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CityWatch: As New York coffers recover from a crushing year, how dependent is the city on federal funding?

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New York City has come a long way from its precarious position at the end of 2020, when budget deficits portended a “nightmare scenario,” the likes of which hadn’t been seen since the 1970s, and rising COVID-19 case numbers put reopening plans on pause yet again.

Since then, the city has received nearly $6 billion in direct aid from the latest federal stimulus package in March, $12 billion for the city’s schools, federal aid with the vaccine rollout, and assorted stimulus funds that will come through New York state’s portion of the deal. Meanwhile, the federal government injected a $6.5 million lifeline into the state-run Metropolitan Transportation Authority, which runs the city’s subway and bus systems.

The city is also no longer on the hook for pandemic-related expenses that would typically be covered by FEMA and the federal government, but were not under the Trump administration.

“The most important fact is that all the costs that are reimbursable by FEMA will now be reimbursed 100%,” New York City Council Member Helen Rosenthal, who sits on the Council’s Committee on Finance and represents the Upper West Side, told MarketWatch. Under the Trump administration, only 75% of costs were being reimbursed, “So the budget last time was down by $1 billion or $2 billion because we had to assume FEMA wouldn’t come through with all of it,” Rosenthal said.

After years of struggles with the Trump administration’s efforts to withhold federal funding from the city, the current political climate in Washington, D.C., represents a dramatic about-face for New York’s fortunes on the federal level, with Democrats now controlling all three branches of the government, and New York Sen. Chuck Schumer in a position of power as the Senate majority leader.

By contrast, In April 2020, at the height of New York City’s COVID-19 crisis, then-Senate Majority Leader Mitch McConnell suggested that states struggling with the financial burdens of the pandemic should consider bankruptcy rather than seeking federal aid.

“New York City’s outlook looks better with the new incarnation of Washington in the White House as well as on Capitol Hill,” said New York state Sen. John C. Liu, a Democrat who is the chairman of the New York City Education Committee and represents northeast Queens. “New York City is not necessarily going to get special favors, but Democratic control of both houses and the White House bodes well for urban areas across the country on issues from transportation to housing, and along the way New York will benefit.”

While a freshly passed $212 billion New York state budget includes plans to increase revenues through tax increases on the wealthy and online sports wagering, and is designed to help revive the state and city’s economy through line items like relief for struggling renters and tax credits for small businesses, the long-term recovery process is likely to be a slow one. (Gov. Andrew Cuomo’s office did not respond to requests for comment.)

“It’s going to be a painful two years. The irony is that even though [finance and tech] firms are doing well, the people who supported those workers are starving,” said Mitchell Moss, a professor of urban policy at NYU and the director of the Rudin Center for Transportation. “It used to be you’d have 100 people [in the lobby of office buildings] delivering meals to the traders.”

More than 20,000 New Yorkers filed for unemployment the week of March 27, a 283% increase from the same time in 2019, according to Investopedia’s New York City Recovery Index. Prior to the passage of the March stimulus bill, Mayor Billde Blasio unveiled a 2022 budget based on a projected $5.25 billion budget gap.

“The loss of jobs is serious because we do not know how quickly the Broadway theaters will recover, whether people are coming back to work three, four, five days a week,” Moss continued. “For the MTA, it’s going to take a couple of years for ridership to rebuild. The MTA needs enough [funding] to get through the decline in ridership and now, and they have to focus on rebuilding the ridership.”

All told, the MTA has already received $14.5 billion in federal aid since the start of the pandemic, but needs significantly more in order to stave off major cuts. President Biden’s forthcoming infrastructure legislation, the American Jobs Act, currently includes an $85 billion allocation for existing transit, and MTA officials expect a portion of that will help to fund the $51 billion 2020-24 capital program, Crain’s reports.

“The MTA will need another $8 billion by the end of 2021 to prevent wholesale dismantling of the system,” Liu said. “Because President Biden included $6 billion for the MTA in the [most recent] stimulus package, the MTA was able to put off some really horrendous cuts. I can say with certainty that [additional funding] is far more likely now than it was a few months ago.”

Also see: Biden says his $2.3 trillion infrastructure plan will create 19 million jobs — most would not require a college degree

More broadly, the city’s ongoing financial recovery is likely to depend on some continued degree of federal aid, and politicians and analysts have raised concerns over how one-time influxes of relief are being worked into longer-term financial plans.

In response to the latest state budget, nonprofit fiscal watchdog group the Citizens Budget Commission released a statement saying, “The budget grows significantly and rapidly, temporarily inflated by one-time federal relief, and it is devoid of systemic improvements needed to make recurring spending sustainable and maximize New York’s competitiveness.”

Mayor de Blasio’s office did not provide comment for this article, but in a news conference on Wednesday, de Blasio called the budget “the best state budget we’ve ever seen for New York City” and “a budget that puts working people first,” particularly citing additional funds earmarked for the city’s public schools.

As far as how stimulus and potential infrastructure aid is allocated, Liu said, “Federal funding should be used to supplement an ongoing effort in city and state funding, not supplant what would normally be funded by the city and state.”

Ana Champeny, director of city studies for the Citizens Budget Commission, told MarketWatch that strategic use of existing stimulus funds “can get you a long way to fiscal stability.”

“Making other choices where you dedicate those resources to new programs or increase spending that you will later have to cut, or establish programs you don’t have a recurring funding stream for, is not the wise move,” she said.

With federal funding coming in one-time bursts (and often preceded by weeks or months of contentious negotiations in Washington), and the nature of New York’s recovery still in flux, much about the city’s financial future—and what it needs and can expect from Democratic leadership in Washington—remains to be seen.

“You’ve got a lot of money for the city, the state, the education system” from the latest stimulus, Champeny said. “There’s no rush to do something else. I think [the city’s government] needs to use it, plan, watch the recovery, then figure out if there are longer term structural changes for the city, and what that means.”

Also read: Who will be the last New Yorker to die of COVID-19?

In the shorter term, much of the city’s recovery may depend on the speed at which it gets COVID-19 under control, and a critical mass of the population vaccinated. (The state opened up eligibility to all New Yorkers over the age of 16 this week, and more than 4.6 million doses have now been administered in the city, de Blasio said on Thursday.)

“The most important thing the city and the mayor can do is get the city’s public health system working and everyone vaccinated,” Moss said. “If we can make the city safe, people are going to come to New York because it’s an experience you can’t get anywhere else. This is still the most productive place to do business, and in the long run, New York is going to be very strong.”

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