of the new contract (retroactive to the contract start date in May 2021), a 3.25 percent raise in the fifth year, an $18 minimum wage, and a $3,000 one-time bonus for eligible members. The eight-year tentative agreement with the PBA on April 5 ranges from August 2017 through July 2025. The first three years of raises follow the uniform pattern from the previous bargaining round. This pattern features 3.25 percent in years one and two, 3.5 percent in years three and four, and 4.0 percent in year five. The PBA’s tentative agreement did not include a bonus.
The DC 37 agreement sets the pattern of wage increases for all non-uniformed municipal employees, and the tentative PBA agreement set the pattern for uniformed employees. This includes all union and non-union employees at city agencies, as well as at the New York City Housing Authority, City University of New York, Health + Hospitals, libraries, and the Fashion Institute of Technology. IBO forecasts that the total cost of the new contracts for all employees would be $18.2 billion over the course of the financial plan from 2023 through 2027. This estimate reflects the cost above the amount already set aside in the city’s labor reserve.
The City will get some benefit from headcount reductions. Between 2012 and 2020, active full-time municipal headcount increased each year, to a record high of about 302,000 in January 2020. Since the pandemic began in March 2020, that total has dropped to just under 281,000 as of January 2023, a decrease of roughly 7 percent. The Adams administration implemented across the-board vacancy reductions as part of the Preliminary Budget’s Program to Eliminate the Gap (PEG), which removed about 4,000 vacancies. Despite this cut in budgeted headcount, almost 22,000 vacancies remain.
Except for the scenario one variations in which just DC 37, or just DC 37 and the PBA ratify their contracts this year, the annual estimated cost of labor settlements exceeds IBO’s estimate of vacancy savings under each scenario every year. If headcount remains at its current level, however, the savings from paying fewer than budgeted employees would offset some of the additional costs of higher compensation under the new labor agreements. In all scenarios, IBO projects an increase in total personal services costs during the plan period.
TRANSPORTATION EMPLOYMENT
U.S. airline industry (passenger and cargo airlines combined) employment increased to 790,657 workers in February 2023, 2,687 (0.34%) more workers than in January 2023 (787,970) and 59,661 (8.16%) more than in pre-pandemic February 2019 (730,996). The February 2023 industry-wide numbers include 679,578 full-time and 111,079 part-time workers for a total of 735,118 FTEs, an increase from January of 2,785 FTEs (0.38%). February 2023’s total number of FTEs remains just 9.44% above pre-pandemic February 2019’s 671,701 FTEs.
The 26 U.S. scheduled passenger airlines reporting data for February 2023 employed 482,271 FTEs, 4,543 FTEs (0.95%) more than in January 2023. February 2023’s total number of scheduled passenger airline FTEs is 39,493 FTEs (8.92%) above pre-pandemic February 2019. U.S. cargo airlines employed 248,681 FTEs in February 2023, down 1,187 FTEs (0.47%) from January 2023. U.S. cargo airlines have increased FTEs by 23,929 (10.65%) since pre-pandemic February 2019.
U.S. scheduled-service passenger airlines employed 508,450 workers in February 2023 or 65% of the industry-wide total. Passenger airlines added 4,696 employees in February 2023 for a twenty-second consecutive month of job growth dating back to May 2021. Delta led scheduled passenger carriers, adding 1,338 employees; Southwest added 1,134, and United added 1,082.
U.S. cargo airlines employed 248,681 FTEs in February 2023, down 1,187 FTEs (0.47%) from January 2023. U.S. cargo airlines have increased FTEs by 23,929 (10.65%) since pre-pandemic February 2019. U.S. cargo airlines employed 277,999 workers in February 2023, 35% of the industry total. Cargo carriers lost 1,372 employees in February. FedEx, the leading air cargo employer, decreased employment by 1,582 jobs.
The problems which confront mass transit providers are being reflected in employment trends within the transportation industry. The unemployment rate in the U.S. transportation sector was 5.0% (not seasonally adjusted) in March 2023 according to Bureau of Labor Statistics (BLS) data. he March 2023 rate fell 0.1 percentage points from 5.1% in March 2022 and was below the March 2020 level of 5.4%. Unemployment in the transportation sector reached its highest level during the COVID-19 pandemic (15.7%) in May 2020 and July 2020. Unemployment in the transportation sector was above overall unemployment.
TIME’S UP ON THE COLORADO
The Biden administration on Tuesday proposed to put aside legal precedent and save what’s left of the river by evenly cutting water allotments, reducing the water delivered to California, Arizona and Nevada by as much as one-quarter. The Department of the Interior’s Bureau of Reclamation (Reclamation) draft Supplemental Environmental Impact Statement (SEIS) to potentially revise the current interim operating guidelines for the near-term operation of Glen Canyon and Hoover Dams.
The draft SEIS analyzes three alternatives: one is to do nothing; another is to adjust water releases from the Glen Canyon Dam or a third which would see reduced releases from Glen Canyon Dam, as well as an analysis of the effects of additional Lower Colorado River Basin reductions that are distributed in the same percentage across all Lower Basin water users under shortage conditions.
Clearly, the federal government would rather see the states work it out and perhaps the lack of a rea; sense of what a failure to agree would entail will act as a catalyst to further negotiation. The draft SEIS will be available for public comment for 45 calendar days and the final SEIS is anticipated to be available with a Record of Decision in Summer 2023. Between now and August there remains time for sanity to prevail.
The usual obstacles still remain however. Spreading the reductions evenly would reduce the impact on tribes in Arizona as well as many fast-growing cities. At the same time, it would hurt Southern California’s agriculture industry especially in the Imperial Valley. Overall, the action alternatives would hurt the lower basin states (CA,AZ,NV) relative to the four upper basin states.
As for California, the State Water Project (SWP) is expected to deliver 75% of requested water supplies. The last projection in February was for only 35% of allocation requests. The increase translates to an additional 1.7 million acre-feet of water for the 29 public water agencies that serve 27 million Californians. The Sierra snowpack is more than double the amount that California typically sees this time of year. The SWP is able this year to pump the maximum amount of water allowed under state and federal permits into reservoir storage south of the Sacramento-San Joaquin Delta.
One familiar indicator is Lake Oroville, a regular subject of ours. Lake Oroville, the State Water Project’s largest reservoir, is at 120 percent of average for this time of year and currently releasing water through the Oroville Spillway.
UNIVERSAL BASIC INCOMES
Starting in February 2019, the Stockton Economic Empowerment Demonstration or SEED, gave monthly payments of $500 to 131 people. There was also a control group of 200 Stockton residents. The payments were to be a guaranteed income from February 2019 to January 2021.
The primary outcomes were income volatility, physical and mental health, agency, and financial wellbeing. The treatment condition reported lower rates of income volatility than control, lower mental distress, better energy and physical functioning, greater agency to explore new opportunities related to employment and caregiving, and better ability to weather pandemic–related financial volatility.
The group which received payments comprised a group where gender was approximately 70% female and 30% male. Nearly half of recipient group and the control group were white, with one-third Black or African American. The recipient group had nearly double the representation and Asian and Pacific Islanders than the control group, and both groups had just over one third Hispanic or Latino.
Approximately 75% of participants lived in an under four-person household, and around 50% had children in the household. Most were single (59%), with 40% married or partnered. The average age was 40 years in the control group and 45 in the test group. Forty percent reported full- or part-time employment. More individuals in treatment were stay at home parents (11%) than control (7%).
The results of the study trend to support much of the anecdotal evidence which has been derived from other guaranteed income plans across the country. Those who received payments showed better physical functioning, slightly less income volatility, a substantial increase in full and part-time employment among the treatment group during year one. GI removed material barriers like childcare funds, transportation, reducing contingent labor, and completing necessary internships or training for applying to positions with unknown results.
NYC EDUCATION SPENDING
In most localities, the school district is a stand-alone entity, managing its own budget and raising its own revenues above those received from the state. In New York City however, the financial operations are conducted within the City’s budget. A recent report from the respected Citizens Budget Commission does break out Department of Education spending. It comes as the state legislature is in the middle of a fight over the expansion of charter schools in the state.
CBC found that: DOE’s fiscal year 2023 budget totaled $36.9 billion as of January 2023. It includes non-education spending of $5.6 billion for pension contributions, debt service, and additional fringe benefits that are allocated centrally. Between fiscal years 2016 and 2022, DOE spending grew 32.5 percent, or 4.8 percent annually. Thirty percent of spending growth was due to one-time federal pandemic aid.
The increased spending came despite enrollment declines. Long-term enrollment declines accelerated during the COVID-19 pandemic. Between school years 2015-16 and 2021-22, K-12 DOE enrollment declined by more than 141,000 students, with the largest losses (90,000 students) occurring during the pandemic.
The number which causes the most negative attention reflects the fact that in fiscal year 2022, the DOE spent more than $37,000 per K-12 DOE student—up 15.2 percent from the prior year and 46.9 percent since fiscal year 2016, including centrally allocated cost. The total DOE budget for fiscal year 2024 is projected to decrease by $401 million to $36.5 billion, primarily due to a $243 million decrease in federal pandemic aid.
With enrollment declines projected to continue, K-12 DOE per-student spending will increase to nearly $38,000 in fiscal year 2024 and to more than $41,000 in fiscal year 2026. Adding unbudgeted yet likely collective bargaining costs, per-student spending would reach nearly $44,000 in fiscal year 2026. Given projected enrollment declines, per-student K-12 DOE spending in fiscal year 2024 would still be $555 higher than in fiscal year 2023.
NASSAU COUNTY UPGRADE
After a period of fiscal stress and outside oversight, Nassau County, NY continues its long-term trend of rating improvement. Moody’s Investors Service has upgraded the county’s issuer and general obligation limited tax (GOLT) ratings to Aa3 from A1 and has upgraded the Nassau Health Care Corporation, NY (county guarantee) ratings to Aa3 from A1. It also maintained a positive outlook on the credit.
Moody’s cited the reduction of liabilities and continued balanced budgets. It is clear that the oversight of the Nassau Interim Finance Authority (NIFA) has helped to maintain positive fiscal trends. The County has an overwhelmingly residential tax base. This should provide some protection about declines in commercial (primarily office) real estate which are vulnerable to current work trends.
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