New York City’s revised four-year financial plan shows substantially smaller out-year gaps than projected by the city in June 2014, mostly because of higher tax revenues and lower projected pension and debt service costs, according to a report released today by New York State Comptroller Thomas P. DiNapoli.
“There have been a number of favorable developments since the city’s budget was adopted in June,” DiNapoli said. “The economy has outperformed expectations and the out-year budget gaps are substantially smaller. The city also has resumed the process of examining agency operations for cost savings and reports that it is on track to reach its health insurance cost-saving targets for fiscal years (FY) 2015 and 2016. While there is always the possibility of an economic setback during the years covered by the four-year financial plan, the city has substantial reserves which would cushion the impact.”
The financial plan, covering FY 2015 through 2018, incorporates developments during the first quarter of the current fiscal year. The city projects a surplus of $105 million in FY 2015, which DiNapoli expects will grow as the fiscal year progresses given the city’s conservative economic and revenue assumptions and the continued strength of the local economy.
In June, the city projected budget gaps of $2.6 billion in FY 2016, $1.9 billion in FY 2017 and $3.1 billion in FY 2018, which were much larger than those projected in February 2014 because of higher collective bargaining costs and new programmatic initiatives.
Since then, the city has increased its revenue forecast by more than $1.1 billion for FY 2015 through 2018, and has lowered its expenditure forecast by $1.7 billion. These unanticipated resources permitted the city to reduce the out-year gaps by an average of 36 percent to $1.8 billion in FY 2016, $1.2 billion in FY 2017 and $1.8 billion in FY 2018. The financial plan also includes an annual general reserve of $750 million, the largest amount ever, and the city has other reserves if needed. Although the city is relying on $3.4 billion in nonrecurring resources to balance its FY 2015 budget, the FY 2016 budget includes less than $1 billion in nonrecurring resources.
Job growth has been strong in the city, increasing at an average annual rate of more than 2 percent over the past four years. The high-paying securities industry, however, is smaller today than before the financial crisis and has not contributed to the jobs recovery. Although the industry remains profitable, profits for the first nine months of 2014 ($11.7 billion) were down 13.5 percent compared with last year because of higher non-compensation costs, which includes the cost of legal settlements primarily related to the financial crisis.
Currently, 71 percent of New York City’s municipal workforce has reached new contract agreements with the city. In May 2014, the city reached an agreement with the United Federation of Teachers, which has set the pattern for the unions that represent civilian employees. The city recently reached a tentative agreement with a coalition of eight unions that represent superior officers in the uniformed agencies, the first agreement with uniformed employees. The union that represents the city’s police officers has not yet reached agreement with the city, and the parties have begun binding arbitration.
In May 2014, the city also reached an agreement with municipal unions to reduce the cost of health insurance by $3.4 billion through FY 2018, of which $1.3 billion would be recurring savings. The anticipated savings would be used to help fund the new labor agreements. The city reports that it is on track to meet the savings targets for FY 2015 ($400 million) and FY 2016 ($700 million).
While the city’s financial outlook continues to improve, the Health and Hospitals Corporation (HHC) is still experiencing financial difficulties, resulting in the need for additional financial assistance from the city.
For a copy of the report visit: http://www.osc.state.ny.us/osdc/rpt11-2015.pdf