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New York City financial outlook improves
ALBANY - New York City has closed a $2 billion budget gap for fiscal year 2015 and narrowed the out-year budget gaps, but the city’s forecasts do not include the potential cost of collective bargaining, according to an analysis released today by State Comptroller Thomas DiNapoli.
“New York City’s long-term budget outlook is improved as we prepare for the first new administration in over a decade,” DiNapoli said. “Mayor-elect Bill de Blasio will take office with an improving economy and an excellent municipal credit rating, but faces challenges on a number of fronts. Mayor Michael Bloomberg has put New York City on a firm fiscal footing, through difficult economic times, with his stewardship of the city’s budgets over the past 12 years.”
In November, New York revised its four-year financial plan to reflect a number of positive developments that increased the FY 2014 surplus by $1.6 billion to $1.8 billion, which permitted the city to eliminate its FY 2015 budget gap and to narrow the out-year gaps. These favorable developments include higher tax revenue; resources from asset sales and other nonrecurring sources; debt service savings from low interest rates; and a one-year freeze in employee health insurance premiums in FY 2015.
DiNapoli identified several risks to the budget, the largest being the outcome of collective bargaining. All of the contracts with the city’s unions have expired, some as long ago as November 2009. The City’s financial plan assumes a five-year wage freeze for teachers and principals, a three-year freeze for all other workers, and then small annual wage increases afterwards.
Other risks include the planned sale of 1,600 new taxi medallions during fiscal years 2015 through 2017 (valued at $1.2 billion), which requires state approval; the possibility that the Health and Hospitals Corp. will require additional city assistance; and shortfalls in anticipated federal aid (including for Superstorm Sandy). On a positive note, tax revenues will likely be higher than forecast by the city during the financial plan period largely because of strong job growth.
Over the longer term, the growing cost of debt service and health insurance will continue to put pressure on the city’s operating budget. These costs are projected to grow by a total of 38 percent ($3.8 billion) between fiscal years 2013 and 2017. At the end of FY 2013, the city’s unfunded post employment liabilities (mostly health insurance for retirees) totaled $92.5 billion, nearly $39 billion more than in FY 2006. Although the city set aside $2.5 billion during the last economic expansion to help fund this future liability, it has since used virtually all of these resources to balance the budget instead.
After declining by 15,666 employees between fiscal years 2008 and 2012, the municipal workforce grew by 2,000 employees last year and is scheduled to increase by another 4,000 workers in FY 2014. About half of the increase is concentrated in the Department of Education, with the remainder mostly in the city’s health and welfare agencies.
The city faces a continuing decline in affordable housing as rents have grown and income has stagnated. Even with government subsidies, one out of five city households spent more than half of their income on rent in 2011. The number of homeless people in the city’s shelters has increased by 30 percent over the last two years and thousands more remain on the streets. The New York City Housing Authority provides housing to more than 400,000 tenants, but has significant fiscal and management challenges.
The local economy has been resilient over the past decade, recovering from Sept. 11, 2001, the Great Recession and Superstorm Sandy. New York City has added more than twice as many jobs as were lost during the recent recession, although many of the new jobs are lower paying than the ones they replaced. The unemployment rate remains relatively high at 8.7 percent and is twice as high for those who do not have a high school diploma.
The securities industry, one of New York’s main economic engines, has been profitable for four consecutive years, including the three best years on record. Broker/dealer operations of the New York Stock Exchange member firms had profits of $13.5 billion through the first three quarters of 2013, a slower pace than in 2012. The fourth quarter will show the effects of the federal government shutdown as well as the growing cost of litigation. Although the industry has returned to profitability, employment in the securities industry in New York City is 12 percent less than before the 2008 financial crisis.
For a copy of the report, visit: www.osc.state.ny.us/osdc/rpt10-2014.pdf