New York City Finances: $8.9 Billion in
Resources Invested Wisely According to DiNapoli
New York City expects to receive $8.9 billion in additional resources during fiscal years 2007 and 2008 compared with the forecasts made one year ago, even after addressing funding needs that were not contemplated at the start of the current fiscal year, according to a report released today by State Comptroller Thomas P. DiNapoli. The report finds that the City has used these resources to narrow projected future budget gaps and to improve the City’s long-term financial position.
“A few years ago, the City was struggling to close large projected budget gaps. Now, thanks to prudent stewardship and a strong economy, the City has a surplus and is investing that surplus in ways that will yield long-term benefits,” DiNapoli said. “The good choices being made today will build a better financial picture for tomorrow.”
DiNapoli’s report found that New York City realized $5 billion in unanticipated tax revenues this year alone based on strong job growth, near-record Wall Street profits, and a resilient real estate market. Specifically, the report noted that:
- A total of 62,200 jobs were created in calendar year 2006 — 8,000 more than originally reported and the sixth-best annual gain since the 1970s fiscal crisis.
- Wall Street profits surged in the last quarter of calendar year 2006 to reach $20.9 billion for the year, just short of the record set in 2000, resulting in record year-end bonuses and the fastest job growth in the industry in 12 years. The City continued to add jobs at a brisk pace during the first quarter of 2007, and Wall Street profits have remained strong.
- The residential real estate market has not eased nearly as much as many other places in the nation and the commercial real estate market is thriving. For example, the limited supply of office space in Midtown has caused asking rents for prime office space to reach $82.40 per square foot at the end of March 2007, as vacancy rates declined to 6 percent. Prices for high-end commercial buildings continue to reach new highs.
The report credited the Mayor and the City Council for using these unanticipated resources, as it did last year, to improve the City’s long-term financial position. The steps taken by the City over the past two years include:
- In FY 2006, the City created the Retiree Health Benefits Trust Fund to help pay down some $50 billion in unfunded post-employment benefits, such as health insurance. Last year, the City deposited $1 billion into the fund, and plans to deposit another $1 billion before the end of June 2007 and another $500 million next year.
- The City allocated an unprecedented $1.2 billion in FY 2007 to retire outstanding debt due in FY 2009 and FY 2010. This will generate interest savings of $113 million over the next three years and will provide debt relief in the years the City had been forecasting large budget gaps. The relief is short-term, however, and debt service will reach $6.1 billion by FY 2011, which is 60 percent higher than the FY 2006 level.
- The Mayor has proposed a $1.3 billion tax reduction program that would stimulate economic activity and improve the City’s competitiveness with surrounding jurisdictions. The State still has to approve certain elements, which have a value of nearly $600 million in FY 2008 and more than $900 million by FY 2011, before they can be implemented.
- The Mayor and the Governor have made commitments to increase education funding to the City’s public schools by $5.5 billion over the next four years as part of the resolution of the Campaign for Fiscal Equity lawsuit. The additional funding is an important step toward providing New York City’s children with the educational services they will need to effectively compete for well-paying jobs.
- The City also provided additional financial aid to the Health and Hospitals Corporation so it can continue to obtain supplemental Medicaid funding from the federal government. This action could stabilize the Corporation’s finances through FY 2009, but the New York City Housing Authority and the Off-Track Betting Corporation still face serious financial difficulties in the current year.
- The Mayor plans to use the remaining net surplus of $4.4 billion for FY 2007 — the largest on record — to prepay future expenses in order to narrow projected budget gaps. The City was able to close a $3.8 billion budget gap that had been projected for FY 2008 and reduce the FY 2009 budget gap from $4.6 billion to $1.6 billion, a reduction of 66 percent.
Click here for a copy of the report.