New Report Details Growth of New York City’s Budget, Pathways for Reform

Eric Kober takes a comprehensive look at the city’s fiscal situation

New York, NY — New York City faces short- and long-term fiscal problems. With employment and business activity severely affected by Covid-19, the city is enduring its third quarter of plummeting revenues as its ballooning budget continues to endanger its long-term fiscal stability. In a new report, Manhattan Institute (MI) senior fellow Eric Kober details the scale of these problems, showing how New York City got to this point and what it can do to secure its fiscal future.

Kober’s report, part of MI’s New York City: Reborn initiative, begins by discussing the city government’s expansion. As he observes, restrictive zoning builds in a scarcity premium to property values. The city captures this premium through taxation, “forcing up the ratio of tax collections to personal income over time.” Just what are the consequences for the city government? Kober compiles statistics that show its rapid expansion:

• The city’s full-time staffing rose from 249,824 in 2001 to 300,442 in 2019, an increase of 20 percent over 18 years in which the city’s population grew slowly (4.1 percent) and information technology, along with the concomitant potential for labor-saving process improvements, advanced rapidly.
• Relative to population, New York City government employment increased significantly while, throughout the rest of the country, local government employment fell.
• Between 2001 and 2019, citywide personal services expenditures increased by 131 percent, from $21.3 to $49.3 billion. Per full-time employee, personal services costs increased by 92 percent, compared with 44 percent inflation.
• During 2001–19, average weekly wages in New York City local government rose much faster than in local government nationally, or in the private sector, locally or nationally. This excess growth was concentrated after 2013—in the years of Bill de Blasio’s mayoralty.

The fallout from Covid-19 endangers the city’s fiscal outlook, especially given its structural dependence on rising property tax collections. To continue to prosper, Kober writes, “the city should rationalize the size and cost of its workforce so that it is compatible with at least several years of a contracted economy and a weaker tax base.” The report outlines the available options, including:

• Reducing personnel costs via health-care cost-sharing plans; restructuring post-employment health benefits as a retiree medical trust; shifting pensions toward defined-contribution arrangements; implementing a properly structured early-retirement initiative
• Improving productivity and reducing headcount via applying current technologies and international best practices to city agencies; privatizing functions that are routinely contracted out by other cities or in the private sector; and eliminating redundant elected officials

As Kober observes: “By controlling its head count, pay, and benefits more effectively, the city could not only ameliorate its short-term problems but could establish a sounder fiscal footing for the long term.”

Click here to read the full report.

About New York City: Reborn

New York City: Reborn is a Manhattan Institute project that encompasses research, journalism, and event programming. Through this initiative, the institute convenes business, civic, academic, and civil-society leaders from around the city with MI scholars to discuss issues key to the city’s recovery. Post-coronavirus, MI envisions a growing New York City with a thriving economy, healthy finances, accessible housing, effective infrastructure, flourishing education, safe streets, and increasing competitiveness. New York City: Reborn will help turn that vision into reality. Click here to learn more.