Lessons from Past Recessions: Borrowing for Operations

The COVID-19 pandemic has created a fiscal emergency for the City of New York, creating significant revenue shortfalls and increased costs associated with managing the public health crisis. Federal relief funding has been inadequate in helping resolve the budget gaps emerging from the fiscal emergency. In response, the City has requested since May that its Transitional Finance Authority (TFA) be provided with authorization by the State Legislature to borrow up to $5 billion to maintain spending and make up for lost revenues not reimbursed by the federal or State government, a practice referred to as borrowing for operations (i.e., deficit financing). The reliance on borrowing for operations recalls stress points in the City’s fiscal history and the use of debt to manage ongoing operating gaps, which, when coupled with the City’s lack of financial management systems, policies, and procedures, and the economic environment at the time, led to the fiscal crisis of the 1970s.