DiNapoli Releases Review of the Financial Plan
of the City of New York
New York City’s May 2011 financial plan projects a surplus of $3.2 billion for FY 2011, resulting largely from a drawdown in reserves, higher revenues due to an improving economy, and agency cost-reduction actions, according to a review released today by New York State Comptroller Thomas P. DiNapoli. The surplus will be used by the City to help balance the FY 2012 budget.
“There are relatively few immediate risks in the City’s financial plan, but there are issues that require close monitoring,” DiNapoli said. “While the City’s economy is still showing signs of improvement, the national economy has begun to slow and higher energy costs, future hikes in interest rates and a further weakening of the residential real estate market could slow the pace of the City’s recovery.”
DiNapoli said it’s less likely the City will develop a large surplus in FY 2012 to help balance its FY 2013 budget. The City’s revenue forecasts for FY 2012 are less conservative compared to previous years and the City has already drawn down much of the reserves it accumulated during the last economic expansion. Looking ahead, the May Financial Plan projects budget gaps of approximately $5 billion annually for fiscal years 2013 through 2015.
The City estimates that the recently enacted State budget reduced aid to New York City by $1.2 billion annually beginning in FY 2012. If the State needs to take additional actions to maintain budget balance in the current year or to close future budget gaps, State aid to New York City could be further reduced.
Job growth in the City is mixed, with most private sector industries beginning to add jobs while the public sector continues to lose them. The City’s unemployment rate has declined from a peak of 10 percent in September 2009, but remains high at 8.6 percent in April 2011.
Wall Street got off to a very strong start in 2011, but the City expects profitability to ease back to the historical levels before the economic crisis as interest rates rise and financial reforms are fully implemented. The securities industry earned $9.3 billion in the first quarter of 2011, nearly half of the City’s forecast of $20 billion for the entire year.
The residential real estate market has begun to weaken again after a period of stability. The S&P/Case-Shiller Home Price Index shows that single-family home prices in the New York City metropolitan area fell by 21.1 percent between May 2006 and March 2010, stabilized for four months and then declined by another 4.9 percent between July 2010 and March 2011. Foreclosures are expected to put downward pressure on prices for a number of years as foreclosed properties slowly return to the market.
New York City remains in a stronger position than many other large municipalities, but it has exhausted many of the reserves accumulated during the last economic expansion. With collective bargaining agreements yet to be negotiated with its workforce, and the absence of revenue windfalls from a stronger economic recovery or relief from federal and State mandates, balancing out-year budgets will be difficult.
To view DiNapoli’s report visit: http://www.osc.state.ny.us/osdc/rpt4-2012.pdf