Moody’s: NYC’s Budget Gap to Triple Due to Labor Settlement

May 12, 2014 4:35 pm Last Updated: May 12, 2014 4:35 pm

NEW YORK—The executive budget released last week by Mayor Bill de Blasio forecasts a budget gap for 2018 that is triple the previous estimates, according to a credit outlook released on Monday by Moody’s Corp., a credit ratings and research company.

Labor costs are the major cause for the widening budget gap. Mayor Bill de Blasio announced a deal with the United Federation of Teachers on May 1. That deal included 4 percent retroactive raises for 2009 and 2010 as well as a 10 percent base wage and salary increase by 2018.

The executive budget includes estimated labor costs for the rest of the unionized workforce patterned after the teachers’ deal. The growth of the resulting budget gap is significant, especially because the city’s total personnel costs make up 55 percent of the budget.

A budget gap occurs when total spending exceeds total revenue.

“The plan is credit negative because it shows how personnel costs drive the city’s budget and challenge its finances, even in a strong economy,” Nick Samuels, a senior credit officer at Moody’s, wrote in the outlook report.

Samuels also pointed out that even though the city expects to settle all of the labor contracts based on the teachers union template, not all unions might agree to the offer.

“If all unions negotiating do not agree to the pattern settlement, the budget gaps and the city’s challenges to close them would intensify,” Samuels wrote.

The budget gap is forecast to double for fiscal years 2016 and 2017.

“There has been no change in the city’s credit rating whatsoever. Moody’s has not issued its credit report on the city,” said Amy Spitalnick, a spokesperson for the mayor’s office.

“In a document unrelated to the City’s formal credit rating process, an analyst at Moody’s pointed out that we added expenses for the contract settlements—just as they also pointed out the prior week that those same settlements eliminated a major risk from the City’s financial plan,” Spitalnick said.