New York City’s budget is balanced for fiscal year (FY) 2016 and the out-year budget gaps are manageable under current economic conditions, according to an analysis released today by New York State Comptroller Thomas P. DiNapoli at the annual meeting of the Financial Control Board.

“New York City’s economy is strong today and shows no signs of slowing,” said DiNapoli. “The city deserves credit for prudently increasing its reserves to hedge against an economic setback. While the out-year budget gaps appear manageable, the city should continue its efforts to narrow them.”

The city projects budget gaps of $1.5 billion in FY 2017 and $1.9 billion in FY 2018, which are smaller than projected one year ago. The city also expects a gap of $2.9 billion for FY 2019. The gaps are relatively small, ranging from 2.5 percent to 4.5 percent of city fund revenue. Moreover, the budgets for these years include a general reserve of $1 billion, which could be used to help close the budget gaps.

In FY 2015, tax collections reached a record $51.7 billion, $3.1 billion more than the city’s forecast at the beginning of the year, contributing to a $3.6 billion surplus. The surplus was used to increase reserves and to help balance the FY 2016 budget.

Over the years, the city’s conservative approach to forecasting tax revenues has served it well, helping to close projected budget gaps and cushioning the impact of adverse developments. The city’s current four-year financial plan continues this practice. The city forecasts only a small increase in tax revenues in FY 2016, even though the economy continues to grow at a steady pace.

While tax collections are likely to be higher than projected by the city under current economic conditions, there is the possibility of an economic setback during the financial plan period. The city has experienced five years of job growth, and the city’s financial plan assumes uninterrupted growth for another five years, which would be the longest expansion in 60 years. While the economy shows no signs of weakening, external events, such as recent developments in Greece and China, and changes in federal monetary policy, could impact the city’s economy.

Over the past two years, the city has taken steps to increase its reserves. Officials increased the annual general reserve to $1 billion, the largest amount ever, and have set aside $500 million to create a Capital Stabilization Reserve, which could be used to insulate the capital program from budget cuts or to help balance the operating budget.

The city also added $1.8 billion to the Retiree Health Benefits Trust, raising the balance in the trust to a record $3.3 billion. The trust was established to help fund post-employment benefits other than pensions, but the city has used the trust in the past as a rainy-day fund. While the record-high balance is a positive development, the city’s unfunded Other Post Employment Benefits (OPEB) liability remains high at $89.5 billion.

DiNapoli’s report also made the following observations:

• Over the past year, the city has made targeted investments in education, public safety and other programs, which have increased agency spending by nearly $1.6 billion annually.
• The city has proposed an ambitious ten-year capital strategy, valued at $83.8 billion through 2025. Debt service would reach $7.5 billion by FY 2019 and would account for 13.4 percent of tax revenue in that year.
• The city has reached new labor agreements with 80 percent of its workforce, but has yet to reach new agreements with the unions that represent the city’s police officers, firefighters and correction officers.
• The city is working with its unions to hold down the growth in health insurance costs. The city reports that it achieved health insurance savings of $400 million in FY 2015 and has nearly achieved the FY 2016 savings target of $700 million. Meeting the higher targets for fiscal years 2017 and 2018 will be a greater challenge, but substantial progress has already been made.
• The city has resumed (after a two-year hiatus) the process of scrutinizing agency operations for savings, but the results so far have been modest. In a separate effort, the city has outlined a plan to reduce overtime costs in the uniformed agencies, which reached a record of nearly $1.4 billion in FY 2015.
• The city added a record 120,000 jobs during calendar year 2014 and is on track to add more than 100,000 jobs during 2015. Since the end of 2009, the city has added more than half a million jobs, four times as many as were lost during the recession.
• Although the city’s fiscal outlook continues to improve, the Health and Hospitals Corporation and the New York City Housing Authority face significant fiscal challenges, which have required greater financial assistance from the city.

Read the Review of the Financial Plan of the City of New York, or go to: http://www.osc.state.ny.us/osdc/rpt3-2016.pdf