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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015

DiNapoli: NYC Projects Budget Surplus For 2017, But Faces Risks With Federal Budget Cuts

May 25, 2017

New York City projects a surplus of $3.7 billion in fiscal year (FY) 2017, but faces the risk of losing substantial federal funding in the years ahead with proposed budget cuts looming in Washington, according to a report released today by State Comptroller Thomas P. DiNapoli.

"The President's proposed budget would make steep reductions in programs upon which city residents rely and poses a major risk to future city budgets," DiNapoli said. "The city should continue to increase its reserves to cushion against the potential for federal budget cuts and the possible roll back of the Affordable Care Act."

The current projected surplus was generated from reserves ($2.2 billion) and a citywide savings program ($1.5 billion). The city intends to transfer the surplus to FY 2018, balancing that year's budget.

The city's latest financial plan shows that FY 2018 budget is balanced, but the out-year budget gaps have grown since the beginning of the fiscal year with projected gaps of $3.6 billion in FY 2019, $3 billion in FY 2020 and $2.3 billion in FY 2021. Still, the gaps are relatively small as a share of city fund revenues (averaging 4.4 percent). In addition, the budgets for these years include annual reserves of $1.25 billion. If not needed, the reserves could be used to narrow the projected gaps.

The city's financial plan released in April assumes the receipt of $7.8 billion in federal aid in FY 2018, representing more than 9 percent of the operating budget. If federal aid were reduced, the city would come under pressure to offset the impact with its own funds rather than allowing vital services to be cut.

These estimates exclude most federal Medicaid funds, which do not flow through the city's budget. DiNapoli's office estimates that the federal share of Medicaid in New York City exceeds $18 billion.

Any federal cuts to the Health and Hospitals Corp., the New York City Housing Authority and the Metropolitan Transportation Authority, which all have a close financial relationship with the city, could require the city to increase its financial assistance to these entities.

In total, federal aid approaches $33 billion when the amounts in the city's operating and capital budgets are combined with Medicaid and the budgets of these public authorities. The share that directly affects the city's operating budget totals $7.8 billion in FY 2018.

The President's proposed budget for the federal fiscal year 2018, which begins on October 1, 2017, focuses heavily on cuts to safety net programs and discretionary spending, which would harm many New Yorkers. In addition, the House of Representatives approved the American Health Care Act, which, if it became law, would reduce future Medicaid funding to New York state. Any legislation that reduces Medicaid funding could impact the state's budget, which could affect the city's fiscal relationship with the state.

While job growth has slowed in the city as the labor market has tightened, the economy remains strong. The city added 630,000 jobs between 2009 and 2016 (the largest job expansion in its history) and the unemployment rate has fallen to 4 percent (the lowest level in the past 40 years). The city is on pace to add 59,000 jobs in 2017, half the average of the past three years.

DiNapoli's report also notes that tax collections have weakened. Collections grew by 3.2 percent in FY 2016, less than half the average gain during fiscal years 2011 through 2015. Tax collection growth is projected to slow to 2.3 percent in the current fiscal year and increase 3 percent in FY 2018.

The Comptroller has identified budget risks totaling $98 million in FY 2017, mostly from continued weakness in business tax collections. However, the April Plan includes a general reserve of $300 million, which would more than offset this risk. The report identifies a number of other budget risks that could increase the size of the projected budget gaps for subsequent years.

The city's general reserve stands at $1 billion annually beginning in FY 2018 and Mayor de Blasio's administration has set aside $250 million annually in its Capital Stabilization Reserve. It has also replenished the Retiree Health Benefits Trust, which now has a balance of $4 billion.

The city has resumed the process of identifying opportunities for savings and expects the cumulative value of the citywide savings program to reach $6.1 billion during fiscal years 2017 through 2021.

Read the Review of the Financial Plan of the City of New York, or go to: http://osc.state.ny.us/osdc/rpt2-2018.pdf

For access to state and local government spending, public authority financial data and information on 130,000 state contracts, visit Open Book New York. The easy-to-use website was created to promote transparency in government and provide taxpayers with better access to financial data.