• Undocumented immigrants and uninsured force 38% spending boost
  • Mayor vows to transform system without firing city workers

New York Mayor Bill de Blasio has reaped the benefits of an expanding city economy, spending billions on homelessness, labor contracts and public safety. Now, just as economists predict slowing job growth, he faces a budget buster so big that it may force restraint.

The city’s public hospital system, the largest in the U.S., is bleeding from rising costs of caring for undocumented immigrants as federal and state reimbursements drop. The mayor insists he won’t close hospitals or fire workers to plug the $1.8 billion budget gap the system faces by 2020. Analysts at business-supported groups such as the Citizens Budget Commission and the Partnership for New York City say he’s got to do both.

Such a move would carry political risk for de Blasio, who emerged from a crowded Democratic field to capture the party’s mayoral nomination after getting arrested for protesting the closing of a Brooklyn hospital. Since taking office in 2014, better-than-expected tax collections have helped fund his progressive agenda. Now he’s being urged to proceed with caution.

“The mayor’s financial plan contains a contradiction between the short term optimism of significant new spending and its cautious longer term revenue estimates,” said Citizen Budget Commission President Carol Kellermann. “The mayor hopes increased spending can be sustained in more difficult economic times through savings and other gap closing measures but many of these anticipated gains are uncertain, putting future budget gaps at risk of mushrooming.”

At stake, beyond de Blasio’s political fortunes, are years of citywide quality-of-life gains that require continued maintenance. That includes spruced-up parks and playgrounds, a beefed-up police department, six-day-a-week library service, rent subsidies to combat homelessness and plans to create and preserve 200,000 units of affordable housing.

Perfect Storm

De Blasio said “a perfect storm,” combining Congress’s refusal to cover undocumented immigrants under the Affordable Care Act and reduced federal and state support, forced the city to increase spending 38 percent on its system of 11 hospitals, neighborhood clinics, nursing homes and prison medical care in the fiscal year ending June 30. An additional $180 million increase is planned for next year and beyond.

Independent economists, meanwhile, have advised the city to expect reduced job gains and declining Wall Street bonuses over the next four years. Budget officials say they expect tax-revenue growth to slow to 3.6 percent in fiscal 2016 and 1.9 percent next year, after five years during which growth averaged about 7 percent.

Although the city’s economy has diversified beyond Wall Street with a thriving tech sector, its tourism industry, which employs about 300,000, could suffer as visitors from China, Brazil and Canada are discouraged from traveling due to economic slowdowns and a strong U.S. dollar, said Steven Cochrane, an economist with Moody’s Economy.com.

“City officials need to be cautious in the next couple of years, as there’s a chance for the economy to falter,” Cochrane said.

De Blasio says city revenue will still pay for not only his spending boost for hospitals but also increases for education, mental-health treatment and homelessness prevention. His low revenue estimates and $5 billion in reserves show he’s realistic, he says.

This year, he must add almost $500 million to the $1.3 billion subsidy the city has averaged over the past three years just to keep the hospital system operating. He says he intends to fill the remaining gap with payroll attrition, expanded insurance enrollment, improved bill collection and increased federal and state aid. He insists he won’t close hospitals or fire any of its 49,000 union workers.

Last Resort

“We are the government of last resort, whether that means taking care of undocumented folks or people who are poor, people who are homeless, we have to cover those needs,” de Blasio said at his April 26 budget presentation. “I don’t think the people of this city for a moment will see this as anything but us trying to deal with real challenges and needing more support from the state and federal government to get it done.”

The $82.2 billion budget for next year represents an increase of less than 1 percent compared with last year, due to more than $1.3 billion in agency savings, he said. Kellermann says the mayor hasn’t produced enough detailed specifics to be credible.

She cites the city’s problem of caring for its 1.4 million public hospital patients, of whom about 473,000 are undocumented, which costs more than $2 billion a year at a time when cash-strapped private voluntary hospitals are competing with city hospitals for patients reimbursed by Medicaid.

“The hospital industry generally is in deep trouble, particularly the safety-net hospitals, and it’s not something that the city budget can afford to fix,” said Kathryn Wylde, who supports most of de Blasio’s policies and goals, and is president of the Partnership for New York City, an organization of more than 100 corporate chief executives. “I applaud the mayor for trying to address them, but the city budget simply can’t sustain such obligations.” 

The city can’t begin to make a significant impact in cutting expenses without closing some of its under-used facilities and shedding a large percentage of payroll, which makes up about 70 percent of the system’s cost, Wylde and Kellermann say.

The political risk of such a decision is so great that former Mayor Ed Koch -- not one known to readily acknowledge error -- considered his 1980 decision to close a hospital in Harlem as his biggest mistake.

“Not that it was not right on the merits,” Koch said in a 2007 interview. “But I didn’t take into account what it meant psychologically to the community.”

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