New York City's 2019 fiscal year (FY) surplus is expected to grow as the year progresses with continued strong revenue collections and the reallocation of unneeded reserves, but the city faces significant budget gaps and risks in the coming years, according to a report released today by State Comptroller Thomas P. DiNapoli.
"New York City's economy is strong and continues to set new records," DiNapoli said. "While the FY 2019 budget surplus is likely to grow, city officials will need to consider additional actions to narrow the budget gaps projected for fiscal years 2020 through 2022. In addition, the city faces the prospects of future risks, which could make balancing the budget more difficult. While the economy is still strong, it appears more vulnerable than in recent years."
New York City added 715,000 jobs between 2009 and 2017, the largest and longest job expansion since World War II. Employment reached a new record of 4.4 million in 2017, 615,000 higher than the prerecession peak. The city is still on pace to add another 72,000 jobs in 2018. The unemployment rate fell to 4 percent in October, the lowest monthly rate in 42 years. The city's economy is also benefiting from record tourism, rising property values, high consumer confidence and growing Wall Street profits.
Securities industry profits were up 15.7 percent during the first three quarters of 2018, putting the industry on track for its third consecutive year of increased profitability. However, recent declines in the financial markets and increased volatility could reduce profitability in the fourth quarter.
Shortly after the city adopted its budget in June 2018, it reached a labor agreement with District Council 37 and subsequently reached a similar agreement with the United Federation of Teachers. The city's revised financial plan assumes the remaining unions reach similar agreements. The city also reached an agreement with the Municipal Labor Committee to generate health insurance savings to help fund wage increases for the municipal work force.
Despite higher labor costs, the city projects a surplus of $520 million in FY 2019 based largely on the strength of revenue collections during the first quarter and resources anticipated from the citywide savings program. The combination of the FY 2019 surplus and the recurring value of the savings program reduced the FY 2020 budget gap to $3.2 billion, but the gaps projected for fiscal years 2021 and 2022 have grown to $3.5 billion and $3.4 billion, respectively.
The city has not reduced its reserves, which remain substantial. These resources could be used to narrow the projected gaps. However, there are risks that the city may need to address during the financial plan period.
For example, the updated November Financial Plan assumes uninterrupted economic growth. While still strong, the economy appears more at risk than in recent years. Rising trade tensions or the slowing global economy, or some unforeseen development, could trigger a setback during the financial plan period and make balancing the budget more difficult.
In addition, the Metropolitan Transportation Authority (MTA) is facing its greatest crisis in decades. Service has deteriorated and subway and bus ridership is falling. Since July 2018, the MTA's budget gap for 2020 has nearly doubled to $510 million and the 2022 gap has grown to $991 million. These estimates already assume fare and toll increases of 4 percent in 2019 and 2021. In addition, the MTA has large unfunded capital needs and is seeking additional funding from the state and the city to address them.
Other risks include:
- The city's pension fund earnings have been disappointing so far in the current fiscal year and a shortfall could require an increase in future contributions; and
- The New York City Housing Authority and the Health and Hospitals Corp. have become more dependent on the city. Both continue to face operational and financial challenges that may require additional city contributions.
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