Major cities across the US
are in financial trouble. I think we can all agree on
that… We're broke. We're seeing sales tax come
down. We're seeing business tax
come down and stays in our Hotels come down. One study says that 53 of
the largest cities in the United States haven't
generated enough revenue to Cover their bills. Clearly, there are
significant capital needs Across the US. Several cities spent years
taking on debt to fund Services, and now some
public officials are reining In spending. We've got to be careful
because you don't want to Get into too much debt. Rising debt may lead to
dirtier streets, fewer Public services, and tough
decisions from public Officials that need to make
ends meet. The cities that are in
trouble, they have a cash Flow problem. They may be
able to count on some Revenue growth. Increasing taxes may be an
option. Short of that, they're
going to have to cut Services or benefits. Why are so many US cities
going broke? And what will that mean for
residents of our biggest and Busiest places? Running a major city is
expensive. For an example, look at New
York City. With over 8 million
residents spread across five Counties, it has to pay for
more than most. It's a dense, diverse place
that requires a significant Investment in the public
realm.
Brad Lander is Comptroller
of New York, the top Accountant for the City
Comptrollers review every Financial aspect of city
government. In the case of New York,
that includes over 1700 Parks, over 200 library
branches, 11 acute care Public hospitals, 472
subway stations, and about 177,000 affordable housing
units. Like many other parts of
the US, New York City sells Municipal bonds to fund
many of these projects. The city's bonds are like
your mortgage, you know, for Long term expenditures,
something that you're going To use over generally ten,
20, 30 years. You borrow for it. Here's how it works. Investors foot the bill for
the city's general Obligations. The city
promises to pay them back Later on with interest. We pay the interest on our
bonds, but then we can use Those bonds to build
schools and invest in our Water and sewer
infrastructure and subsidize Affordable housing. But then we've got to be
careful because you don't Want to get into too much
debt. Some experts believe that
cities and state governments In the US are selling bonds
to spend more money than They can pay. Back in our study, we gave
the City of New York an F Grade. Sheila Weinberg is the
founder and CEO of Truth in Accounting, a nonprofit
that says they promote Transparency in public
accounting. What we found is that the
city has $177 billion of Debt. This represents
$61,800 per taxpayer. New York City calculates a
smaller debt than the
Estimate from Truth in
Accounting. So right now we've got about
$96 billion of debt Outstanding. Currently, the
way the debt ceiling works, We could borrow up to about
125 billion. So we have 25 to $30
billion of room. The group claims that many
so-called sinkhole cities Have more bond debt
obligations than they're Reporting publicly. They focus on underfunded
pensions and retiree health Benefits that are owed to
public employees, but backed By investments in the stock
market. We see pension and retiree
health care debt problems in Most major cities. We also find that with the
50 states. As of 2024, US pensions are
underfunded by $1.6 Trillion, according to
researchers at Stanford. They point out that pension
contributions are invested In the stock market, then
paid back to employees for The rest of their lives. Our pension funds are
fiscally sound. They're 80% funded, and we
have a path to get them to Be 100% funded over the
next decade or so. If public officials invest
funds in stock markets and The bet goes the wrong way,
it can make or break a city. For example, retiree
payment obligations are part Of what sent Detroit into
bankruptcy in 2013. In the fallout, Detroit
temporarily revised its Pension program to limit
payouts to former employees. This decision let the city
put more money into its Reserves. Even though that's an
expense that was incurred And they have that debt, it
doesn't have to be included In the balanced budget
requirement. If I don't pay That invoice, I don't have
to include it in my balanced
Budget. Truth in Accounting points
out that cities like Chicago, Philadelphia,
Houston, Portland, and Miami All owed more money than
they held in assets in Fiscal year 2022. That year, stocks sank in
the worst year since the Great Recession before
recovering. As a result, cities from
coast to coast have had to Tamp down on spending to
balance their budgets. Mr. mayor. Hi. Yes, how are
you? In New York, mayor Eric
Adams entered 2024 with a $7 Billion budget gap, largely
attributed to an increase in Asylum seekers and migrants
arriving in the city. He proceeded with spending
cuts, dubbed Peg, a program To eliminate the gap. These actions, along with an
unexpectedly strong economy, Helped balance fiscal year
25. But we're not out of the
woods. What the mayor announced was
a series of three 5% cuts That add up a little shy of
15%. A lot of those cuts that
are being felt very, you Know, palpably by New
Yorkers. For example, the city
comptroller says funding Cuts for public education
will end some class Offerings at the City
University of New York while Increasing class sizes. Additionally, many
libraries in the city are Cutting their hours. There's not one neighborhood
library left that's still Open seven days a week. You know, obviously if you
work during the week and the Weekend is when you can get
there with your kids, that Can be really devastating. The mayor's budget also cut
funding for programs that
Provide an alternative to
incarceration, a policy that Reduced strain on New York
City's jails. So you have to make hard
choices in budgeting. But it really is important
not to be penny wise and Pound foolish. The city government of
Portland, Oregon, Washington, D.C., and Los
Angeles are all cutting back On spending, too. You have upward pressure on
wages and downward pressure On city revenues. That creates a gap that we
are facing right now that we Need to fill. So we're
paying for positions that Are not filled and are
delivering no services. That's a practice that we
need to pull back on if We're going to have a
balanced budget. The Los Angeles County
government sees stagnant Revenue growth in 2024 and
beyond, which it says will Sharply limit its ability
to fund existing Obligations, let alone new
programs. And in Portland, leaders
see a fiscal cliff ahead as There are no funds left to
address existing financial Issues. The demand for resources
continues to surpass Availability within the
city. Cities often use credit to
raise money from investors In the bond market. Portland, for example, has
a Triple-A credit rating, Which could make it an
enticing place to park cash. Interest earned by owners of
municipal bonds is exempt From federal taxation,
which helps to lower the Overall cost of borrowing
for state and local Government issuers. Three major agencies grade
cities on their ability to Repay their debts.
So Fitch's credit rating
scale is expressed using the Categories of triple A to
triple B for the investment Grade category, and then
from double B to D, which Signifies junk or
speculative grade. Cities like Chicago can
spend years in the Speculative grade junk bond
category. The city received an
upgrade on its ratings by Continuing to make advance
payments toward future Pension obligations. We balance this budget
without increasing the City's base property tax. I was elected to end this
government's addiction to The regressive taxation
that has pushed working Families to the brink, and
that begins today. I believe this is a big
problem throughout the Country. The voters think,
oh, they must be living Within their means and
they're not. But if you can go ahead and
use budgeting gimmicks and Not have to raise taxes,
but still provide a large Amount of services and
benefits, that's obviously Beneficial to elected
officials. Other factors like climate
change, could be making Public administration more
expensive. We've started in our own
bond underwriting to reflect On the city's climate risk
and try to be clear and Transparent about it, as if
we're going to have coastal Resiliency for protection
against storms and Hurricanes, if that's the
new normal amidst climate Change, and we do need to
make investments. The leaders of cities can
sometimes rely on the Federal government to bail
them out, especially when Crises hit. I think during the pandemic,
there was, of course, very Real anxiety about whether
the model that is New York
City would continue to
work. New York City received an
estimated $28.6 billion in Federal grants during the
pandemic from a wide variety Of programs. That money, even though
they're claiming that those Direct federal dollars went
for Covid relief that Allowed them to use other
money for additional Spending kind of was a
bailout for these cities and States. Tax revenues are projected
to decline in New York City In fiscal year 2024,
something that has happened Only three times in the
past four decades. There's real urgency, and I
think people are not really Appreciating that. The city could find new
revenue using old tools. Take, for example, property
taxes. The average American will
pay over $165,000 in Property taxes over the
course of their lifetimes. The rates are highest in
states near the largest Cities, including metro New
York, Greater Boston, and Chicago. In lieu of tax
hikes, the city could raise Its debt limit, as proposed
by New York State's leaders. To address ongoing capital
needs. We project the city could
hit that ceiling by about 2029, you know, 4 or 5
years from now. To the extent that, you
know, they can issue debt to Finance a portion of their
capital plan, that could Mean, you know, unsafe
school conditions, Overcrowding, certainly
roads, infrastructure, Bridges, tunnels are all
part of the capital plan. And so, you know, there's
risk associated, you know, With an inability to issue
debt. The state and local
governments have balanced Budget requirements so they
don't get unsustainable
Debt. I think that almost
these requirements give People a false sense of
security, because the Elected officials say year
after year that the budget's Balanced when they're using
budgeting and accounting Gimmicks to truly not
balance the budget.
