FOR RELEASE:

State Comptroller's Report: New York City Benefits From Strong Economy

Many large Wall Street firms are posting record revenues and profits, which are driving up personal income and business tax collections, and the commercial real estate market is the driving force behind higher than anticipated tax collections on real estate transactions, according to a report by State Comptroller Alan G. Hevesi. Even after increasing its reserve for collective bargaining, the City projects a surplus of $1.9 billion for FY 2007—the largest on record at this point in the budget cycle. Next year’s projected budget gap has already been reduced to $510 million from $3.8 billion.

“New York City is reaping the benefits of a growing economy and sound management decisions made by the Mayor and the City Council over the past five years,” Hevesi said. They are also to be commended for prudently using a portion of last year’s record surplus to increase the City’s reserves, which would help the City deal with any adverse developments.”

In November, New York City released a modification to its four-year financial plan. The November Plan forecasts an unprecedented increase at this point in the budget cycle in City fund revenues of $2.3 billion in FY 2007, compared with the estimates in the City’s July 2006 financial plan. Most of the increase comes from higher tax revenues from real estate transactions ($812 million), business taxes ($739 million), and personal income taxes ($382 million). Moreover, the report finds that revenues are likely to exceed even the City’s revised forecast.

The FY 2007 surplus, coupled with an expectation of higher recurring revenues, has reduced the projected FY 2008 gap from $3.8 billion to $510 million—the smallest out-year gap as a percent of City fund revenues at this point in the budget cycle. Although the budget gaps in subsequent years have also been reduced, they remain substantial (e.g., $4 billion in FY 2009).

The report finds that many large Wall Street firms are posting record revenues and profits, which are driving up personal income and business tax collections. Although the residential real estate market has begun to cool, the commercial real estate market is strong.

• Wall Street profits are projected to reach $14.5 billion in 2006, an increase of 53.6 percent.
• The City added 56,300 jobs in the first ten months of 2006 compared to the same period last year—the best rate of job growth since 2000. If the job gain is retained for the rest of the year, it would be the sixth-highest increase since the fiscal crisis of the 1970s.
• The unemployment rate has dropped to 4.1 percent in October 2006—a record low—and wages have grown by about 8 percent during 2006.
• Commercial vacancy rates are declining and rental rates are rising. For example, vacancy rates for prime midtown properties are approaching 7 percent, compared with 10 percent during 2004.

The report notes that a settlement of the Campaign for Fiscal Equity lawsuit, which could direct billions in additional resources to the City’s public schools, could require the City to increase its education contribution. The report also cautions that nondiscretionary spending will consume 47 percent of City fund revenues by FY 2009, compared with 37 percent in FY 2003. For example, debt service will grow from $3.8 billion in FY 2006 to $6.2 billion in FY 2010, an increase of 63 percent. Although the rapid growth in pension contributions over the past seven years will slow by 2010, the contribution will remain at a high level—$5.8 billion—which is almost four times larger than the average contribution during the 1990s.

Click here for a copy of the report.

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