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December 22, 2008

 

DiNapoli: City Budget Gaps Could Reach $8 Billion by 2011

State Budget Could Hinder City Efforts to Balance Next Year’s Budget

Despite steps taken by the Mayor and the City Council over the past 18 months to rein in spending, New York City’s budget gaps continue to grow as the economic outlook deteriorates. The City will need additional actions beyond the tax increases recently approved by the City to close budget gaps of $3.5 billion for next year and $8 billion for fiscal year 2011, according to a report released today by New York State Comptroller Thomas P. DiNapoli.

“The Mayor and the City Council have taken a proactive approach to the City’s budget problems,” DiNapoli said. “But the economic outlook continues to deteriorate with every new forecast. We don’t know how long the recession will last, or how deep it will be, but it’s clear that New Yorkers should brace themselves for possibly the worst fiscal crisis since the 1970s. And the City cannot look to Albany for much help. The State faces its own fiscal crisis. Balancing the State budget will require sacrifices that could hinder the City’s efforts to balance next year’s budget.”

DiNapoli’s report finds that despite the potential for tax revenue shortfalls in the current year, the City has sufficient reserves to ensure the current fiscal year’s budget will remain balanced. However, the report forecasts budget gaps of $3.5 billion for fiscal year 2010 and $8 billion for fiscal year 2011 that will require the City to take additional action. The Mayor has already announced another round of budget cuts that could total $1.4 billion in response to the latest economic forecasts.

The DiNapoli report projects that tax collections could be lower by $575 million in the current fiscal year, $450 million in fiscal year 2010, and by as much as $950 million by fiscal year 2012. The report predicts lower business and personal income tax collections due to greater declines in employment and higher losses on Wall Street. Also, the weakening real estate market could cause real property tax collections to fall $425 million short of the City’s forecasts by FY 2012.

The DiNapoli report also finds that the Governor’s proposed budget could widen the City’s budget gap by $1 billion over the course of this year and next year. The Governor has proposed eliminating assistance to New York City under the State’s Aid and Incentives to Municipalities program, which would cost the City $328 million annually beginning in the current year. The Governor also proposes to reduce education aid by $669 million in fiscal year 2010, compared with the amount anticipated by the City in its financial plan. In addition, the Governor has proposed certain actions that could help the City, including broadening taxes, increasing fees, and providing mandate relief.

The report also indicates:

  • The City’s November 2008 Financial Plan assumes that tax collections over the course of this year and next will be about $1.6 billion lower than forecast just five months earlier, and $1.1 billion lower in each of fiscal years 2011 and 2012. DiNapoli’s report finds that collections could be even lower than now forecast by the City;
  • Job losses could exceed 225,000 in New York State over the next two years, including 175,000 jobs lost in New York City. In November, New York City lost almost 20,000 jobs, the largest one month job loss since October 2001;
  • In past years, Wall Street accounted for 12 percent of City tax revenues, but the industry’s retrenchment will greatly reduce that contribution. Tax collections from Wall Street-related activities could drop by $2 billion, or more than 40 percent, between fiscal years 2008 and 2010;
  • The securities industry has lost 17,600 jobs since employment peaked in October 2007, but the impact has only begun to reach the broader job market in the City;
  • The City’s November Plan assumes that Wall Street will lose $25.5 billion in 2008. According to the report, Wall Street lost $20.8 billion during just the first half of the year and unprecedented developments during the fall could lead to more than $30 billion in losses for the year;
  • The City’s residential and commercial real estate markets have weakened, but the decline has lagged behind other parts of the nation. Home prices in the New York metropolitan area have fallen by about 7.3 percent between September 2007 and September 2008, while dropping about 18.5 percent nationally during the same period;
  • The City’s November Plan assumes the average rent in the Manhattan office market will decline by 12.3 percent and the vacancy rate will climb to 12.4 percent in 2010. During the last recession, average rent fell 18 percent and the vacancy rate increased to 12.3 percent;
  • Tourism is expected to decline. The number of passengers flying to New York-area airports has fallen 1.3 percent during the first nine months of 2008, and the hotel industry expects to see a 9 percent drop in occupancy by 2009;
  • Despite a 20 percent reduction in the capital program, debt service is projected to reach $6.5 billion by 2012, which is 50 percent higher than the FY 2009 level. Debt service will consume 14.2 percent of City fund revenues by FY 2012, up from 10.5 percent in FY 2009;
  • The report predicts that the public assistance caseload will increase by 15,000 persons by the end of FY 2010 as the economic downturn takes its toll; and,
  • The Mayor has proposed using $1.1 billion, or nearly half, of the resources deposited by the City in the Retiree Health Benefits Trust to help fund pension fund investment shortfalls.

Click here for a copy of the report

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