By Jimmy Vielkind
Officials in Buffalo, the second-largest city in New York, were
already preparing to borrow $18 million to keep them in the black
after the novel coronavirus caused municipal revenues -- from
parking meters to sales tax -- to shrivel.
But when word came from Democratic Gov. Andrew Cuomo's
administration that a $98.4 million state grant due on June 25
would be about $20 million short, the city raised its borrowing
plans by 50%.
States and municipalities around the country are grappling with
fiscal pain related to the virus, but in New York, the Democratic
governor has pushed some of the state's problems down the funding
food chain. Buffalo's grant was part of roughly $4 billion in
payments to localities and social-service providers that have been
tied up since April as the state deals with a projected $13 billion
On July 1, the state sent a notice that it would hold back some
funding support for mental-health services. The Civil Service
Employees Association said on June 27 that the governor's office
would continue to defer, until Oct. 1, higher wage rates that were
set to take effect at the start of April.
In a statement, the union said it has filed a formal grievance
over the delay and is pushing for retroactive payment, "but we also
recognize the dire financial position the state is in and have no
desire to see members laid off or furloughed."
Mr. Cuomo and Robert Mujica, the state budget director, said in
May that the state could reduce outlays by 20% if a package of aid
from the federal government doesn't come through. The state budget
enacted in April gives the governor power to do so unilaterally,
but any permanent changes to the budget are subject to review by
the state Assembly and Senate.
So far, Messrs. Cuomo and Mujica say the payment reductions are
simply deferrals, not permanent cuts. New York also borrowed $4.5
billion to help improve its cash position after the Internal
Revenue Service pushed the federal -- and state -- income-tax
filing deadline from April 15 to July 15.
"We have no choice but to hold back 20% of all payments," said
Freeman Klopott, a spokesman for Mr. Cuomo's Division of the
Budget. "These are responsible budgeting actions required to
maintain fiscal integrity, and we encourage local governments --
which have many tools at their disposal -- to also budget
responsibly in these difficult times."
Mr. Cuomo has repeatedly called upon Congress to appropriate
money to help states cope with revenue they have lost as a result
of the pandemic. The Democratic-controlled House passed a roughly
$3.5 trillion relief bill last month that was seen as a starting
line for negotiations. It included $1 trillion in additional aid
for state and local governments, including $35 billion for New
Republicans who control the Senate say they are wary of sending
more money to state and local governments without additional
accountability. Negotiations over a new federal spending bill begin
in earnest later this month, lawmakers say.
In the interim, local governments are taking action to reduce
expenses and services. Buffalo has frozen the salaries of
nonunionized employees, reduced spending on capital projects and
realized savings by letting employees continue to work from
Leaders in Westchester County last week offered a retirement
incentive as they seek to offset revenue losses of up to $250
million. The mayor of Albany announced in May that she would give
up her salary for the rest of 2020.
"It's the same story everywhere," said Peter Baynes, executive
director of the New York Conference of Mayors, which represents
cities and villages. "The problem is, they just don't know how
temporary the fill needs to be for the hole. Temporary is a
relative term, because it could go on indefinitely and it could
ultimately be a cut."
Some of the state's biggest local-assistance payments are aid to
school districts that are scheduled for later this summer,
according to E.J. McMahon, research director for the Empire Center,
a fiscally conservative think tank.
Mr. McMahon said Mr. Cuomo should permanently freeze
public-sector wages rather than pushing the state's cash problems
to local governments and nonprofits.
"Basically, he's transferring his cash flow problem to people
who are much less able to shoulder it," Mr. McMahon said. "It seems
to be a fairly transparent way to get them to help put pressure on
Congress to get more aid."
Even if more money arrives, municipalities will face longer-term
issues. Sales-tax collections, which are split between state and
local governments, were 32.3% lower in May than the preceding year,
according to State Comptroller Tom DiNapoli.
In March, April and May of this year, local governments received
$824 million less in sales-tax revenue than during the same period
in 2019, his office said. The rating company Moody's Investors
Service said this would be a credit negative for counties and
municipalities, some of which derive a large share of their budgets
from sales tax.
Buffalo's fiscal year began July 1, and its adopted budget
assumes an $18.5 million drop in sales-tax collections. It also
assumed lower payments from the state, but about $65 million in
"The situation is fluid," Betsey Ball, chief of staff to Buffalo
Mayor Byron Brown, said in an interview. "We firmly stand by the
fact that in order for all of us to fully recover, we need
disaster-relief funding from the federal government."
Write to Jimmy Vielkind at Jimmy.Vielkind@wsj.com
(END) Dow Jones Newswires
July 06, 2020 15:57 ET (19:57 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.