Many local governments in the United States are trying to reduce their spending because the financial support they received during the pandemic is ending and inflation is lasting longer than anticipated.
“There are clearly large financial needs throughout the United States,” said Michael Rinaldi, a senior director at Fitch Ratings’ public finance group. In March 2024, the group gave New York City an AA investment grade general obligation bond rating.
It seems that cities are facing more and more financial difficulties, even though they have good credit ratings and there is a strong demand for things like housing in urban areas. New York City had a total public debt of $177.6 billion at the end of fiscal year 2022, according to researchers at Truth in Accounting. Truth in Accounting is a nonprofit organization that works with the University of Denver to promote transparency in public accounting. The group’s analysis shows that this translates to a taxpayer burden of $61,200 per person.
The estimate is higher than the one given by New York City Comptroller Brad Lander. He says that the city has a public debt burden of about $96 billion in 2024, which is $30 billion less than the city’s debt limit.
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According to Truth in Accounting, the difference arises from pension debt obligations that are not accurately reported and will eventually be passed on to future taxpayers. “If I don’t pay that invoice, I don’t have to include it in my balanced budget,” explained Sheila Weinberg, the founder and CEO of the group.
According to Truth in Accounting, 53 of the biggest cities in the U.S. did not make enough money to cover their expenses by the end of the fiscal year 2022. The list also shows the financial difficulties that cities like Chicago, Houston, and Portland, Oregon are facing.
“I believe we can all agree that we don’t have enough money,” said Houston Mayor John Whitmire during a City Council budget hearing in March 2024.
According to Truth in Accounting, municipal governments across the country are facing financial strain due to underfunded pension obligations and retiree health benefits. Detroit’s bankruptcy in 2013 showed how stopping pension payments temporarily can help the city save more money.
“I think this is a major issue across the country,” said Weinberg. “The voters believe that they must be spending money wisely.” And they are not.
Weinberg explained to CNBC that cities and state governments are currently spending money that they will need in the future, which is not sustainable. On the other hand, leaders in New York City are hopeful about future returns.
“We need to be cautious because it’s not good to accumulate too much debt,” said Lander, the city comptroller. He was talking about the trade-offs between using bonds or debt to finance spending and other ways of generating revenue, such as increasing taxes.
In 2024, Lander expressed support for increasing New York City’s debt limit by $12 billion. This money would be used to fund important city services like community colleges and the police department. It would also be used for a capital program to address issues like the climate crisis.
“Budgeting requires making difficult decisions.” “But it’s really important not to be overly focused on saving small amounts of money while ignoring larger financial consequences,” said Lander in an interview with CNBC.
Meanwhile, if debts continue to increase, it could result in dirtier streets, reduced public services, and public officials having to make difficult decisions to manage their finances. In New York City, Mayor Eric Adams has introduced a program called “Program to Eliminate the Gap.” This program involves three separate 5% cuts in city program spending. These cuts will affect services such as sanitation, library access, public education, and stewardship of jails.
“If New York City is unable to borrow money to fund part of their capital plan, it could lead to unsafe school conditions, overcrowding, and other problems,” explained Rinaldi from Fitch Ratings.
In the spring of 2024, Adams changed his mind about some of his spending cuts. He said this was because the city’s economy was doing better than he expected.
“But we’re not out of the woods,” he said in a press conference in January 2024. He mentioned that more actions need to be taken to make sure the city’s finances stay stable.
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