New York City’s economy, bolstered by robust economic growth in recent years, is strong and the out-year budget gaps are relatively small, but the risk of an economic slowdown is growing, according to a report released today by New York State Comptroller Thomas P. DiNapoli.
“Strong job growth, combined with record numbers of tourists and a robust real estate market, has pushed tax collections to record levels and beyond the city’s expectations,” DiNapoli said. “Still, there are reasons to be concerned about the economy given current developments. To their credit, Mayor de Blasio and the City Council have prudently increased the city’s reserves in recent years.”
In January, Mayor de Blasio released his preliminary executive budget for fiscal year (FY) 2017 and a financial plan for FY 2016 through FY 2020. The city projects a $2.3 billion surplus for FY 2016, which will be used to balance the FY 2017 budget. The surplus largely results from unanticipated growth in tax revenues, lower debt service costs, agency savings and a drawdown in reserves.
The FY 2018 budget gap has grown by $372 million since the beginning of the fiscal year to $2.3 billion, but the FY 2019 budget gap is unchanged at $2.9 billion. The city projects a budget gap of $2.7 billion for FY 2020. The gaps are relatively small as a share of city fund revenues, and the budgets for those years include a general reserve of $1 billion, which could be used to narrow the gaps.
Job growth in New York City set a record in 2014 with the addition of 120,000 jobs. In 2015, the city added more than 100,000 jobs, the first time it has gained more than 100,000 jobs for two years in a row. However, the city’s budget assumes job growth will slow in 2016 to 61,000 jobs as the economy cools, and that the decline in the stock market will adversely affect tax collections. As a result, the city forecasts virtually no growth in personal income tax collections in FY 2017.
In each of the past two fiscal years, tax collections exceeded the city’s forecast at the beginning of the fiscal year by $3 billion. In the current fiscal year (FY 2016), tax collections are projected to exceed the city’s initial forecast by $1.1 billion. While DiNapoli’s report identified the potential for slightly higher tax collections in the near term, a large windfall is unlikely in FY 2017.
The report also identified a number of budget risks beyond the economy, including overtime, the planned sale of taxi medallions, and the Health and Hospitals Corporation, which may need additional city support.
The largest and most immediate budget risk is the proposed state Executive Budget, which includes three proposals that would increase the city’s costs by $985 million in FY 2017 and by about $1.2 billion in each subsequent year (a total of $4.8 billion during the financial plan period). The two proposals with the greatest budgetary impact ($785 million in FY 2017 alone) would require New York City to pay a larger share of the local cost of Medicaid and of the costs of the senior colleges of the City University of New York. After the release of the Executive Budget, the Governor stated that efficiencies would be identified to mitigate the budgetary impact of these proposals, but such savings have not yet been identified.
DiNapoli’s report notes several factors leading to concern about the economy:
- Economic growth in China has slowed, affecting economies around the globe and precipitating a sharp drop in the financial markets;
- The U.S. economy grew by only 0.7 percent in the fourth quarter of 2015, and job growth was weaker than expected in January 2016;
- Oil prices have fallen to the lowest level in more than a decade, providing relief to consumers but causing the oil industry to contract;
- The Federal Reserve raised short-term interest rates in December 2015 for the first time in nine years, when other nations were lowering rates; and
- The stronger dollar has dampened exports and spending by tourists.
Read the report, or by go to: http://www.osc.state.ny.us/osdc/rpt10-2016.pdf