Mamdani’s proposed improvements to the City’s rainy day fund won’t change much.
In 2019, the Citizens Budget Commission and I, then its outgoing president, played a key role in advocating for a City Charter amendment that would enable New York City to create and maintain a revenue stabilization fund, generally referred to as a rainy day fund. Most states and cities across the country have such a fund. Generally speaking, rainy day funds are an important way for government to set aside revenue when the economy is strong for use in times of extreme need, instead of spending it entirely in the year it is generated.
This year, Mayor Zohran Mamdani’s Commission on Government Efficiency has put forward a ballot item purporting to strengthen the city’s rainy day fund — but it’s much less than meets the eye.
First, a bit of history. During the fiscal crisis of the 1970s, New York City’s finances were subject to a state law requiring compliance with Generally Accepted Accounting Principles (GAAP), which disallow saving revenue from one year to the next. This meant that the City was not allowed to have a rainy day fund. But crises over the past 25 years — the Sept. 11 attacks, the Great Recession, Trump administration funding cuts — have shown that there is a need to have resources in reserve in times when dramatic economic swings cause City revenues to decline so that serious cuts in services or tax increases can be mitigated.
The 2019 Charter Commission was responsive to our recommendation and proposed an amendment stating that the City “may” maintain a Revenue Stabilization Fund (that’s the technical term for a rainy day fund) “to serve as a year-to-year reserve account … created and operated in accordance with any applicable state law.” This essentially meant that the fund could be created if and when state law was amended to allow it.
Unfortunately, contrary to our admonition that the fund include guardrails, the provision missed a major opportunity — neglecting to include any rules about how much should be deposited or withdrawn or when. We were told that guidelines for deposits and withdrawals would be a topic of later legislation, once the charter amendment was adopted and state law was modified to permit the existence of the fund.
That never happened. The charter amendment was passed in November 2019 and state law was amended six months later, allowing the creation of a City revenue stabilization fund. But no rules were included except that “no more than fifty percent of the total amount of such fund may be withdrawn in any fiscal year unless the mayor has certified that there is a compelling fiscal need … including, but not limited to (emphasis added), a national or regional recession, a reduction in total revenue … a natural or other disaster, or declared state of emergency.” In other words, no amount of deposits is required and the mayor has the authority to withdraw up to 50% of the fund at his/her discretion and the remaining 50% if they identifies a compelling fiscal need as they defines it. That’s as close to a blank check as it gets.
Years later, no more specific guidelines for deposits or withdrawals have been established. And despite City revenues consistently exceeding projections, there has been only one significant deposit to the fund of $1.455 billion in 2022. The fund now contains just $2 billion, with a recession long overdue.
That brings us to today — and the amendment offered by the mayor’s Charter Revision Commission, to be voted on this coming November. That fifth ballot proposal would amend the rainy day fund authorization to create a target fund balance of 12% of City tax revenue; require the mayor’s Office of Management and Budget (in consultation with the City Comptroller) to create a formula for determining annual deposits; and require what is already required in state law, namely that if the mayor decides to withdraw more than 50%, they must certify that there is an immediate fiscal need.
Though the amendment makes it appear as though the administration is taking a serious step in the direction of fiscal responsibility, it is not clear to me that the amendment is a positive step. It creates a misleading impression that the inadequacies of the current law have been addressed while doing almost nothing to enhance the rules governing the fund.
First, a 12% target balance, which would be approximately $11.5 billion, is not enough. CBC and the City Comptroller have both argued for a figure of 16% to 18%, or approximately $15 billion to $17 billion, of annual revenue, based on analysis of the deficits that would need to be covered in the event of a two- to three-year recession. More importantly, the proposed provision doesn’t require regular deposits or even apply the target balance to the rainy day fund per se; it allows any amounts held in other stabilization funds, including money that should be kept segregated in the funds used to pay retiree health benefits, to count toward the 12% target.
Second, the amendment calls for OMB, the mayor’s budget office, to create a “methodology” to determine deposits and withdrawals in consultation with the comptroller but without requiring the comptroller’s approval, and to publish it regularly. In other words, deposits and withdrawals will continue to be determined by the mayor. That puts this essential fiscal question right back in the control of a single elected official.
It is true that more specific legal rules for deposits and withdrawals would be more stringent than what the State law permitting the rainy day fund requires. But it is appropriate that the Charter and local law be the vehicle for more stringent rules. Indeed, State law governing the State’s own Rainy Day Reserve Account limits withdrawals to very specific circumstances, which could serve as an appropriate model for the City’s fund as well.
When the Financial Control Board convenes next week (it still exists, although the formal controls are dormant), the governor, comptrollers and other independent members should express concern about the shortcomings of the proposed Charter amendment. And the Charter Revision Commission, which is authorized to continue until next November, should begin deliberations to submit a revised amendment that is more than symbolic and ensures that money is steadily deposited in the rainy day fund in good times and can only be withdrawn under very limited and set circumstances.
