New York City's economy is on pace to add more than 72,000 jobs in 2018 and the unemployment rate has fallen to 4.2 percent, the lowest level in 42 years, but financial risks for the city persist, according to a report released today by State Comptroller Thomas P. DiNapoli.
"New York City's economy is robust and the fiscal year 2019 budget is balanced under current conditions," DiNapoli said. "However, the out-year gaps have grown and there are risks that could make closing them more difficult. The city has increased its reserves and should continue to do so given the threats on the horizon."
The city's most recent four-year financial plan, released in June, projects a surplus of nearly $4.6 billion in FY 2018, the largest in 10 years. The surplus, which was used to balance the FY 2019 budget, resulted mostly from a reallocation of unneeded reserves and higher tax revenues.
Tax receipts exceeded the city's forecast at the beginning of FY 2018 by $2.2 billion, driven by higher personal income tax (PIT) collections. PIT collections increased by more than 15 percent in FY 2018 and collections exceeded the city's initial forecast by $1.5 billion. Most of the unanticipated revenue resulted from conditions that are not expected to recur in the current fiscal year, although collections are still likely to exceed the city's conservative forecast.
The FY 2018 citywide savings program is expected to generate, on average, more than $900 million annually, but only a small share of the savings will come from efficiencies that improve agency operations. Since the beginning of FY 2018, new needs increased agency spending by $1 billion in FY 2018 and slightly larger amounts in subsequent years.
Spending is driven by the cost of current labor agreements, agency spending, rising health insurance and debt service costs, and the impact of state actions. The largest state action requires the city to match the state's contribution of $418 million to the Metropolitan Transportation Authority's (MTA) Subway Action Plan, which is intended to halt the deterioration of the subway system. How the MTA's next five-year capital program is funded could also impact the city's financial plan.
The city projects budget gaps of $3.3 billion in FY 2020, $2.9 billion in FY 2021 and $2.3 billion in FY 2022. The financial plan includes reserves of nearly $1.4 billion in FY 2019 and $1.25 billion in subsequent years. If unneeded, these resources could be used to help close the projected gaps.
Since the release of its financial plan, the city reached a tentative labor agreement with District Council 37. It also announced an agreement with the Municipal Labor Committee to generate $1.7 billion in health insurance savings during the financial plan period to help fund the 2017-2021 round of bargaining.
If the economic terms of the tentative agreement with District Council 37 were applied to the entire work force as the city assumes, the FY 2020 budget gap would increase by more than $700 million to $4 billion even after taking into account anticipated health insurance savings.
While the potential budget gap for FY 2020 is sizable, the city has a year to close it. In recent years, the city has relied on surplus resources from prior years to balance the budget. To help generate a surplus in FY 2019, the city will need to take additional cost-saving measures and limit unplanned spending.
Although the current economic expansion shows no signs of weakening after eight years of growth, rising trade tensions or some unforeseen development could trigger a setback, complicating efforts to balance the budget.
The financial plan also does not reflect the potential for future federal or state budget cuts. Growing federal deficits, which may reach $1 trillion by 2019, will likely increase pressure on Congress to cut entitlement and other federal programs on which the city and the state rely.
DiNapoli's report also notes:
- The unfunded liability for post-employment benefits other than pensions (mostly health insurance) exceeds $88 billion and the cash cost will reach $3 billion by FY 2022, an increase of 31 percent over five years. To its credit, the city continues to contribute to the Retiree Health Benefits Trust, which now has a balance of nearly $4.4 billion, the highest amount ever.
- Conditions at the New York City Housing Authority (NYCHA) have deteriorated from years of inadequate maintenance and capital investment. Despite commitments from the state and the city to increase funding, NYCHA's five-year capital program addresses just a fraction of its estimated $32 billion in capital needs during that period.
- The Health and Hospitals Corporation also faces serious challenges. While a two-year delay in federal cuts has relieved pressure, the corporation must continue to implement corrective actions. Otherwise, the city may be called upon to increase its financial support.
Find out how your government money is spent at Open Book New York. Track municipal spending, the state's 150,000 contracts, billions in state payments and public authority data. Visit the Reading Room for contract FOIL requests, bid protest decisions and commonly requested data.