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New York City Comptroller William C. Thompson, Jr. today issued his charter-mandated report on the State of the City’s Finances, indicating that the City is on course toward current-year budget balance but faces significant challenges in the future. The report contains an analysis of the Mayor’s November Modification to the Fiscal Years’ 2004-2007 Financial Plan.

“Data which has become available since the November Modification was released contains promising signs for both the City’s and the nation’s economies,” Thompson said in the executive summary of the report.

“Multibillion-dollar deficits remain in the years ahead,” Thompson noted. “The City must allow the temporary tax increases to sunset as planned while identifying the revenue necessary to support the operational and capital investment needs of our city’s neighborhoods.” The Comptroller reemphasized his position that an appropriate vehicle to deliver budget relief is the temporary restoration of the commuter tax.

The Comptroller reported that the Modification addresses many of the shortcomings – including underestimating the extent of overtime and social service needs – he identified when the budget was adopted in June. The Modification increased funding by a total of $425 million for Medicaid, uniformed agencies overtime, and public assistance, and also called for a budget stabilization fund of $413 million to be used for future years’ budget balance.

Thompson noted that the November Modification addressed many of the shortcomings identified in the budget adopted in June. In the November Modification, the Mayor estimated that he City is facing a $1.85 billion budget gap in Fiscal Year 2005. Comptroller Thompson’s analysis put the number somewhat higher, at $2.3 billion.

The Comptroller noted that the City faces the possibility that the cost of mandates spending will rise sharply, including increased pension contributions and additional Medicaid expenditures.

The Comptroller further estimated that the current financial plan contains $462 million in risks as well as calling to attention two pressing issues confronting the City: the unresolved state of the Municipal Assistance Corporation debt which is being considered by the courts and the City’s labor policy. The unions are currently negotiating proposed benefit enhancements and wage increases with the city, but negotiations have stalled.

“It is important that the City and its labor force reach agreement on a reasonable settlement fair to both its employees and citizens,” Thompson said.