New York City projects a surplus of $439 million in the 2017 fiscal year, which is likely to grow as the year progresses even though job growth and tax collections are slowing, according to a report released today by New York State Comptroller Thomas P. DiNapoli.
"The city’s economy is strong, but job growth and tax collections in the near future are unlikely to be as robust as they have been in recent years," DiNapoli said. "Additionally, a number of budget risks could increase the size of the out-year budget gaps. To his credit, Mayor de Blasio has prudently maintained the city’s reserves at historic levels, which will provide a cushion against any adverse developments."
The mayor has implemented a Citywide Savings Program, which helped generate the surplus in FY 2017. The program is projected to save a total of $1.7 billion over four years. The mayor intends to expand the program in January to help narrow the future projected budget gaps. The budget gap for FY 2018 has been reduced from $2.8 billion to $2.2 billion, and the gaps for fiscal years 2019 and 2020 are essentially unchanged at $2.9 billion and $2.4 billion. While these are relatively small as a share of city-fund revenues (averaging 3.9 percent), closing them could be more difficult than in recent years because the growth in tax collections has slowed.
Tax revenue grew at an average annual rate of 6.9 percent during fiscal years 2011 through 2015, but slowed to 3.2 percent in FY 2016 and is expected to slow further, to less than 2 percent, in FY 2017. Non-property tax collections are expected to fall by 0.5 percent in FY 2017, the first decline since FY 2010.
In recent years, tax collections have greatly exceeded expectations and the additional revenues were available to offset unplanned costs and to close projected budget gaps. In each of fiscal years 2014 and 2015, for example, tax collections exceeded the city’s initial forecast by more than $3 billion.
While the amount of unanticipated tax collections declined to $1.4 billion in FY 2016, it still accounted for more than one-third of the $4 billion surplus that year. In the current fiscal year, however, collections have been weaker than expected, and the city lowered its forecast by $127 million.
Although job growth is slowing, it continues to set new records. The city is on pace to add more than 90,000 jobs this year, the sixth consecutive year of job gains of more than 85,000. The city has added more than 600,000 jobs since 2009, the largest expansion in its history. The growth has been broad-based and has relied less on the securities industry than in the past. A more diversified economy helps insulate the city against cyclical downturns.
Possible threats to the financial plan include fiscal challenges at the city’s Health and Hospitals Corp. (HHC) and federal funding that may not materialize.
HHC projects a cash balance of $116 million by June 30, enough to pay its bills for only seven days. This forecast assumes implementation of a transformation plan which is forecast to save $779 million in FY 2017. The plan relies heavily on additional federal aid ($1.4 billion over four years), which has not yet been approved and may not be consistent with the policies of the incoming administration. HHC is also falling short of targets to reduce staffing and increase membership in MetroPlus (a health insurance plan owned by HHC). The city could be called upon to increase its support if the anticipated resources do not materialize.
The incoming federal administration has signaled its support for changes in existing federal programs and taxes, as well as regulations affecting the financial services industry. New York City’s budget includes about $7 billion in federal aid, mostly for social service and education programs, and the securities industry is an important part of the local economy.
An estimated $20 billion in federal funds flow through the state budget to provide Medicaid benefits to city residents. About half of the budget for HHC and nearly the entire non-rent share of the budget for the New York City Housing Authority are federally funded. The city also anticipates $731 million from the sale of taxi medallions during fiscal years 2018 through 2020, but the sale has been repeatedly delayed and market conditions remain unsettled as the result of the rapid expansion of ride-sharing services.
The Governor will release his budget in January 2017, which could also impact the city’s financial plan.
While New York City faces budget risks, it has record reserves that will help it manage through difficult times. The general reserve totals $1 billion annually, and the city has created a $500 million Capital Stabilization Reserve. The FY 2017 surplus will likely grow as the year progresses and the city frees up unneeded reserves. The city has also replenished the Retiree Health Benefits Trust, which now has a record balance of $4 billion.
For access to state and local government spending and more than 50,000 state contracts, visit www.openbooknewyork.com. The easy-to-use website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.