The New York City Mayor’s preliminary executive budget for FY 2020 is balanced, but there are risks, including proposed drops in state assistance, potential federal budget cuts and slower economic growth, according to a report released today by New York State Comptroller Thomas P. DiNapoli.
“Strong job growth, record tourism and rising wages have helped to bolster New York City’s coffers,” DiNapoli said. “Still, there are risks on the horizon, and Mayor de Blasio’s efforts to find additional savings in the budget are prudent.”
The city added a total of 820,400 jobs between 2009 and 2018, the largest and longest job expansion in the post-World War II period. In 2018, 86,600 jobs were added (14,000 more than previously reported by the state Department of Labor), on par with gains in the two prior years and set an annual record of nearly 4.6 million total jobs. The city, however, expects job growth to slow in 2019.
The unemployment rate fell to 4.1 percent in 2018, the lowest annual rate on record. In addition, tourism revenue set a new record, consumer confidence is at an 18-year high and wages continue to rise, partly due to an increase in the minimum wage.
New York City now projects a surplus of $3.2 billion in FY 2019, which will be used to balance the FY 2020 budget. The surplus results mostly from a drawdown of unneeded reserves in the current fiscal year, resources from the citywide savings program and higher-than-expected revenues.
The city projects budget gaps of $3.5 billion in FY 2021, $2.9 billion in FY 2022 and $3.3 billion in FY 2023. The gaps reflect the cost of wage increases for the municipal work force, higher costs for debt service and health insurance, and an anticipated slowdown in job growth and tax collections.
The city’s financial plan for fiscal years 2020 through 2023 includes a general reserve of $1 billion annually and a capital stabilization reserve of $250 million annually. The Mayor has asked city agencies to identify an additional $750 million in recurring savings. These funds could be used to mitigate the impact of adverse developments or to narrow the projected budget gaps.
The most immediate risk to the city’s finances is the potential impact of the state budget. The executive budget for state fiscal year 2019-2020 includes a number of proposals that could adversely affect the city’s financial plan by as much as $589 million in FY 2020, according to the city’s estimate.
The city had a large decline in estimated personal income tax payments in December and January. While much of the decline had been anticipated, collections were still short by $433 million. The city expects nearly half of the shortfall to be recovered by the end of its fiscal year. However, changes in taxpayer behavior are difficult to predict, increasing the level of uncertainty in the city’s tax projections.
The largest risk to the budget remains the potential for an economic setback during the financial plan period. While the city’s economy remains strong, the national economy appears more vulnerable than in recent years and a setback could make closing the out-year budget gaps more difficult.
There is also the possibility of federal budget cuts during the financial plan period given the growing federal deficit, which is projected to exceed $1 trillion in the coming years. The President, for example, has proposed sharp cuts in social safety net programs and discretionary spending.
The Metropolitan Transportation Authority (MTA), which is critically important to the city’s economy, is facing its greatest crisis in decades with deteriorated service and a drop in subway ridership. The MTA projects a balanced operating budget for 2019, but out-year budget gaps that grow from $467 million in 2020 to nearly $1 billion in 2022. The gaps remain even after planned fare and toll increases of 4 percent in 2019 and 2021. In addition, the MTA has large unfunded capital needs.
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