View the Comptroller’s comments on the FY 07 Adopted Budget

-- Warns That Economic Growth Could Slow Down and Urges Better Containment of Capital Costs --

Comptroller William C. Thompson, Jr. today reported to the Financial Control Board that the City’s $53.6 billion budget for Fiscal Year 2007 is balanced, but warned that a slowdown of the economy and rising costs could lead to future budget deficits.

In his report on the FY 07 adopted budget and in testimony before the FCB, Thompson stated that the City experienced “an extraordinary turn of good fortune,” primarily due to a strong real estate market, that produced a $5.7 billion surplus that allows for the current budget to be balanced.

Thompson commended Mayor Michael R. Bloomberg for using the monies to prepay certain FY 07 expenses, defease $350 million in New York City Transitional Finance Authority bonds, allow the Health and Hospitals Corporation to take advantage of third-party aid, and to establish the Retiree Health Benefits Trust Fund to offset costs such as retiree health insurance.

But Thompson cautioned that the robust economy that produced budget surpluses was likely to slow, and that some of the budget savings the City realized were through non-recurring actions, such as savings in pension contributions. “Despite the resilience shown by the real estate market and the overall economy in FY 2006, rising interest rates and high energy prices do pose underlying constraints to economic expansion that will end this period of extraordinary tax revenue growth,” Thompson wrote. “The City is projecting an economic slowdown and sharp fall-off of real estate-related transactions beginning in FY 2007.”

While the City’s adopted budget projects a budget gap of $3.8 billion for FY 08, the tentative collective bargaining agreement with District Council 37 could set a pattern that would result in much larger gaps in the out years, estimating the FY 09 gap to be as much as $5.1 billion and the FY 10 gap at $4.6 billion. According to Thompson, the DC 37 agreement “could set a collective bargaining pattern that would lead spending to grow 7.5 percent, slightly faster than the inflation rate.”

Thompson stated that the City’s greatest challenge will be in controlling the costs of pensions, health insurance and debt service, and proposed that the City be more aggressive in controlling the its capital program, which drives debt service.

To contain capital program costs, Thompson recommended that the City decrease reliance on construction management/build contracts and increase use of pay-as-you-go financing.

Thompson noted that the City has begun to address the out-year gaps, but added that several unresolved issues, such as the State Legislature’s plan to fund the Campaign for Fiscal Equity Court decision and the precarious financial status of the Health and Hospitals Corporation, could hamper that effort.

He also commended Bloomberg for instituting a pilot program that provides more meaningful budget categories, called Units of Appropriation, so New Yorkers can better understand how tax dollars are spent.