Bureau of Budget
Budget Report
Comments on New York City’s
Preliminary Budget for Fiscal Year 2013
and
Financial Plan for Fiscal Years 2012-2016
March 5, 2012
Executive Summary
The current year’s budget provides evidence that the City may not be able to rely on the materialization of unanticipated revenues to fill budgetary gaps for some time. While New York City’s economy continues to show signs of improvement, recent economic gains have been erratic and tenuous. Certain key indicators of the City’s economic stability which showed signs of vitality early in 2011 began to lose steam by the end of the year. While the local economy grew by 2.9 percent, up from 2.3 percent in 2010 and unemployment was down from 9.5 percent in 2010 to 8.8 percent in 2011, some of the gains made in 2011 were lost at the end of the year.
The Comptroller’s Office continues to point to the uncertainty resulting from the European debt crisis as the primary threat to both the U.S. and local economies. Prolonged worldwide financial volatility will continue to negatively affect Wall Street and New York City’s economy. New York City is particularly susceptible to such volatility because of its dependence on revenues derived from financial firms. In addition, many of the European banks with heavy exposures to European sovereign debt have large presences in New York City. While the likelihood of an outright default by a member of the European Union has declined, there still remains many obstacles to overcome before the economies of many European countries can be considered stable. Nearly any scenario for events in Europe will entail adverse consequences for the U.S. and New York City (NYC) economies.
With the release of the February Financial Plan and the Preliminary FY 2013 Budget, the Administration has presented, as per the City Charter, its first representation of a balanced FY 2013 budget. The $68.73 billion budget is $2.94 billion less than the June 2011 Financial Plan estimates and represents the final stage in the process of closing a $4.63 billion budget gap projected in June 2011. While the FY 2013 gap was closed without the need for significant service cuts or tax increases that have been necessitated in prior fiscal years, the gap-closing program does rely on substantial one-time revenue sources and the deferment of expenditures to future years.
In June 2011, the City’s FY 2013 budget gap stood at $4.63 billion. Since that time, the Administration has presented two financial plans which combined present a plan for closing that gap. The November 2011 Plan included agency gap-closing initiatives which generated a total of $470 million in additional revenue and reduced expenditures for FY 2012 and $1 billion in FY 2013. In addition, at the time the Administration proposed the use of two one-time revenue enhancers to further mitigate the FY 2013 budget gap. The sale of additional taxi medallions and the use of the funds set aside in the Retiree Health Benefit Trust (RHBT) to fund current year health care costs for retirees further reduced the City’s budget gap by $2 billion. These gap-closing initiatives were partially offset by increased agency spending.
The remainder of the FY 2013 gap has been closed in the February Financial Plan with projected FY 2012 budgetary surplus created primarily through a series of expenditure reductions in the current fiscal year. Current year savings of $700 million were achieved through standard accounting adjustments which realized $500 million of savings from a reduction in prior-year-payables and $200 million from a reduction of the City’s general reserve. Additional FY 2012 savings were achieved as a result of the City’s Chief Actuary’s recommendations for changes to the assumptions and methods of the City’s pension systems. The City had reserved $1 billion to fund the cost of the Actuary’s recommended changes to the pension assumptions. The current estimate of the cost of the final recommendations of the Actuary is only $575 million in both FY 2012 and FY 2013. The $425 million of surplus funds earmarked for pension costs along with $205 million in additional revenues, partially offset by increased agency expenditures, will allow the City to carry forward nearly $1.3 billion from FY 2012 to FY 2013. The remainder of the FY 2013 gap is closed with increased tax revenue estimates for FY 2013 coupled with the savings realized from the lower than anticipated pension costs. The Comptroller’s review of the February Plan finds certain risks to budgetary assumptions that could create large budget gaps in the current and future fiscal years. The realization of all of the risks to the current plan would leave the City with gaps of $1.73 billion in FY 2012 and $1.11 billion in FY 2013, while the gap in FY 2014 could grow to $3.11 billion.
In FY 2012, the risks include: overtime expenses, which even with the additional funding added in the November Modification is still underfunded and funding of the next round of collective bargaining for City employees represented by the United Federation of Teachers (UFT) and the Council of School Supervisors and Administrators (CSA). The February Plan does not include any funding for wage increases corresponding to the 2008 – 2010 round of collective bargaining for the UFT and CSA, reflecting the Mayor’s decision that any wage increases in these years be funded with offsetting productivity savings. Since other municipal employee unions have settled for two annual wage increases of 4.0 percent over comparable period, excluding funding for these increases represents a significant risk to the Plan. A settlement that mirrors the agreement of the other municipal unions would cost the City $1.698 billion in FY 2012, including the cost of increases retroactive to FYs 2010 and 2011.
In FY 2013 the risk associated with the potential UFT and CSA contracts declinesto $897 million as the retroactive component of the potential wage increase is only a risk in the current fiscal year. Additional risks to the FY 2013 budget include $108 million in the tax revenue forecast, $120 million for understated overtime expenses and $50 million related to additional revenues the Department of Education forecasts for the fiscal year. These risks are slightly offset by the Comptroller’s estimate of lower costs related to judgments and claims (J&C).