DiNapoli: NYC Remains on Solid Ground but Budget Risks Need to be Managed
Mayor de Blasio’s preliminary executive budget for fiscal year (FY) 2019 and its associated financial plan project a surplus of $2.6 billion in the current fiscal year, ending on June 30, which will be used to balance the 2019 budget, according to a report issued by State Comptroller Thomas P. DiNapoli.
"New York City’s finances look to be on solid ground, with a strong economy, a balanced budget and out-year gaps that are manageable under current conditions," DiNapoli said. "There are budgetary risks to manage over the next few years and troubling developments at the national level, but the city has maintained its reserves at historic levels and prudently continues to expand the citywide savings program."
New York City’s economy added 715,000 jobs between 2009 and 2017, its largest and longest job expansion in the post–World War II period. After adding 81,000 jobs in 2017, employment reached 4.4 million, 615,000 more than the prerecession peak. More jobs were added in the boroughs outside of Manhattan than in any other expansion.
The city’s unemployment rate has declined from a recessionary peak of 9.5 percent to 4.5 percent in 2017, the lowest level in 41 years. The city is on pace for continued job gains in 2018, although growth is expected to slow for the fourth consecutive year as the labor market tightens.
The city projects budget gaps of $2.2 billion in FY 2020, $1.5 billion in FY 2021 and $1.7 billion in FY 2022. These gaps are relatively small as a share of city fund revenues, but they do not reflect the next round of collective bargaining or the impact of state or federal actions.
The mayor’s proposed budget provides funding for annual wage increases of 1 percent after the expiration of current labor agreements, but the actual cost will be determined through negotiation or arbitration.
The Governor’s Executive Budget proposal for state fiscal year 2018-19 would increase state education aid to New York City by $248 million in FY 2019, but this is less than assumed in the city’s February Plan. The enacted state budget, however, historically includes more education aid than initially proposed by the Governor.
The Governor’s spending plan would cap or reduce state reimbursement for a number of programs. The city’s budget could also be adversely impacted by state actions approved in prior years that are scheduled to take effect in FY 2019. State actions could increase the city’s costs by a net of $502 million in FY 2019.
The proposed state budget also includes proposals that would require the city to fully fund the capital costs of New York City Transit, which operates the subway and bus system, and match the state’s capital contribution to the MTA’s emergency Subway Action Plan (SAP). In addition, the city could come under pressure to contribute operating funds to the SAP.
Changes in the federal tax code enacted in December 2017 also introduce greater uncertainty about the city’s tax forecasts. For example, personal income tax withholding and estimated payments were $1.3 billion higher for December 2017 than in the prior year, fueled by taxpayers who prepaid their taxes in 2017 because the new tax law limits the deductibility of state and local taxes beginning in 2018. The city assumes that this change in taxpayer behavior will have no impact on collections in FY 2018, but the actual impact may not be known until later in the fiscal year.
DiNapoli’s report notes:
- Business tax collections are likely to fall short of the city’s forecast by $250 million annually beginning in FY 2019, but real property tax collections are likely to be significantly higher than projected during the financial plan period due to rising property values.
- The city anticipates $929 million in proceeds from the sale of taxi medallions during the financial plan period, but their value has plummeted after Uber and other ride-sharing providers entered the market.
- Growing federal deficits may renew calls for cuts in entitlement programs and domestic spending during the financial plan period, which would adversely affect many city residents.
- Planned cuts in federal payments to hospitals that treat a disproportionate number of uninsured patients will be delayed for another two years, which will benefit the New York City’s Health and Hospitals Corp. However, the corporation still faces serious financial challenges that could impact the city and federal cuts could be larger in the following years.