View State of the City's Economy & Finances 2004 Report

New York City Comptroller William C. Thompson, Jr. today issued his report on the State of the City's Economy and Finances, indicating that the City is on course toward current-year budget balance but faces significant challenges in the future. The report, which is mandated under the City Charter, contains an analysis of the Mayor's November Modification to the Fiscal Years' 2005-2008 Financial Plan.

“While the City appears to have entered a stable economic period and is on course toward current-year budget balance, substantial budget deficits loom in the out-years,” Thompson said in the report's executive summary. “The revenue and expenditure projections are reasonable estimates and the level of reserves available to the City appear to be sufficient to offset the risks identified by my office.”

The Comptroller's office identified risks in the City's FY 2005 budget totaling $165 million. The City, for instance, continues to underestimate the amount it spends on overtime pay. Also, health insurance, Medicaid, debt service and pension expenses continue to be the major causes of the City's increasing expenditures.

Thompson reported that the out-years contain multi-billion-dollar deficits. Despite increasing the FY 2005 Budget Stabilization Account, which is used to help reduce out-year deficits, by $354 million, to $574 million, the City faces a projected deficit of $2.97 billion in FY 2006. The projected gap grows to $4.18 billion in FY 2007 before narrowing to $3.35 billion in FY 2008.

The Comptroller also highlighted longer-term risks associated with certain gap-closing measures proposed by the City. Among the gap-closing actions is the elimination from the City's financial plan of the pay-as-you-go capital spending for school construction in order to save $200 million annually.

“However, the elimination of pay-as-you-go capital funding will result in increased debt service expenditures if the City requires additional borrowing to fund this construction,” Thompson said.

Additionally, Thompson questioned whether the full $950 million in additional Federal and State aid projected by the City as part of its FY 2006 gap-closing plan would materialize. He also noted that it is unclear what the final costs to the City will be as a result of the recent ruling by the New York State Court of Appeals that the State must provide additional funding for education.

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