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June 5, 2012

 

NYC Budget Outlook Improved but Out-Year Gaps Remain

Wall Street Reports Strong First Quarter Profits

The budget proposed by New York City Mayor Michael Bloomberg for fiscal year 2013 is balanced, but relies heavily on nonrecurring resources, leaving sizeable out-year gaps, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli. The city projects a modest surplus for the current fiscal year, a balanced budget for the fiscal year beginning July 1 and out-year budget gaps through fiscal year 2016 that average $3.3 billion.

“The city’s financial outlook has improved over the past year, primarily from freeing up reserves and relying on other nonrecurring resources rather than higher tax collections, which means the city still faces sizeable out-year budget gaps” DiNapoli said. “Wall Street got off to a strong start which bodes well for the city’s economy, but securities industry profitability in recent years has been volatile and one quarter’s results may not be indicative of the outcome for the entire year.”

In total, the proposed fiscal year 2013 budget uses $4 billion in nonrecurring resources including $1.6 billion in surplus funds from fiscal year 2012, $1 billion in proceeds anticipated from the sale of taxi medallions, and $1 billion from the Retiree Health Benefits Trust. The trust was created to help fund the future cost of retiree health benefits, but the city has been redirecting these resources ($3.1 billion) to help balance the budget.

While the city’s financial outlook has improved, risks do remain, including the anticipated receipt of $1 billion in fiscal year 2013 from the sale of 2,000 taxi medallions. Several steps must be completed, however, before the city can sell the medallions, including overcoming legal challenges and obtaining state approval for a plan to provide disabled accessibility for the city’s entire taxi fleet. Comptroller DiNapoli recommends that the city develop a contingency plan in case expected funds are not fully realized in fiscal year 2013. The city’s financial plan also assumes a three-year wage freeze, but the city has not yet settled on new labor agreements with its unions.

Member firms of the New York Stock Exchange earned $7.3 billion from their broker/dealer operations in the first quarter of 2012, but volatility in the securities industry remains a substantial area of concern. In 2011, for example, the securities industry earned $12.6 billion through June, but then lost $4.9 billion in the second half of the year. Recent trading losses at JP Morgan Chase may also be a harbinger of reduced future profitability. The city’s economy is heavily dependent on the financial services sector, which could also be impacted by the European sovereign debt crisis.

Through April 2012, the city’s private sector added 199,700 jobs while the government sector shed 18,900 jobs. Overall, New York City regained 129 percent of the jobs it lost during the recession, outpacing the rest of the country. Despite these gains, the city’s unemployment rate has not significantly decreased. Unemployment hit its recessionary peak of 10 percent in February 2010, then fell to 8.8 percent in May 2011 but has since risen to 9.5 percent as of April 2012.



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