A new report out today by State Comptroller Tom DiNapoli warned that although the fiscal condition of New York City is improving, the city should cease relying on one-shot budget fixes to balance its books.
“Next year’s budget will be balanced, but there are still significant out-year budget gaps to be closed and risks to be managed,” Mr. DiNapoli said. “The city has relied heavily on reserves and other one-shot sources of revenue, leaving fewer reserves to cushion the impact of potential budget risks.”
Those risks include the pace of the national economic recovery, further layoffs on Wall Street, new budget agreements with the city’s labor unions, and Mr. DiNapoli notes, when the city can expect proceeds from the sale of taxi medallions.
The city closed a $4.6 billion budget gap last year and has narrowed the shortfalls in coming years, but the report notes that this is largely due to the freeing up nearly $5 billion in reserves and $1 billion in anticipated revenue from the sale of taxi medallions and savings from administration cuts.
Key details from the rest of the report can be found below:
Preliminary employment data had indicated that New York City recovered
only half of the jobs lost during the recession and that job growth
slowed markedly during the second half of 2011, which raised concerns
about the pace of the economic recovery. Newly released revised data
show that New York City has regained all of the jobs lost during the
recession even though the unemployment rate remains high at 9.3 percent.
Wall Street, a key driver for the city economy, faces continued
challenges as it adjusts to regulatory reforms and recovers from the
recent financial crisis. Broker/dealer operations of the member firms of
the New York Stock Exchange (the traditional measure of Wall Street
profitability) had a strong first half in 2011, but lost $4.9 billion in
the second half. For the year, profits totaled $7.7 billion, the second
year that profits declined by more than 50 percent and the lowest level
of profitability since 2002. In response to weaker profits, Wall Street
has reduced cash bonuses and is expected to resume downsizing.
The report also found that:
· The city currently projects a surplus of $1.3 billion for FY
2012, which the city will use to help balance next year’s
budget. The FY 2012 surplus comes mostly from a draw down in
reserves and is substantially smaller than last year’s surplus
of $3.7 billion.
· The FY 2013 budget includes $3.5 billion in nonrecurring
resources, including $1 billion from the sale of taxi medallions
and $1 billion from the Retiree Health Benefits Trust. The city
deposited surplus resources into the Retiree Health Benefits
Trust during the last economic boom to fund the future cost of
retiree health benefits, but the city has been redirecting these
resources ($3.1 billion) to help balance the budget.
· Most of the reserves accumulated during the last economic
expansion will be exhausted by FY 2014, leaving the city with a
much smaller cushion against future budget risks.
· Debt service is projected to grow from $4.8 billion in FY 2011
to $7.2 billion by FY 2016, an increase of 49 percent. Debt
service is projected to consume 13.5 percent of city fund
revenues in FY 2016, compared with 10.8 percent in FY 2011.
· As of January 2012, New York City exceeded its prerecession job
level by 17,200, with 162,200 jobs added since the recession
· The Governor’s budget for New York State includes a number of
initiatives that would impact the city, including significant
increases in education aid (contingent on reaching agreement
with the teacher’s union on a teacher evaluation program), a new
pension plan that would decrease benefits for future government
employees and a three-year takeover of the growth in the local
share of Medicaid. These initiatives are subject to state