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June 5, 2013

DiNapoli: Mayor's FY 2014 City Budget is Balanced, but Substantial Risks Remain

Wall Street Reports Strong First Quarter Profits

New York City Mayor Michael Bloomberg’s proposed budget for the upcoming fiscal year (FY 2014) is balanced, but challenges remain including the unknown cost of potential labor agreements and the likelihood of realizing anticipated revenue from the sale of new taxi medallions, according to an analysis of the city’s four-year financial plan (May Plan) released today by New York State Comptroller Thomas P. DiNapoli.

“The city’s proposed budget for FY 2014 is balanced and the budget gaps in upcoming years are relatively modest, but the lack of labor agreements with the city’s unions, as well as ongoing litigation over the sale of new taxi medallions, create uncertainty for the city’s fiscal health,”DiNapoli said. “Overall, the New York City economy continues to improve with job growth that has outpaced the nation, which bodes well for the future.”

The May Plan shows a balanced budget of $69.8 billion for FY 2014, and out-year gaps of $2.2 billion in FY 2015, $1.9 billion in FY 2016 and $1.4 billion in FY 2017. Specifics include:

  • Since December 2009, the city has added twice as many jobs as it lost during the recession, but not all employment sectors benefitted equally and many of the new jobs have been concentrated in lower-paying industries.
  • Wall Street is an important component of the city’s economy, but it has not significantly contributed to the city’s recent job gains. The securities industry has accounted for less than 2 percent of the jobs created by the private sector since the recession ended. The Comptroller estimates that the securities industry has recovered 19.5 percent of the jobs lost during the recent recession.
  • The securities sector got off to a strong start in calendar year 2013 with first-quarter profits of $6.6 billion, half of the city’s $13.4 billion forecast for the entire year. However, industry profitability has been volatile in recent years and regulatory reforms, along with economic slowdowns in Europe related to austerity measures, present headwinds.
  • The city estimates that federal sequestration will reduce federal funding by a total of $148 million over the course of FY 2013 and FY 2014.  While the Mayor has proposed offsetting some of these cuts, some social service programs would be cut in the proposed budget.
  • Superstorm Sandy caused massive property and public infrastructure damage and disrupted the lives of millions. The city estimates that storm preparations, emergency repairs, cleanup and damages totaled $4.5 billion, with most of the costs picked up by federal funds. An additional $1.8 billion in federal grants was recently awarded to be used to help homeowners and businesses, and to begin mitigation projects against the impact of future storms.
  • The enacted state budget benefits the city by $381 million in FY 2014, mostly from an increase in educational aid that is contingent upon the implementation of a new teacher evaluation program. The state recently established a new teacher evaluation program for the city because the city and the teachers’union were unable to reach an agreement on their own. The city has until September 1, 2013, to implement the new program or risk the loss of $364 million in education aid in FY 2014.
  • The city is projecting a surplus of over $2 billion for the current fiscal year, most of which will be used to balance the FY 2014 and a small portion to narrow the budget gap for FY 2015.  Nonrecurring resources total an estimated $2.3 billion in FY 2013 and $3.9 billion in FY 2014, including $1 billion in each year from the Retiree Health Benefits Trust which will nearly deplete the fund’s balance.
  • The Mayor’s proposed budget also includes cuts to some municipal services, such as libraries, cultural institutions, after-school programs and fire companies, which have been rescinded during the budget adoption process in prior years. 

For a copy of the report, go to: http://www.osc.state.ny.us/osdc/rpt2-2014.pdf

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