DiNapoli: New York City’s Looming Budget Gaps Widen
Changing Economic Conditions Signal Greater Challenges for the City
New York City’s fiscal fortunes have changed course, due largely to the credit tightening and turmoil on Wall Street, and the City now faces substantially larger out-year budget gaps that the City forecasts will hit $6.5 billion in fiscal year 2011, State Comptroller Thomas P. DiNapoli said in a report released today on the City’s October financial plan.
“The changing economic outlook indicates that the City may face greater fiscal challenges down the road as the effects of the credit crunch on Wall Street and the cooling real estate market take their toll on City revenue,” DiNapoli said. “I am confident that Mayor Bloomberg and the City Council will make the difficult budgetary choices to ensure the City’s continued fiscal stability. The Mayor has, for example, wisely called upon City agencies to prepare cost saving measures in advance of the January financial plan. Along with City leaders, we will continue to keep a close eye on these changing conditions.”
The DiNapoli report indicates the City used $296 million of reserves to balance its current budget, and the FY2009 budget gap has increased to $2.7 billion from $1.5 billion in June. Additionally, the projected FY2010 gap has increased to $4.8 billion from $3.4 billion, and the gap estimate for FY2011 has grown to $6.5 billion from $4.4 billion.
The City’s revised gap estimates are based on the assumption that the local and national economies will slow, but will avoid a recession, and that the City’s residential real estate market will weaken but not collapse. Tax collections are projected to decline by $2 billion in FY 2008 and remain flat through FY 2009 before slow growth resumes in FY 2010. Most of the decline in FY 2008 ($1.3 billion) is due to tax cuts approved before the impact of the turmoil in the credit markets was apparent. Wall Street profits are projected to decline nearly 40 percent from $20.9 billion in 2006 to $12.7 billion in 2008. The impact on the local economy and City tax revenue will depend largely on the depth and duration of the credit crunch.
The DiNapoli report identifies a number of budget risks that, if they materialize, could widen the gap to more than $7 billion by FY 2011. Although tax collections may exceed City forecasts in the current fiscal year, the revenue decrease may be slightly greater than anticipated in subsequent fiscal years. The City’s financial plan also assumes that the State will restore revenue sharing to the City ($327 million annually) and it does not yet reflect the Governor’s recent proposal that the State and the City each increase their financial assistance to the Metropolitan Transportation Authority by $300 million in 2010.
Click here for a copy of the report.