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December 13, 2012

 

DiNapoli: NYC Budget Balanced, But Risks Loom

Wall Street Reports Strong Third Quarter Profits

New York City’s budget is balanced for the current fiscal year, but looming issues, including the impending fiscal cliff, Superstorm Sandy, unresolved collective bargaining and delays in the sale of taxi medallions pose risks to the city’s budget, according to an analysis of the city’s four-year financial plan released today by New York State Comptroller Thomas P. DiNapoli.

“This year’s budget is balanced and next year’s budget gap appears manageable, but there are a number of unresolved issues that could increase the size of projected gaps in the years ahead,” DiNapoli said. “There are bright spots in New York City’s overall economic recovery, including a strong third quarter for Wall Street. However, challenges remain and until the disaster aid from the federal government is authorized, we do not yet know what the impact of Superstorm Sandy will be on the city’s finances.”

Because of legal challenges, the city no longer anticipates the receipt of any proceeds in the current fiscal year from the sale of 2,000 new taxi medallions, but it is counting on realizing $1.5 billion during fiscal years (FY) 2014 through 2016 from medallion sales. Mayor Michael Bloomberg has proposed a gap-closing program of $1.5 billion over the next 18 months to offset the loss of the taxi sale proceeds in FY 2013 and to narrow the out-year budget gaps. As a result, the city’s updated financial plan projects a balanced budget in FY 2013, a reduced budget gap of $1.2 billion in FY 2014 and out-year gaps of about $2.7 billion.

To offset the costs of recovering from Superstorm Sandy, the President has requested a supplemental budgetary appropriation of $60 billion for the tri-state region, but the timing and amount to be approved by Congress is uncertain given the focus on reducing the federal budget deficit. While the city has estimated costs at $4.5 billion to city agencies for storm clean up and repair, most of this cost may be reimbursed by the federal government.

“The expiration of federal tax cuts and automatic spending cuts scheduled to take effect on January 1, 2013 could bring about a severe fiscal shock that could send the national economy back into recession.” DiNapoli said. “My office has estimated that New York State residents could pay an additional $43 billion in federal taxes if no action is taken by Congress.”

Alternative options to mitigating the effect of the ‘fiscal cliff’ are under negotiation and until that time, the impact on the state and city budget also remains unknown.

Complicating the city’s fiscal outlook is the lack of new labor agreements with the city’s unions. The city assumes that municipal employees will not be compensated for wage freezes imposed during the recession and will agree to annual wage increases of 1.25 percent, which is less than the projected rate of inflation. The receipt of $250 million in state education aid in FY 2013 is dependent upon the city and the teachers’ union reaching agreement on a teachers’ evaluation program by January 17, 2013.

Despite the risks, the city remains in a strong financial position. As of October 2012, the city had gained more than 150 percent of the jobs it lost during the recession, although job growth has been concentrated in lower-paying industries and the unemployment rate remains high at 9.3 percent. The city’s tourism agency predicts another record year in 2012, with a projected 51.5 million visitors.

Recent news that Wall Street earned $17.6 billion through the third quarter was an unexpected positive development. The New York Stock Exchange member firms are on pace to exceed $20 billion in profits for the year, twice the amount assumed by the city and among the highest on record. DiNapoli’s analysis estimates that the higher Wall Street profits will boost business tax revenues by $100 million in the current fiscal year.

For a copy of the report, visit: http://www.osc.state.ny.us/osdc/rpt11-2013.pdf


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