Joseph Krist

Publisher

NYC LABOR AGREEMENT

As we went to press last week, Mayor Eric Adams announced a tentative contract agreement with New York City’s largest municipal union in a spectacular example of a Friday news dump. The announcement of a tentative agreement which will raise compensation approximately 16% comes just before a three-day weekend and the start of most schools’ winter break. That will leave a lot fewer eyes to look at the deal and see that it should serve as a warning going forward.

The deal would increase wages 3% a year in the first four years and 3.25% in the fifth. The Adams administration had set aside money in the city’s budget for raises of only 1.25% and must find additional funds or make spending cuts to cover the cost of contract. The agreement also includes a lump sum ratification bonus for all DC 37 members, a major investment in a child care trust fund established and administered by DC 37 in the amount of $3000.

DC 37 members will receive the following compounded and retroactive wage increases, representing a 16.21 percent increase across the life of the contract: May 26, 2021: 3.00%; May 26, 2022: 3.00%; May 26, 2023: 3.00%; May 26, 2024: 3.00%; May 26, 2025: 3.25%. The City claims that it has labor cost reserves to cover the increases. The Citizens Budget Commission and the City’s own budget director did not express those views. CBC said “the very real problem is the city has identified no way to pay the billions in extra costs.” CBC added that comparable raises for all city workers would cost New York City $2.5 billion in this fiscal year and $2.3 billion in the next.

The city budget director said simply that “We’re going to be looking for savings throughout city agencies.” That is another way of saying Who knows? These cuts and efficiencies will be sought and implemented while the city tries to develop and implement remote work policies. That move is a major concession on the part of the Mayor who has sought to use the city workforce as a catalyst to cause a return to the office by private sector employees. It reflects the realities of post-pandemic New York.

STATE COMPTROLLER WEIGHS IN ON NYC BUDGET

New York State Comptroller Thomas DiNapoli released the results of his office’s review of the City’s proposed FY 2024 budget. The $104.8 billion preliminary fiscal year (FY) 2024 budget, adjusted for surplus transfers (prepayments for future expenses), reflects better-than-projected revenue collections, the allocation of remaining federal pandemic relief funds and the accumulated impact of savings initiatives. After balancing the FY 2024 budget, the City assumes budget gaps reemerge in FY 2025 at $3.2 billion, growing to nearly $6.5 billion in FY 2027. As a share of City fund revenues, the remaining out-year gaps average 6.3 percent ─ the highest level at this point in the budget cycle since FY 2012.

Potential holes in the budget are driven by education and social services spending, uniformed services overtime and operating subsidies to the Metropolitan Transportation Authority (MTA). The level of City subsidies to the MTA is under debate right now. The City also has not yet budgeted for the costs of sheltering asylum seekers in FY 2024 or beyond, despite a very strong likelihood that its shelter population will remain elevated.

At the same time, there are some unexpected positives. The City released the January Plan before the publication of the FY 2024 tentative property tax assessment roll, assuming a relatively small growth in taxable values of 1.6 percent. However, the tentative roll showed taxable values increasing by 4.4 percent. The Office of the State Comptroller (OSC) believes that property tax collections may exceed the forecast by $1.4 billion over the plan horizon. This would represent an average annual growth rate of 1.4 percent for fiscal years 2024 to 2027, well above the City’s expectation of 0.6 percent growth.

The biggest risk to all of this is the economy. In nearly every sector, uncertainty about the national economy as well as the local economy (especially the issue of return to the office) is a recurring theme. With NYC still reporting only a 50% return to office ratio by the end of January, it is a clear economic laggard relative to the rest of the country.

FREE TRANSIT

The nascent move to provide free local bus service is gaining more support as other cities seek to experiment with various iterations of the concept. The initial experience has been favorable as these plans tend to increase ridership. Fares have been seen as an obstacle to utilization. The best current example is the experience in Boston where fares were no longer collected on one of its major bus routes. A recent evaluation of the introduction of fare free service on Boston’s bus route 28 found an increase in ridership of 38 percent while the policy was in effect.

Now, the New York MTA is in the center of the ongoing budget debate in New York State. The City is already being asked to increase its operating subsidy to MTA. In prior years, that debate has been tied into the overall debate over the level of fares and their impact on the primary users who tend to be the working poor and other lower income passengers. New York City bus ridership is currently just two-thirds of pre-pandemic levels and has remained at that level for most of 2022. IBO estimates MTA local bus fare revenue collections will total $708 million for 2022.

What would the “cost” of a fare free system be? If the bus system was entirely fare-free, it would have that initial $708 million cost. The estimates are complicated by the complexity of the bus system and its role as a feeder to the subway system. Free bus service would impact subway demand. IBO uses an estimate that sees 4% percent of 2022 subway trips switched to bus trips under fare-free bus service. That would result in a further $91 million in annual foregone revenue, assuming 2022 fare levels and collection rates.

The City already funds discounts for qualified low-income riders. Fair Fares program provides half-price transit trips to New York City residents between the ages of 18 and 64 with household income below the federal poverty line (currently $14,580 for an individual and $30,000 per year for a family of four), who do not otherwise qualify for reduced-price MetroCards or city-provided carfare. It is estimated that some 270,000 residents currently participate but that is only one-third of the potential eligible population.

Currently, the city pays for most MTA Bus Company operating costs above costs covered by fare revenues. In 2022, the city is projected to pay $719 million in these MTA Bus Company subsidies. That only covers part of the bus system. The remainder are systems which were absorbed from the private sector and any city contributions towards the costs of fare-free service on NYCT buses would need to be negotiated.

ILLINOIS

The State of Illinois took another step in its journey to improved credit ratings. Standard and Poor’s upgraded the State’s general obligation to A-minus. The action reflected the view that Illinois’ commitment and execution to strengthen its budgetary flexibility and stability, supported by accelerating repayment of its liabilities, rebuilding its budget stabilization fund to decade highs; and a slowing of statutory pension funding growth, will likely continue during the outlook period.

The move will likely reinforce efforts to continue to whittle down the State’s liabilities as in pensions and cash flow borrowings incurred during the pandemic. The full funding of statutory pension contributions begun some three years ago continues as does a pattern of some additional funding. The State has also built up its Budget Stabilization Fund while it addressed liabilities. That fund is budgeted to equal some 5% of operating revenues. There is also a rating benefit for the range of appropriation type debt that is found in many portfolios.

Along with the GO rating, S&P raised state appropriation-backed bonds to BBB-plus from BBB and moral obligation bonds to BBB-minus from the junk level of BB-plus. The state’s sales-tax backed Build Illinois bonds and Metropolitan Pier and Exposition Authority expansion bonds rose to A from A-minus.

OAKLAND

On 14 February, the City of Oakland, CA declared a state of emergency six days after a ransomware attack on the city’s computer network. The system outage that has disrupted its ability to collect taxes and issue permits, and has led to interruptions in many other non-emergency functions. Emergency services have also partly been affected: the Oakland police and fire departments continue to respond to calls. Fortunately, the 911 system is working, but the police department has acknowledged that delayed response times have resulted.

Two comparable examples are the experiences of Atlanta and Baltimore. Those cities faced costs of approximately $18 million each associated with their systems recoveries. The declaration of state of emergency is based partially in the hope that this might qualify the City for state and/or federal assistance to cover some of those costs. The declaration specifically calls for the governor to make funds available to the city, certain community members and businesses.

The event saw Moody’s reiterate its view that regional and local governments (RLGs) are among sectors least prepared for an attack in terms of engaging in protective basic cyber practices, which include having a cyber manager, using multifactor authentication and backing up systems regularly. They rightly acknowledge that in today’s economy, it is difficult for these governments to recruit and retain IT staff. Oakland is still in the process of strengthening its protections

FLOOD MAPS

It has been over five years since Hurricane Harvey moved through Texas and caused unprecedented levels of flooding, Those floods highlighted a shortcoming in the planning and development processes. Many flooded properties were located in areas which, based on data available at the time, were seen to be not located in a flood zone. The maps used to indicate where flooding risk was more likely turned out to be out of date and effectively inaccurate.

What was characterized as risk of a five-hundred-year flood was actually much greater of a risk than that. It created a demand for much more accurate and realistic mapping of what the actual risk from flooding is. Now, FEMA is planning to release updated maps reflecting The County has already issued regulations in the wake of the flooding

to cover all sources of potential flooding as opposed to the current maps which only cover potential river flooding.

Urban flooding often occurs when intense rainfall overwhelms stormwater systems regardless of how close a property is to a bayou or other channel. The new floodplain maps developed by the Harris County Flood Control District will be FEMA’s first maps to depict urban flooding. The new maps also will reflect updated rainfall estimates from the National Oceanic and Atmospheric Administration. The fact is that storms have intensified in recent decades, and the data used to support the mapping of flood risk had not been updated since the 1960s. 

On the new maps, Harris County’s 100-year floodplain will increase from around 150,000 acres to 200,000 acres. The County has already revised building codes in the wake of the Hurricane Harvey flooding. Under the post-Harvey regulations, buildings now have to be constructed two feet above the 500-year storm level, and that applies to properties in the 500-year floodplain, as well. It is estimated that some 1 in 8 homes in Harris County are located within floodplains.

It is a problem which extends to anywhere that allowed development based on so-called 500-year flood maps. The number of places experiencing 500-year floods continues to grow. While there has been much attention to coastal flooding and threats from rising sea levels in the analysis of credit risk, the threat from non-coastal flooding continues to grow.

PUBLIC HOUSING

The U.S. Department of Housing and Urban Development announced that it had awarded $3.16 billion in funding to nearly 2,770 public housing authorities (PHAs) in all 50 states, as well as the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands to make capital investments to their public housing stock. This funding is for dedicated housing to public housing residents to make sure they have adequate housing that is secure.

Housing authorities can use the funding to complete large-scale improvements such as replacing roofs or making energy-efficient upgrades to heating systems and installing water conservation measures. The grants announced now are provided through HUD’s Capital Fund Program, which offers annual funding to all public housing authorities to build, renovate, and/or modernize the public housing in their communities. 

The announcement was good news for the chronically underfunded NYC Public Housing Authority. It is scheduled to receive some $751.8 million from HUD. Given the proportion of public housing in the US represented by NYC, the allotment reflects New York’s share of public housing nationally. It comes as more recent data as to the sad state of NYCHA’s properties makes clear.

As of May 2022, the number of unaddressed repair requests from NYCHA residents—called open work orders—stands at over 600,000; that means there are more open work orders than the roughly 340,000 people living in NYCHA buildings. Residents must make a repair request and wait the 312 days, on average, that it takes NYCHA to return to fix the issue.

This all occurs in the context of the fact that NYCHA and New York City signed an agreement in 2019 with the federal court and HUD that would place NYCHA under a federal monitor and force NYCHA to reorganize itself. The monitor agreement binds the authority to strict performance metrics that concern lead paint, mold, pests and waste, elevators, heat, and inspections. The federal government has provided no additional funding to resolve the issues detailed in the monitor agreement.

ELECTRIC VEHICLES

The Georgia legislature is debating bills designed to facilitate the expansion and utilization of electric vehicles. It makes sense as Georgia is emerging as a key location for manufacturers of vehicles and batteries alike. One of the bills deals with an emerging policy issue over the use of commercial charging sites. Currently, chargers calculate the cost based on time – how long it takes to charge a car. EV proponents feel that this leads to higher charging costs. It also is seen as establishing on way of measuring electric usage versus all other classes of users.

House Bill 406 will allow for the owners of convenience stores and other commercial sites where electric vehicle chargers are set up to sell electricity based on the kilowatt hour instead of the amount of time it takes to recharge. The bill does not change the annual $211 fee paid by the owners of small battery-powered cars and $317 charged to owners of commercial electric vehicles. The fee is designed to cover the average amount in fuel taxes that a regular car owner would pay.

Georgia DOT will soon take part in a national pilot project that will allow drivers to track and pay based on how many miles they drive their electric car.

CALIFORNIA WATER

The January storms which flooded many areas of California also brought significant increased snowpack. The Department of Water Resources (DWR) said that it expects to deliver 35% of requested water supplies, up from 30% forecasted in January due to early gains in the Sierra Nevada snowpack. DWR runs the State Water Project which collects water from rivers in Northern California and delivers it to 29 public water suppliers. 

The Federal Bureau of Reclamation on Wednesday also made an announcement about allocations for users of Central Valley Project water, which are mostly irrigation districts that supply farms. Farms that received zero initial water allocations last year are now set to get 35% of their allocation this year.

Last year, water officials cut the State Water Project allocations to just 5% amid declining reservoir levels and reduced snowpack. Improved hydrologic conditions caused by the winter storms left the Sierra Nevada snowpack at well above normal conditions. However, not all river basins were equally improved. To the west, Trinity and Shasta reservoirs are below the historic average for this time of year and runoff forecasts indicate that overall storage for these reservoirs may be limited if substantial spring precipitation does not materialize.

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