As Mayor Eric Adams delivered his second State of the City address from the stage of Queens Theatre on January 26, someone else was making history, simply by sitting in the audience: Governor Kathy Hochul. Marking the first time in decades that a governor considered a mayor’s speech worthy of attendance, Adams enthused, “It’s been a long time since the governor of New York has come to a State of the City address. It’s a testament not only to our incredible partnership but to your commitment to the people of New York City.” In a statement, Hochul reciprocated: “Since day one, I vowed to usher in a new era of collaboration and leadership with the mayor, and I look forward to our continued partnership to create a brighter, safer and more prosperous future for New York City.”

On February 1, however, when the governor introduced her Fiscal Year 2024 executive budget, she sent a different message. Several of her proposals, if passed, would negatively affect New York City’s bottom line, from requiring the city to top up the Metropolitan Transportation Authority’s deficits to introducing approximately 100 potential new charter schools to ending a federal funding pass-through for local Medicaid costs. A few days later, Politico published a leaked memo from the city’s Office of Management and Budget (OMB) summing up the net impact of Hochul’s budget. All told, it would boost city coffers by $168 million in the current fiscal year but deplete them by $461 million in FY 2024 and $1.34 billion in FY 2025. With the municipal budget now well above $100 billion, these figures might seem modest, but they come as city finances are already groaning under multiple burdens.

Putting aside the merits of the executive budget’s proposals, without extra support in future years, they would require the city to find savings and make trade-offs, including potential service cuts. In short, according to a March 2023 city comptroller report, Adams is staring down a budget gap of more than $7 billion in FY 2025 and $10 billion in FY 2026, driven partly by the same governor who spoke of working together to create prosperity for the city. New York State, meantime, sits atop an $8.7 billion surplus. The warmest mayor–governor relationship in generations is likely to be tested.

In one sense, the executive budget merely followed up on new requirements that Albany stuck on the city last year. As the mayor’s authority over city public schools came up for legislative reauthorization, Adams asked Hochul for three more years of control. In a gesture toward a “more collaborative” spirit, Hochul offered him four, which would have taken the matter off his plate for the remainder of his term.

The state senate wasn’t feeling so generous. Two days before the end of the legislative session last May, senators struck a deal that extended control by only two years. But in exchange for this truncated period, legislators also secured a bill that would lower the maximum number of students in New York City public school classrooms and another that would weaken the mayor’s power over the Panel for Educational Policy, the formal body that holds public meetings to review and ratify decisions made by the administration. Hochul opted not to expend political capital during an election year to defend a longer extension—despite her earlier backing—and signed the two-year bill into law hours before control expired on July 1. She then waited until September 8 to sign the deal’s two other components, perhaps to bolster her flagging campaign with renewed support from unions and parents.

As a result, beginning this September and phasing in over five years, New York City public school class sizes from kindergarten through high school will shrink by between five and nine students, costing the city a net estimated $1.3 billion when fully implemented. Adams protested this “unfunded mandate” in vain. It also came in the wake of a dramatic drop in city public school enrollment over the past several years; about 940,000 students are currently enrolled in city public and charter schools, some 100,000 fewer than in the 2018–19 school year. In effect, then, Hochul gave the city’s teachers’ union a full-employment act and put it on the city’s tab.

Fast-forward to February 2023, and Hochul’s budget goes even deeper on education mandates and spending. In yet another sop to the state’s teachers’ unions, it allocated $2.7 billion more for Foundation Aid, the main source of state funding for public schools. The city would see only $320 million of this largesse, according to the OMB memo. In proposing to remove the cap on the number of charter schools that are allowed to operate in the city, moreover, the city would be required to provide them with funding and space. The process to secure state approval for charters ordinarily takes years, which means that the bill won’t fully come due for some time. But with 85 potential new schools, the OMB estimated a total budget impact of $1 billion yearly. The additional re-issuance of 21 charters, reallocated from charter schools that have closed, would cost another $200–$300 million annually.

When these programs are fully implemented, and without new state funding, therefore, the mayor will have to make up about $2.6 billion in future budgets. Any attempt to find money in school budgets will lead to political opposition and potential lawsuits, akin to last year’s four-month legal challenge to Adams’s plan to cut budgets in schools with declining enrollment. While the opening of so many charters represents a valuable opportunity to improve the quality of public education in New York City, lifting the cap without more state funding puts Adams in a deeper fiscal bind, potentially threatening his support for this much-needed form of public education.

On top of this, the executive budget called for New York City to plug the MTA’s deficits. Its annual contributions to the agency, beginning in 2024, would rise by $500 million and $30 million for paratransit (public transport for the disabled) and student fares. No other municipality is on the hook for an increase. More still, Hochul proposed burdening downstate taxpayers with an approximately $800 million increase in the Payroll Mobility Tax, which funds mass transit by charging payrolls in the MTA area. Projected tax revenues from yet-to-be-built downstate casinos are slated to bolster the MTA’s budget further, potentially tying its future solvency to a plan that might not be in the city’s best interests.

Yet Hochul didn’t require the MTA to adopt deep cost-reduction measures. Out of a total operating budget of $19.2 billion, she called for the notoriously inefficient agency to cut only $100 million this year and $400 million in future years. By contrast, the Citizens Budget Commission in 2021 found that the MTA could save up to $2.87 billion annually by, for example, introducing a health-care premium cost share for retirees and moving to single-person train operations, something that Chicago and Boston have done since the late 1980s. Both measures, however, would tee up fights with public-sector unions that have plausibly claimed that they carried Hochul to victory last November. Instead, with farebox revenue lagging as subway ridership persists below 70 percent of pre-pandemic levels—already disproportionately affecting the city’s businesses and thus its tax coffers—Hochul simply asked the city to pony up more.

Even during economic boom times, higher costs from Albany would draw the ire of city hall, but Mayor Adams is uniquely vulnerable to their sting. Gotham faces extensive uncertainties and fiscal challenges that will shape the remainder of his first term. A recession looms. Federal pandemic aid is quickly evaporating. The slumping stock market will require the city to make additional pension contributions of up to $3 billion by FY 2026. Manhattan office landlords have begun defaulting, as vacancy rates remain stubbornly high, posing acute risks to city property, business, sales, and personal income tax revenues. Collective bargaining agreements with most municipal-worker unions remain to be inked, yet the city’s labor reserves cover annual wage raises of only 1.25 percent, well short of the metro area’s 6 percent inflation rate or even the reasonable 3 percent raises that Adams recently secured with the city’s largest public union.

“Even if the mayor manages to secure more state funding, he will have learned that Albany cannot be counted on to advance city interests.”

Most acute of all, some 47,000 migrants have arrived in the city since 2022, requiring shelter, food, and education. The OMB’s memo estimated that the crisis will cost roughly $4 billion through 2024—double what Adams projected just the month before—driven by deals like a $275 million contract with city hotels to house 5,000 migrants. As these costs ballooned to $5 million a day, Hochul’s executive budget contained a $1 billion cap on state support, all while federal support remains uncertain.

And Adams was already starting from behind, thanks to his predecessor, Bill de Blasio, who budgeted time-limited federal pandemic relief funding for recurring and potentially recurring programs like 3–K (early childhood education for three-year-olds), housing vouchers, and mental-health teams. Once begun, these programs tend to develop a constituency in favor of their persistence, especially on the city council. Adams announced that he would halt de Blasio’s expansion of universal 3–K, but several councilmembers, activists, and even City Comptroller Brad Lander—whose job is to safeguard the city’s fiscal health—have pushed back, all while thousands of seats go unfilled because of sloppy allocations by the previous administration. Adams faces similar opposition to his $102.7 billion preliminary “austerity budget” for FY 2024.

Some reasons for optimism exist. In February, the Independent Budget Office estimated that the city will end the current fiscal year with a $4.9 billion surplus, larger than OMB’s estimate by some $2.8 billion, which can help reduce next year’s budget gap if used to prepay expenses. For now, city tax revenues remain robust. The biggest issue facing the budget is macro-level uncertainty, and uncertainty sometimes resolves for the better. Still, prudence requires that leaders plan for the worst.

An amicable relationship between the mayor and governor is doubtless preferable to the alternative that has characterized city and state governance for too long. But political expediency has a way of prevailing. While Hochul will have opportunities in the next few years to cover more of the city’s budget gaps, she may not have the appetite for doing so. No matter what, doubts will weigh on Adams. Even if the mayor manages to secure more state funding, he will have learned that Albany cannot be counted on to advance city interests, regardless of his relationship with the governor.

Adams has opportunities to put this lesson into practice and reduce the need for more from Albany by tightening the city budget before its July 1 deadline. Expensive new spending proposals from the city council should be off the table. Co-locating charter schools in underutilized public school buildings should become standard practice. Low-value and bureaucratic positions should be carefully identified and eliminated. Non-mandatory recurring programs funded by time-limited pandemic relief should be paused. This year’s budget surplus should pay down next year’s expenses. And the city should renegotiate the now-stalled Penn Station redevelopment deal that forgoes reliable property taxes in exchange for payments from a fickle state government.

Will the most vibrant mayor–governor relationship in decades begin to wilt this spring under the heat of a few billion dollars? Older friendships have withered for far less.

Photo: Hochul and Adams tout their partnership, but the mayor faces a budget gap of more than $7 billion, driven partly by the governor’s decisions. (BAUERGRIFFIN / MEDIAPUNCH /IPX/AP PHOTO)


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