The recent labor agreement between New York City and the United Federation of Teachers (UFT) removes the largest uncertainty that had been facing the city's budgetary outlook. But the city still faces challenges, including reaching labor agreements with the other municipal unions, obtaining anticipated health insurance savings and closing future budget gaps, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli.

“The agreement between the Mayor and the United Federation of Teachers lifts a cloud that has hung over the city’s finances for years,” DiNapoli. “While New York City’s economy continues to grow at a solid pace, the city should continue to replenish reserves and begin taking steps to narrow the budget gaps in the coming years.”

The city's financial plan forecasts a surplus of $1.6 billion in FY 2014, which will be used to help balance the $73.9 billion FY 2015 budget, and out-year budget gaps of $2.6 billion in FY 2016, $1.9 billion in FY 2017 and $3.1 billion in FY 2018. These budget gaps are larger than the gaps projected by the city in February 2014, but significantly smaller than the historical average over the past 34 years when measured as a share of city revenue.

The city has closed gaps of this magnitude in the past, but a significant economic setback could make closing future gaps more difficult. The national economic recovery has already exceeded the average length for all recoveries since the end of World War II.

Although the budget gaps for fiscal years 2019 through 2021 could be larger because the cost of new labor agreements will be higher in those years, the city has a long lead time to close these gaps. The sooner the city begins the process of implementing actions to close the budget gaps during the financial plan period, the smaller the gaps will be in fiscal years 2019 through 2021.

Specifics include:

• The Mayor has increased the city's reserves by rescinding plans from the prior administration to transfer $1 billion from the Retiree Health Benefits Trust into the operating budget, and by doubling the general reserve to $600 million.
• Revenue collections were much stronger in the current fiscal year than the city had expected one year ago. In total, the city has raised its revenue forecasts by $5.1 billion through FY 2017, largely because real estate values and sales activity are increasing faster than had been expected and personal income tax collections have been strong. The Office of the State Comptroller projects higher revenues than forecast by the city, including $725 million more during fiscal years 2014 and 2015.
• City-funded spending is projected to increase at an average annual rate of 4.6 percent between Fiscal Years 2013 and 2018, driven by higher labor costs and debt service.
• The city’s unfunded obligation for post-employment benefits other than pensions grew by nearly $39 billion to $92.5 billion between fiscal years 2006 and 2013, and will likely continue to grow during the financial plan period
• Since the end of the recession, job growth in New York City has averaged 1.8 percent annually, nearly twice as fast as the nation. Employment in the city climbed to a record high of nearly 4 million during 2013. Job growth in the city, however, has been concentrated in lower-paying sectors.
• Wall Street is one of the city’s economic engines and a major source of tax revenues. The city forecasts lower Wall Street profits and bonuses in calendar year 2014. Although Wall Street has been profitable for several years, the securities industry in the city continues to shed jobs. During the first four months of 2014, the securities industry lost another 1,200 jobs (compared to the same period one year earlier).
• In early May, the city announced that it had reached a nine-year labor agreement with the United Federation of Teachers, which represents 37 percent of the city’s workforce. The city, which has a long history of pattern bargaining, assumes these terms will set the wage pattern for all municipal unions. However, the union representing the city’s police officers is seeking larger wage increases than those offered by the city, and has begun the process that could lead to binding arbitration.
• The city assumes that new labor agreements will cost $13.6 billion during the financial plan period. These costs will be partially offset by resources previously set aside by the city in its labor reserve ($3.5 billion), and by a total of $4.4 billion in new resources that are expected to become available as the result of an approved agreement between the city and the Municipal Labor Committee, which represents the city’s unions. The city has agreed to report regularly on its progress in achieving these health insurance savings, which will build confidence that the agreement is generating the anticipated savings.
• The city has made considerable progress in its efforts to sell the remaining 1,600 taxi medallions, but it still needs State approval for its disability accessibility plan (DAP) before it can begin auctioning off the remaining medallions, which are expected to generate $1.2 billion during fiscal years 2015 through 2017. The DAP was recently submitted to the City Council for its review and must be submitted to the State by June 12, 2014, which then has 60 days to issue a decision.

To view a copy of DiNapoli’s financial plan report, click here, or visit: http://www.osc.state.ny.us/osdc/