-Expected State and Federal funds may not materialize-

-Health insurance costs, underestimates of overtime, debt service and economy will add to fiscal troubles-

 View Budget Report

New York City Comptroller William C. Thompson, Jr. today issued his analysis of the Mayor’s Preliminary Fiscal Year 2009 Budget and Five-Year Financial Plan, noting that the City has taken appropriate steps to close the FY 2009 budget gap but must explore new options for closing looming future gaps.

Under the City Charter, the Comptroller is required to annually review the Mayor’s budget and financial plan, which was issued on January 24. Thompson will formally present the report when testifying on the Mayor’s Budget before the New York City Council Finance Committee today at 2:15 PM.

You can view the full report at www.comptroller.nyc.gov.

“My office has carefully reviewed the Mayor’s proposed budget and five-year financial plan. The City is responding quickly to changing economic conditions, but managing the budget will prove extremely challenging,” said Thompson. “The City will have to take additional actions to close the FY 2010 gap, which at $4.2 billion is nearly unprecedented compared to City-fund revenues. The State’s tax collections are also curtailed by the turmoil on Wall Street and the softening housing market, putting expected State aid at risk and further adding to our budgetary woes.”  

The City is drawing on resources accumulated in previous years to balance the budget in FY 2008.  In FY 2007, the City transferred $4.6 billion in surpluses to prepay FY 2008.  This fiscal year, after unanticipated revenues, routine reserve adjustments and an agency gap elimination program, the City expects to prepay $4.119 billion of FY 2009 expenditures, a reduction of $481 million. The last time the City reduced its accumulated surplus in consecutive years was in FY 2002 when the local economy was mired in recession.

Higher Gaps

The Comptroller’s Office has identified risks ranging from $82 million to $569 million in FY’s 2008 – 2012. Those risks – which lie predominately in the City’s expenditure assumptions – are as follows:

• The City shows FY 2008 as balanced, but analysis by the Comptroller’s Office identified $82 million in net risks.

• The City shows FY 2009 as balanced but analysis by the Comptroller’s Office identified $569 million in net risks.

• The City shows FY 2010 with a gap of $4.2 billion, but analysis by the Comptroller’s Office identified $567 million in net risks, bringing the number to $4.791 billion.

• The City shows FY 2011 with a gap of more than $5.5 billion, but analysis by the Comptroller’s Office identified $515 million in net risks, bringing the number to $6.113 billion.

• The City shows FY 2012 with a gap of $5.34 billion, but analysis by the Comptroller’s Office identified $299 million in net risks, bringing the number to $5.63 billion.

Additional Findings:

• The city has asked agencies to identify savings as part of its Program to Eliminate the Gap (PEG).  The Plan identifies PEGs totaling $543 million in FY 2008, $885 million in FY 2009, $746 million in FY 2010, $741 million in FY 2011, and $707 million in FY 2012.

• The City’s projected gaps do not reflect the potential impact of proposed State budget actions on FY 2008 and FY 2009.  If the State Executive Budget passes as is, the City is slated to forego $500 million, including $300 million in education aid.

• The Comptroller’s Office assumes that the Executive Budget proposals will be modified during the adoption process, and risks to State aid of  $164 million in FY 08’ and $200 million per year thereafter will remain.

• The Mayor’s Budget underestimates the amount of overtime pay that will be expended in the coming years.  The Comptroller’s Office expects the payments to exceed the Mayor’s forecast by $117 million in FY 2009 and $100 million per year thereafter.

• The City’s economy will not be able to resist the downward pull of a national slump and continued turmoil on Wall Street.  The Comptroller’ Office expects that tax collections will exceed the Mayor’s forecast by $115 million in FY 2008 but tax revenues will fall short of projections by $40 million in FY 2009 and by more than $100 million in each of FY 2010 and FY 2011.

• Employee health insurance costs, excluding the impact of the proposed restructuring, are slated to grow by nearly 9% annually.  The Mayor has expressed concern that this pace could accelerate if the proposed for-profit conversion of a merged GHI-HIP health insurance company is approved by the State Legislature.  Ninety-three percent of City employees are covered by one of two of these insurers.

• Debt service is expected to grow by 8% over the Plan period.  Although described as “uncontrollable,” the growth is directly linked to the increase in the expanding capital budget.  City-funded capital commitments stand at $42.5 billion in FY 2008 through FY 2011, the largest four-year plan on record.  When projects that are funded separately through water rates are excluded, that number stands at $31 billion, or roughly $8 billion per year.  The Department of Education, City University of New York, Department of Environmental Protection, Mass Transit and Housing and Economic Development account for 60.5% of City-fund commitments.

“The Mayor is to be commended for his prudence in times when the City was flush with additional funds. He has creatively applied additional resources to help offset the impact of future economic downturns,” Thompson said.  “However, some of the plans in place need to be re-examined and additional actions need to be taken in order to better guard for economic downturn.  We need to act now in order to get a head start on planning for Fiscal Year 2010.”

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