New York City Budget Balanced, But Challenges Remain
New York City closed a budget gap of $4.6 billion for FY 2013 and narrowed the FY 2014 budget gap to $2.5 billion using reserves and other non-recurring resources, according to a review of the city’s financial plan released today at the annual meeting of the Financial Control Board by New York State Comptroller Thomas P. DiNapoli. DiNapoli warned that while the city has managed its budget well during difficult financial times, debt service costs are rising and it has limited reserve funds to balance future budgets.
“New York City is in better fiscal shape than many cities because it has managed its finances well, but challenges remain,” DiNapoli said. “While job growth has been strong, the unemployment rate is high and the recovery remains vulnerable. The national economy is slowing, the European sovereign debt crisis is unresolved, the federal government faces difficult budgetary choices and Wall Street is still working through the fallout from the financial crisis.”
The FY 2013 budget is balanced with more than $4 billion in nonrecurring resources. The city plans to use most of the FY 2012 surplus ($2.4 billion), along with $1 billion from the Retiree Health Benefits Trust, to balance the FY 2013 budget. These funds had been set aside during the last economic expansion to help pay the future cost of retirees’ health insurance. By FY 2014, the city will have redirected all of the funds ($3.1 billion) to help balance the budget.
The sale of taxi medallions remains the largest budget risk in the FY 2013 budget. While the city has spread out over three years the proceeds from the sale, it has also increased the amount it expects to receive from $1 billion to $1.5 billion. The FY 2013 budget counts on $635 million from the sale, even though it remains the subject of litigation.
Another area of concern is the continued growth in health insurance and debt service. Debt service is expected to grow from $5.1 billion in FY 2012 to $7.3 billion by FY 2016, an increase of more than 40 percent. The city also has yet to reach new labor agreements with the unions that represent its employees. Most of the agreements expired in 2009 and 2010. The city’s financial plan assumes a three-year wage freeze followed by annual wage increases of 1.25 percent.
The city has regained more than 150 percent of the private sector jobs lost during the recession, but personal income tax collections are not expected to reach their pre-recession levels until FY 2015 due to the concentration of job growth in lower-paying industries. In addition, the public sector continues to contract and compensation on Wall Street has been constrained.
The city’s unemployment rate has returned to its recessionary peak of 10 percent and is even higher among some segments of the labor market, which reveals that the recovery has not benefited everyone equally.
The city’s economy has diversified since the 1990s but remains heavily dependent on the securities industry. The New York Stock Exchange reported that its member firms earned $7.3 billion during the first quarter of 2012, a significant rebound from the fourth quarter of 2011. However, profitability in the sector has been volatile and a single quarter’s results may not be indicative of the entire year.