The city could see slower revenue growth and a decrease in annual surpluses in the face of federal policies despite solid growth, according to City Comptroller Scott Stringer.
The city’s overall economic future is still somewhat positive, according to an analysis released by Stringer on Friday. Unemployment is low, labor force participation is at an unprecedented high, job growth is solid and earnings are increasing, the report found.
Stringer said he expects economic growth to continue at a moderate pace until 2020, when a slowdown is expected to occur as the Federal Reserve tightens its monetary policy. His forecast does not include the potential impacts of President Donald Trump and the GOP’s tax plan given that it was not finalized at the time of his analysis.
Even as the city has seen positive economic conditions, tax revenue growth has decreased from 7.4 percent in fiscal year 2015 to 3.2 percent in fiscal year 2016 and 1.9 percent in fiscal year 2017, Stringer said.
“There are reasons to be concerned,” he said in a statement. “Revenues are slowing, operating surpluses are shrinking, and federal policies are only going to make things worse. We believe the time to start preparing for tougher fiscal conditions is here. We must plan strategically in the short-term to be ready for whatever long-run challenges come our way.”
He anticipates that the trillion-dollar increase in the federal deficit likely to come from the GOP’s tax reform plan could yield significant cuts to the social safety net and federal aid programs that support the city’s most vulnerable residents.
The plan includes the elimination of the state and local tax deduction that will hurt high-tax states like New York, New Jersey and California.
“Though the outlook for the city’s economy may be positive, it’s impossible to predict what exactly might come from Washington at this point,” Stringer continued. “As the GOP attempts to pass a tax plan for the wealthiest, our safety net could get gutted to pay for it. The last thing we want to do is start drawing funds from our budgetary reserves. That’s an alarming prospect when our economy is still growing. The time to get our house in order is now.”
Personal income tax revenues have been flat for the last two years, according to the report. While wage withholding has grown strongly, tax payments on capital gains and other non-wage income has dropped — likely in anticipation of federal tax rate cuts on non-wage income, Stringer said.
Business income taxes and property transaction taxes were lower in fiscal year 2017 than in fiscal year 2015.
And declining cash balances in the city’s central treasury account indicate potential headwinds affecting the city’s fiscal condition. After hitting historically high levels in fiscal years 2016 and 2017, cash balances have gone down abruptly, reaching a low point of $1.02 billion in early December, or $4.4 billion below last year’s low, the lowest balance since fiscal year 2010.
These indicators and shrinking contributions to the city’s total surplus, Stringer argued, demonstrate the necessity of identifying agency spending efficiencies so that the city can avoid tapping into budgetary reserves.
The comptroller’s analysis of the November Financial Plan — which includes the current year, fiscal year 2018, through fiscal year 2021 — has identified net risks to the November Plan projections ranging from $15 million in fiscal year 2018 to as much as $1.3 billion in fiscal year 2020, leading to outer gaps of at least $3.6 billion.