NYC Mayor-Elect Will Face Immediate Fiscal Crisis

New York City Mayor-elect Bill de Blasio will sweep into office in January with a powerful mandate for progressive change, but a looming fiscal crisis threatens to derail his agenda before it begins.

De Blasio, a Democrat, faces a multifaceted dilemma years in the making that he'll be forced to confront within weeks of taking office. He will contend with soaring worker health care costs, a still-fragile recovery from the recession and potentially a dramatic reduction in the vital aid supplied to New York by the state and federal governments.

But de Blasio's most immediate crisis is presented by some of his staunchest allies: the city's unions. All 300,000 members of the municipal labor force have been working on expired contracts for years, declining to negotiate with outgoing Mayor Michael Bloomberg in hopes of striking a more favorable deal with de Blasio.

Labor leaders are asking for current and retroactive raises, a balloon payment that could eclipse $7 billion, which is nearly 10 percent of the city's entire $72.5 billion budget, according to the nonpartisan Independent Budget Office.

"There is no question this is the biggest fiscal problem the incoming mayor faces," said George Sweeting, deputy director of the IBO. "It will impact everything else."

If de Blasio were to fully acquiesce to the unions, his scramble to fund the raises would have immediate and dramatic ramifications.

Agency budgets would be slashed, meaning vital services, from trash pickup to police staffing to school supplies, would likely be cut. City workers would be laid off. And de Blasio would have little choice but to raise the one tax he can control, the property tax, which could drive homeowners and businesses from the city.

"To pay for all that, they would have to be sweeping cuts that would really impact the quality of life in the city," said Carol Kellerman, president of the independent Citizens Budget Commission.

Last week, Bloomberg announced that his team had balanced the city's budget for Fiscal Year 2015, which begins in July, closing a projected $2 billion deficit. The city's budget must be balanced by law but doing so early sends a signal to the unions that the city's financial health is improving and could support larger raises.

Negotiations over the new contracts are expected to begin in January. De Blasio has been steadfastly noncommittal about retroactive raises, and his team declined to comment further.

"He's in both a political and fiscal bind," said Baruch College political science professor Douglas Muzzio. "It's damned if you do, damned if you don't. If you don't give the big raises, you're immediately alienating your base, who you need to work hard for you and help with your re-election."

"If you do, you're going to be attacked for being beholden to the unions, and you're blowing a hole in the budget," Muzzio said.

A compromise may be the most likely outcome, according to analysts. Instead of retroactive raises, de Blasio could offer one-time bonuses for employees that would not be factored into their future pensions, which are another financial drain.

He could also ask city workers to start contributing to their health care premiums. Currently, New York is one of only a handful of governments in the nation where workers don't pay any health care. The city's health insurance costs are growing at 7 percent a year.

The state's leading Democrat may have hinted this week that de Blasio will not roll over in negotiations.

"Going into the conversation, everyone needs a reality adjustment," Gov. Andrew Cuomo said in an unrelated Manhattan news conference. "The unions have understood that in the past, and they've acted accordingly, and my guess is that they will again."

But the fiscal challenges de Blasio faces won't end with the union contracts.

Like most big-city mayors, de Blasio is uncertain to count on aid from Washington, where another government shutdown or sequestration could turn off the faucet of federal funds.

But he also faces a silent threat unique to New York, a heavily Democratic city where that party has been out of power for more than 20 years. Suddenly, liberal groups — from social service organizations to nonprofits — will have their hands extended, looking for their overdue share of city funds.

Beyond combating unforeseen disasters, both natural and man-made, another land mine could be the interest rates on the city's debt service. New York has more than $100 billion in long-term capital debt and would take a hit if rates were to increase.

"The mayor has relatively limited ability to affect the city economy," Muzzio said. "It is driven by forces outside of his control. He's captive."

There is some good news: New York has bounced back from the last recession better than most big cities, city spending has been cut slightly and tax revenues are on the rise, thanks in part to Bloomberg's policies and rising profits on Wall Street.

But de Blasio needs more than that to enact his sweeping legislative agenda, one he hopes will continue the city's reduction in crime while combatting New York's rising income inequality.

His signature campaign proposal is universal pre-kindergarten, which will be funded by a tax hike on the wealthy. But he needs Albany's support to raise taxes, and if it's not forthcoming, he'll need to look elsewhere to find the money.

"He has tough choices to make," Kellerman said. "There's no pot of gold to pay for everything."