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Comptroller William C. Thompson, Jr. today released his Comprehensive Annual Financial Report for Fiscal Year 2004 which shows that New York City ended the year with a General Fund surplus of $5 million.

The General Fund, a primary indicator of the financial activity and legal compliance for the City, shows revenues and other financing sources of $47.297 billion for FY 2004 and expenditures and other financing uses of $47.292 billion, netting a $5 million surplus. Spending increased from $44.340 billion in FY 2003 to $47.297 billion in FY 2004, an increase of 6.7 percent. Excluding transfers and subsidy payments to eliminate future fiscal year projected gaps, expenditures and other financing uses increased by $2.446 billion, or 5.7 percent.

The $5 million surplus for FY 2004 is a result of expenditures and other financing uses included in transfers and subsidy payments of $1.923 billion to help eliminate the projected budget gap for the current fiscal year, FY 2005.

“The City overcame its budget problems for FY 2004 because of appropriate actions taken by the Mayor and City Council to address the deficit that had been projected for the year. The budget was balanced through a series of tax increases, spending cuts and the use of a $1.4 billion FY 2003 surplus,” Thompson stated.

“The City crafted credible solutions to the FY 2004 budget,” he continued. “To adequately prepare for projected future year gaps, the City must adopt a similar sense of urgency in devising solutions.”

Among the results of operations reported in the Financial Report are the following:

Budget: The major components of the government-wide revenue increases were: an increase in real estate tax resulting from full-year impact of the 18.5 percent tax rate increase effective January 2003; an increase in sales tax from the .125 percent increase in the sales tax rate effective June 2003 and the expiration of exemption on clothing and footwear purchases under $100; an increase in personal income tax resulting from the temporary upper income tax increase implementing two new top tax rates for calendar years 2003 through 2005; an increase in other income taxes, e.g., general corporation, banking corporation, and the unincorporated business tax, resulting from the rebound in Wall Street profits in calendar year 2003; an increase in other taxes resulting primarily from the skyrocketing real property transaction tax revenues; and an increase in charges for services primarily resulting from increases in the charges and enforcement activity for parking violations and the sales of new taxi medallions. There was a decrease of Federal and State aid as compared to FY 2003 when funding from FEMA was received for incurred costs related to the September 11 th.

Public Finance: The City issued $8.55 billion of long-term bonds to finance its capital plan and to refinance outstanding bonds and $1.5 billion of notes to manage its cash position. The City also entered into several interest rate exchange agreements with the goal of lowering overall cost of long term borrowing over the life of its bonds and diversifying its existing portfolio.

Pension Funds: For the 10-year period ending June 30, 2004, the Pension Funds had annualized returns of 9.9 percent. Over the course of fiscal year 2003, the Funds conducted review of assets allocation and decided to increase their level of investment in longer term, less liquid securities – in particular, real estate and private equity. In addition, they have decided to invest a portion of their fixed-income securities in inflation-linked treasury securities. The new policies are designed to increase the diversification of the assets by reducing the Funds’ concentration of assets in U.S. equity securities.

Debt Management: The City issued approximately $6.46 billion in general obligation bonds of which approximately $3.42 billion were issued to refund certain outstanding bonds and $3.04 billion were issued for capital purposes. The refunding will provide the City with about $32.4 million in debt service savings in FY 2004.

Transitional Finance Authority: As of June 30, 2004, the TFA does not have any remaining debt issuance capacity. The TFA sold $1.94 billion of bonds during FY 2003, of which approximately $1.09 billion redeemed previously issued bond anticipation notes, $709 million refinanced outstanding bonds, and $145 million were issued for capital purposes. The refinancing of TFA completed in March 2004 produced debt service savings of $33.8 million from fiscal year 2004 to fiscal year 2006. This refunding included $261.9 million of subordinate bonds, which are included in the bonds outstanding for the TFA.

Sales Tax Asset Receivable Corporation: In May 2003, New York State statutorily committed $170 million of the New York State Sales Tax to the City for each fiscal year from 2004 to 2034. The City formed the Sales Tax Asset Receivable Corporation (STARC) to securitize the payments and the use of the proceeds to retire existing Municipal Assistance Corporation for the City of New York (MAC) debt, thereby expecting to save the City approximately $500 million per year for fiscal years 2004 through 2008.

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