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December 15, 2011

 

Wall Street Downturn Adds to Fiscal Pressure on New York City Budget



Faltering returns from Wall Street, an uncertain economic recovery and the threat of further cuts in federal and state aid could mean that New York City’s budget, while balanced in the current fiscal year, will face increasingly larger budget gaps in the years ahead, according to a review released today by New York State Comptroller Thomas P. DiNapoli.

“Significantly lower Wall Street profits will make balancing New York City’s budget more difficult,” DiNapoli said. “The pace of the economic recovery and how the state and federal government manage their own budgets also pose significant risks to the city’s financial plan. While the city has taken steps to narrow next year’s budget gap, the projected out-year gaps are considerably larger and will be more difficult to close.”

The city projects budget gaps of $2 billion in fiscal year (FY) 2013, rising to $4.9 billion by FY 2015, but these estimates do not reflect the potential for further cuts in federal and state funding. While the national and local economies are growing slowly, they remain vulnerable. The European sovereign debt crisis, for example, poses a significant risk to both the national and city economies.

The securities industry lost nearly $3 billion in the third quarter of 2011, reducing year-to-date profits to $9.6 billion. This sector’s profits are likely to fall significantly short of the city’s forecast of $20 billion for 2011. With its prospects dimming, the industry has begun to cut costs and reduce employment and employee compensation, actions which will ripple through the New York City economy. Cash bonuses paid to securities industry employees in the city are likely to be substantially smaller than last year.

In addition, the city is counting on the receipt of $1 billion in FY 2013 from the sale of taxi medallions, but the state has yet to authorize the sale. The state and city are currently holding talks on a possible taxi plan that will let the sale go forward.

The Comptroller’s analysis also found that:

  • In the past two fiscal years the city has generated surpluses averaging $3.7 billion, but for FY 2012 it projects a surplus of only $12 million;
  • City fund revenues are forecast to grow by 3.9 percent in FY 2012, but spending is projected to rise by 12.5 percent largely due to expiring federal stimulus aid and an increase in city funds to replace cuts in state aid. The budget was balanced with last year’s surplus of $3.7 billion. In total, the FY 2012 budget includes more than $5 billion in nonrecurring resources;
  • Over the next two years, the city intends to use the remaining $2 billion that it had set aside to fund post-employment benefits other than pensions (OPEB) to balance the operating budget. In FY 2011, the unfunded OPEB liability grew by 11.9 percent to $84 billion;
  • City funded debt service is expected to grow by 45 percent between fiscal years 2011 and 2015, consuming a higher share of city fund revenues;
  • The city has budgeted a $1 billion annual reserve beginning in FY 2012 to cover the cost of changes in the assumptions and methods used to calculate the city pension contributions;
  • The number of city-funded employees declined by 13,878, or 5 percent, from FY 2008-2011 and is projected to decline by another 4,213 by the end of FY 2013.

To view the report visit: http://www.osc.state.ny.us/osdc/rpt14-2012.pdf




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