New York City is projecting a surplus of $3 billion for fiscal year (FY) 2015 and a balanced budget for FY 2016 with relatively small gaps in the following three years, according to a review of the city’s updated financial plan released today by State Comptroller Thomas P. DiNapoli.
“New York City’s budget is balanced for next year and the out-year budget gaps appear manageable,” DiNapoli said. “The city’s economy is strong and shows no signs of slowing. Still, Mayor de Blasio and the city’s budget team deserve credit for increasing reserves to hedge against any future economic setback.”
Higher than expected tax collections account for most of the current year’s surplus. Tax collections are now expected to exceed the city’s original forecast by $2.4 billion to reach $51 billion, 32 percent higher than before the recession. Tax revenues have been driven by strong job growth, tourism and a robust real estate market. Since the end of 2009, the city has added 503,000 jobs, and employment now totals a record 4.2 million.
The securities industry, one of the city’s most powerful economic engines and a major source of tax revenue, added 2,300 jobs in 2014 (the first job gains since 2011) and is on pace to add nearly 4,000 jobs during 2015. Industry profits were strong during the first quarter of 2015 (totaling $6.5 billion) and are on pace to exceed the city’s annual forecast.
Over the past year, the city has identified new agency needs averaging nearly $1.3 billion annually beginning in FY 2016. To its credit, the city has resumed the process of identifying agency cost-saving initiatives after a two-year hiatus, which funded some of these requests.
During the past 12 months, the city has also reached new labor agreements with nearly 80 percent of its workforce, providing a level of cost predictability through 2018. The city has yet to reach new agreements with the unions that represent the city's police officers, firefighters and correction officers
The city’s revised ten-year capital strategy totals $83.8 billion through 2025, which is $30 billion (56 percent) larger than the prior strategy released in May 2013. The last time the city proposed a capital strategy of this size was 2008, but that program (which totaled $83.7 billion unadjusted for inflation) was sharply curtailed in response to the Great Recession.
The updated financial plan, released in May, projects budget gaps of $1.6 billion in FY 2017 and $2 billion in FY 2018. While these gaps are larger than those projected in February 2015, they are smaller than the gaps projected one year ago, despite higher agency and capital spending. For FY 2019, the city projects a budget gap of $2.9 billion. The projected gaps, ranging from 2.7 percent to 4.6 percent of city fund revenue, would be smaller if not for a budgeted general reserve of $1 billion annually.
The city has taken a number of steps to increase its reserves. It has increased the annual general reserve to $1 billion beginning in FY 2016, ten times larger than the statutory minimum and the largest ever. The city has also set aside $500 million in FY 2016 to fund a Capital Stabilization Reserve to insulate the capital program from budget cuts or to help balance its operating budget. In addition, the city plans to add $280 million to the Retiree Health Benefits Trust, raising the balance to $2.6 billion. The city has used the trust as a rainy-day fund in the past, but the balance is now approaching its prerecession peak.
DiNapoli’s report notes a few additional areas of concern:
- While tax revenues are likely to exceed the city’s forecast for 2016 by a sizeable amount, DiNapoli’s office remains guarded in its revenue forecasts given the increasing possibility of an economic setback during the financial plan period;
- The city assumes that job growth will continue for another five years through 2019, which at ten years would be the longest expansion in 60 years;
- Debt service will reach $7.5 billion by FY 2019, an increase of 38 percent over five years, and will account for 13.5 percent of tax revenue in that year. The city has put forth a plan to keep the debt service burden below 15 percent of tax revenue, a level that is considered high;
- The city’s unfunded liability for post-employment benefits other than pensions totaled $89.5 billion in FY 2014; and
- The Metropolitan Transportation Authority faces a $14 billion funding gap in its proposed five-year capital program and closing the gap could require additional city funding. The city has already taken on greater financial responsibility for the Health and Hospitals Corporation and the New York City Housing Authority, which are both facing serious challenges.
See the report Review of the Financial Plan of the City of New York, or go to: http://www.osc.state.ny.us/osdc/rpt1-2016.pdf