New York City forecasts a surplus of $965 million in the fiscal year ending in June 2022 (FY 2022), based largely on the receipt of $750 million in unrestricted federal aid, and projects outyear gaps to drop by nearly a third from earlier estimates, according to a report released today by State Comptroller Thomas P. DiNapoli.
“The latest numbers are good news for the city, thanks to strong market returns and the influx of federal funds,” DiNapoli said. “The city should capitalize on this good fortune and set aside resources to address unexpected challenges and new spending obligations. Fixing the damage from COVID-19 will take time, and efforts to boost the short-term economic outlook in a fiscally responsible manner will leave New York City in a better position to achieve and sustain budgetary balance, while providing needed public services to maintain the city’s quality of life and competitiveness over the long term.”
On Nov. 30, 2021, the city released its seventh budgetary update since the COVID-19 pandemic began. Pension investment returns of nearly 26% in FY 2021 reduced the city’s pension liability and associated planned contributions. Outyear gaps, which averaged $4 billion annually from FY 2023 through FY 2025 in the adopted budget in June 2021, were narrowed substantially to an annual average of $2.6 billion, or 3.6% of City-Fund revenues, the lowest level since FY 2016.
The city continues to implement initiatives to mitigate the effects of an uneven recovery, while revising economic expectations, planning for slower employment gains but faster growth in economic output.
DiNapoli has identified risks that could increase city spending by $2.3 billion in FY 2023, $3 billion in FY 2024, and $3.3 billion in FY 2025, fueling gaps that could total more than $5 billion annually beginning in FY 2023.
Risks associated with the Department of Education could total $782 million in FY 2023 and exceed $1.1 billion annually beginning in FY 2025. In addition, housing and homeless support enhancements over the last year are expected to exceed city projections by $390 million annually beginning in FY 2023.
Subsidies for the MTA that are not included in the plan amount to an additional $220 million annually by FY 2025, which include spending for the Fair Fares program, MTA paratransit and MTA Bus operations.
DiNapoli projects that unbudgeted spending growth for city worker overtime pay will exceed projections by more than $500 million annually over the duration of the financial plan. The city has earmarked $500 million in unspecified labor savings, a reduction from $1 billion from June 2021.
DiNapoli’s report also notes:
- The city has used federal aid to fund new recurring expenses that could add costs of more than $1 billion in FY 2026, outside of the financial plan period.
- Even during the strongest expansion prior to the pandemic, from 2010 to 2019, the city added fewer than 100,000 jobs annually. Assuming a similar annual employment growth trajectory in this case, the city would reach pre-pandemic levels of employment by the first quarter of 2027.
- The Mayor-Elect has publicly announced support for the reinstatement of a “Program to Eliminate the Gap.” The identification of potential efficiencies and the prioritization of program activities are important steps forward in advancing fiscal discipline in the face of potential resource constraints.
- The city has budgeted for the use of $13.7 billion in federal aid over four years, but $8.8 billion is planned to be spent in FY 2022, leaving less than $5 billion over the remaining three years. The city may be able to push unspent funds into the out-years to reduce gaps further.
Reviewing and appropriately budgeting for planned spending, identifying available federal aid and finding options to eliminate the out-year gaps will help create flexibility to manage the city’s finances amid the continuing pandemic and recovery. This may also allow the incoming administration to route funds to newly proposed initiatives to tackle evolving challenges and take advantage of opportunities to pursue growth.
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