New York City is projecting a surplus of $3.4 billion for fiscal year (FY) 2016, but concerns for the near future are growing with a slowing economy here and abroad, according to a report released today by State Comptroller Thomas P. DiNapoli.
“Mayor de Blasio and the city are right to approach fiscal year 2017 with caution, given that the economy appears to be slowing and the risk of an economic setback is elevated,” DiNapoli said. “While a number of budget risks require close monitoring, the out-year budget gaps are relatively small and the city has increased its reserves to historic levels.”
The projected 2016 surplus stems largely from unanticipated growth in tax revenues, debt service and agency savings, and a drawdown of reserves not needed in the current year.
DiNapoli’s report, however, points to several reasons for the city to be concerned going forward. Economic growth in China has slowed, and the U.S. economy’s growth slowed to 1.4 percent in the fourth quarter of 2015 and to 0.5 percent in the first quarter of 2016.
While the nation continues to add jobs, employment rose by just 160,000 jobs in April 2016, the smallest gain since September 2015. Job growth during the first four months of 2016 was the slowest start of any year since the recovery began. While job growth in the city remains strong, it is also showing signs of slowing.
City tax collections, after growing at an average rate of 6.9 percent during the past five fiscal years, slowed to 3.5 percent in FY 2016. The city’s financial plan assumes that tax collections will slow to 1.7 percent in FY 2017.
City-funded spending is projected to grow by an average of about 4 percent during the financial plan period of FY 2016 to 2020. Spending is driven by the cost of recent labor agreements, agency needs, and higher debt service and health insurance costs.
While the city projects a balanced budget for FY 2017, it expects budget gaps of $2.7 billion in FY 2018, $3 billion in FY 2019 and $2.3 billion in FY 2020. The budget gaps are relatively small, averaging 4.1 percent of city fund revenues. The budgets for those years also include a general reserve of $1 billion, which could be used to narrow the gaps.
DiNapoli’s report notes that New York City’s financial plan does not reflect the full impact of the state budget passed in March. The state intends to recoup, over 36 months, $600 million in savings that accrued to the city when it refinanced bonds of the Sales Tax Asset Receivable Corp. at lower interest rates. The city’s plan reflects the impact for only the first 12 months. Thus, sales tax collections are likely to be lower by $400 million during the financial plan period.
The report also found that the Health and Hospitals Corp. (HHC) continues to face serious financial problems. While the city has increased its support to $2 billion (more than one-quarter of total receipts), the corporation still projects budget gaps that reach $1.8 billion by FY 2020. HHC has proposed an ambitious gap-closing program, but it relies heavily on actions that have fallen short of target in the past. If unsuccessful, the city could be called upon to further increase its support.
While the report identifies other budget risks, such as the potential for higher overtime costs, the city has increased its reserves to historic levels. In total, the FY 2017 budget includes $5.2 billion in reserves.
Read the Review of the Financial Plan of the City of New York, or go to: http://www.osc.state.ny.us/osdc/rpt1-2017.pdf