New York State Comptroller Thomas DiNapoli warned in a recent report that managing the public health crisis in New York City has led to an explosion of debt that its residents will be hard pressed to pay off over the years, especially when it hasn't even paid off its debts from its last major borrowing binge in 2001.

In particular, the comptroller warned about the consequences of plans by the city to borrow $5 billion to make up for lost revenues. DiNapoli said that such borrowing could increase debt service by $350 million per year at a fixed rate to be paid off by 2050, as it is a huge sum of money for the city: By way of illustration, that much capital spending would provide enough funding to bring all bridges, highways, streets and traffic lighting to a state of good repair through 2024.

The report conceded that the city is in a much better financial position than it was the last time it borrowed billions to rebuild after the 9/11 attacks. At the beginning of FY 2021, the City had a surplus roll and reserves exceeding 9 percent of total expenditures to help manage the abrupt impact of a minor recession. Yet this recession has been far from minor for the city. While there is some cushion to see what federal relief may be forthcoming, at what pace economic activity will return, and what the recession’s impacts will have on New York's finances, with a slowdown in New York City revenue as a result of pandemic-related closures and employment decline, the projected issuance and debt service associated with borrowing $5 billion would increase carrying costs to more than 13 percent of NYC fund revenues.

The city anticipates a a sharp rebound in growth and associated revenues in fiscal years 2022 and 2023, when it expects a return to normal economic activity, but DiNapoli questioned whether this was a realistic timeline. The recovery may be slower than anticipated,and the pace of the recovery will also depend on other factors, such as the severity of a potential second wave of the novel coronavirus, the availability of a vaccine or effective treatments, and long-term changes in social and business practices.

"This uncertainty, which is compounded by the economic outlook and associated revenue effect on New York State, is a key reason for the City to use caution before tapping borrowed resources to manage its operations, and to be sure to reformulate projections to align with economic activity on the ground," said the report.

Deficit financing should only be used as an absolute last resort, said DiNapoli, as the practice ends up creating more costly fixed expenses to pay for services already rendered, while adding to the city debt burden and taking valuable funds away from long-term capital investments. Such practices, used on a recurring basis, become unsustainable. This was seen directly in the 1970s fiscal crisis. With the city in a much better position than it was then, the comptroller said it should be an option only when all others have been exhausted.

"This scenario calls for a cautious approach to leveraging nonrecurring resources and for careful evaluation of the decisions to bring the City to structural balance in a new environment," said DiNapoli.