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The Citizens Budget Commission greatly appreciates the Commission on Government Efficiency’s (COGE’s) focus on New York City Charter amendments to strengthen the City’s Rainy Day Fund (RDF), called the Revenue Stabilization Fund (RSF).
For the fund to truly be an effective tool to protect New Yorkers during a rainy day, the City should mandate deposits when revenues are strong. Withdrawals should only be allowed when there is a recession or severe emergency—a rainy day—and the fund’s target size should be based on historical revenue losses during recessions.
To fully meet these criteria, we urge the Commission to modify its proposed Charter language.
The following six changes to COGE’s proposal would improve the City’s fund:
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Allow withdrawals only during a rainy day. The proposed amendment, which replicates the withdrawal rule currently in State law, would allow 50 percent of the fund to be used for any reason, and the balance to be used based on any mayor’s definition of a compelling fiscal need. That could be, for example, spending on a new program rather than a rainy day, a loophole which risks prematurely depleting the fund, making it unavailable when a true need arises.
In order to be a true RDF that provides resources when New Yorkers need them, the law or policy should limit withdrawals to a recession or severe emergency. Specifically, the rule or policy should limit withdrawals to:
a. A recession defined by economic indicators, or
b. A severe emergency with revenue losses or increased expenditures exceeding 1 pppercent of City funds; and
c. No more than two-thirds of the balance in the first year.
These rules are narrower than existing State law, and therefore, would not be pre-empted by it.
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Apply the target size only to the RSF. The proposed language would allow the Retiree Health Benefits Trust (RHBT), General and Capital Stabilization Reserves, or other funds to be included, in effect, as rainy day reserves. They are not.
The RHBT has been used as a de-facto RDF in the past, but that was before the City had the statutory RDF. That fund should be limited to its intended purpose: to offset the City’s $100-billion-plus liability for retiree health insurance, a massive future liability for which the City should set aside financial resources.
The General and Capital Stabilization Reserves are budgetary cushions that are spent down each year, not rainy day reserves. Including these other funds in the calculation of reserves relative to the target size would leave the target for the RSF—the City’s true RDF—too small.
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Require deposits based on revenue strength. The proposed language would allow the City to draft a policy that permits it to forgo deposits when, for example, a mayor wants to fund a large or expanded program with strong revenues. There will always be priorities and needs, but if they are allowed to mitigate deposits the fund will likely never be reasonably resourced. Since a well-designed RDF smooths out revenues over the economic cycle to protect New Yorkers when times are bad, deposit rules should be based on revenues alone. Including a deposit trigger, such as inflation or 3% tax revenue growth, improves the likelihood that the policy supports the growth of the fund.
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Increase the target size to 16 percent of tax revenues. The proposed language sets a target size of 12 percent of tax revenue in the preceding year, which is too small based on history. The target size should be 16 percent—the amount needed to cover two years’ worth of recessionary tax revenue losses.
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Require the City Comptroller to publish an opinion as to the reasonableness and appropriateness of the RSF implementation policy. The proposed language requires Comptroller consultation, which is beneficial but not sufficient. Publication of the Comptroller’s assessment of the reasonableness and appropriateness of the proposed policy, including whether the policy would build and maintain an RDF large enough to meet the City’s needs during a recession or severe emergency, would provide the public and the City Council important independent information.
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Set RDF’s implementation rules and definitions in law, rather than policy. The proposed amendment would set rules by policy. This would be a step forward. Still, setting the City’s RDF rules by local law is preferable because it would provide a more deliberative process that is less subject to executive prerogative which may change over time across administrations.
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