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March 3, 2003 



New York City’s budgets for fiscal years 2003 and 2004 include $3.6 billion in risks, according to a report on the City’s January Financial Plan issued today by New York State Comptroller Alan G. Hevesi.

For FY 03, the City has a risk of $175 million, but it can use reserves to balance its budget if necessary. However, for FY 04, risks total $3.4 billion, including City proposals that require action by the State ($1.7 billion), the Port Authority ($690 million), and the municipal unions ($600 million). Although the City could ultimately receive a substantial amount of assistance, many of these risks may not be resolved before the new fiscal year begins on July 1, 2003.

“Faced with a record budget gap, Mayor Bloomberg and the City Council have taken significant actions, including cutting spending and raising taxes, that closed about half the gap for next fiscal year,” Hevesi said. “But many of the remaining gap closing proposals are out of the City’s control and may not end up producing as much as the City hopes.”

In November 2002, New York City projected a record $6.4 billion budget gap for FY 2004. The gap represented 24 percent of City fund revenues and was the largest gap faced by the City, both in absolute dollars and as a percentage of City fund revenues, since the 1975 fiscal crisis.

To ensure budget balance in FY 2003 and to narrow the FY 2004 budget gap, agencies cut planned spending in November 2002 and the City Council approved a mid-year property tax hike of 18.5 percent. These actions restored budget balance in FY 2003 and cut the FY 2004 budget gap to $3.1 billion. The gaps, however, have grown since November due to continued weakness in the economy and failure to achieve $223 million in savings from the City’s labor unions.

The City’s January Plan shows budget gaps of $486 million in FY 2003 and $3.4 billion in FY 2004. To close them, the Plan assumes that the State and federal governments, the Port Authority, and the municipal unions will take actions to provide the City with $3.8 billion during fiscal years 2003 and
2004. In a positive development, the City will receive as much as $650 million in federal aid related to the attack on the World Trade Center.

The Mayor has proposed extending the City’s personal income tax to non-City residents who work in the City, which would generate $962 million in FY 2004. This proposal, which must be passed by the State Legislature and signed by the Governor, faces significant opposition.

The State is facing a fiscal crisis of its own. The Governor projects a two-year budget gap of $11.5 billion, which he would close with tobacco bond proceeds ($3.8 billion), cuts in Medicaid and education spending ($2.4 billion), taxes and fees ($1.4 billion), and other actions. The Governor’s budget, however, must still be negotiated with the State Legislature.

The Governor’s budget would widen the City’s FY 2004 gap by about $200 million. A $753 million loss in anticipated education aid would be only partly offset by other proposals. The Governor’s health care proposals also would reduce revenues to the Health and Hospitals Corporation by up to $200 million.

Any shortfall in anticipated assistance would have to be covered by City actions and the Mayor has directed agencies to prepare a $600 million contingency program. The Mayor has already threatened to lay off 12,000 employees unless the municipal unions produce $600 million in savings, and to lay off 1,900 teachers if the Governor’s education budget is adopted. Staffing levels are currently projected to decline by only 5,400 positions between June 2002 and June 2004, but most of the reduction is concentrated in public safety agencies, such as the Police Department.

The size of the budget gap in FY 2005 and in subsequent years will depend on the pace of the economic recovery and whether the FY 2004 budget is balanced with recurring resources. The FY 2003 budget is balanced with $4.2 billion in nonrecurring resources, including $1.5 billion in bond proceeds from the Transitional Finance Authority to reimburse the City for revenue losses related to the attack on the World Trade Center, and the FY 2004 budget already includes $1.6 billion in nonrecurring resources. The City made progress in narrowing the structural balance between recurring revenues and expenses when it raised property taxes and reduced the cost of City government, but bridging the remaining gulf is a formidable challenge.


Click here for a copy of Comptroller Hevesi's report


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