DiNapoli urges NYC to support Rainy-Day fund


In a report released today, New York State Comptroller Thomas P. DiNapoli urged New York City officials to better prepare for financial downturns by assessing the city’s reserve fund for on rainy days, setting goals for how much should be invested in the fund each year and setting the conditions for withdrawal. His report found that the city’s reserve policies are not as strong as those of other major U.S. cities and, with recent changes to state and local laws allowing the use of these funds, called on the city to define how these resources are accumulated and used.

“Setting aside funds for unforeseen events and making sure they are available when needed are sound fiscal policies,” said DiNapoli. “The economic damage caused by the pandemic and changes in national and local laws on the use of reserves require the need for clear policies on how funds are deposited and spent. The next administration and city council not only have the opportunity to build these reserves in the short term, but also to shape the city’s reserve policy for years to come.

In early 2021, New York City officials established a Rainy Day Fund (also known as the Income Stabilization Fund), which was authorized by changes in state law and law. the city charter. This decision made available $ 499 million in resources that could not be used to balance the city’s budget before fiscal year (FY) 2020. Authorities subsequently approved a deposit of $ 500 million. in fiscal year 2022, bringing the total reserve to $ 1 billion.

Until the state law was changed, the city effectively maintained a substantial budget cushion through other means, including prepayment of expenses for future years, a necessary practice that nonetheless clouded actual expenses in the presentation. of the city budget.

The city’s plan to build up the fund so soon after its creation is prudent. However, the city’s planned deposit also reignites past questions about the rationale for depositing funds, their purpose, possible use, and replenishment plans, which the city still has not set out in a written policy.

DiNapoli’s report compares New York City’s policies with the nine other largest U.S. cities, all of which established target reserve policies and target achievement ranges, leading them to build larger unlimited reserves. over time. Cities like San Antonio, Dallas and San Jose report an unallocated fund balance as a share of general operating expenses at more than 20%. New York City’s unlimited reserve levels were 0.6% at the end of fiscal 2021, but additional forms of budget cushion increase those levels to around 8% of spending.

The review found that other major cities:

  • Post a reservation policy statement on their websites;
  • Define the objective of the unallocated reserves of the general fund, including each account (for example, an emergency and emergency reserve account and a stabilization account to accumulate surplus resources during periods of economic expansion);
  • Define the total amount of reserves to be established and the methodology to be used to determine whether they are adequate;
  • Make the required annual deposits until the policy goal is met, which creates tax certainty as to how much to deposit into the fund each year;
  • Provide strong legislative control over the withdrawal of emergency reserves; and
  • Demand the replenishment of all resources drawn from the reserves as soon as possible.

By comparison, New York City currently does not have a published policy outlining its rainy day fund targets, a reserve target, or guidelines on how resources would be replenished after a drawdown.

The report notes that recent reviews by rating agencies suggest that governments that develop and maintain strong fiscal reserve policies may receive improved ratings, based on a fund balance, cash reserves, and policies. financial management systems, which would reduce the cost of borrowing.

DiNapoli recommended:

  • Define the purposes of the emergency fund, the withdrawal conditions and the order in which the accounts would be drawn; and allocate part of the reserves to emergencies;
  • Set goals for the amount of money to set aside in the fund and establish a mechanism for determining annual deposits.
  • Amend state law and city charter, as needed, to require annual deposits into the fund until goals are met;
  • Require the mayor to provide a clear rationale for any amount withdrawn and require additional legislative approval to withdraw resources from any emergency account.
  • Addition of a provision which requires that the amounts withdrawn be reconstituted as soon as possible.

Some cities also have a policy of gradually increasing their reserves by intercepting part of the excess income they generate during periods of economic expansion.

Each year, the City realizes surplus resources generated after each budget adoption which are transferred to future years to prepay expenses (mainly debt service). DiNapoli estimates that if the city had been allowed to establish the fund in fiscal 2010 and deposited 1% of the excess resources generated in each of the years since, it would have added an additional $ 452 million to its fund for rainy days.

Report
Reinforcement of the New York Rainy Day Fund


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