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New York City Comptroller William C. Thompson, Jr. today issued his report on the Mayor’s Executive Budget and four year financial plan for FY 2009-2012, pointing out a rough forecast ahead for New York City’s economy and particularly for the City’s financial sector.

“During the coming months, the lingering effects of the credit crisis and housing slump could produce a prolonged period of tepid growth,” Thompson said in the report, which is available at www.comptroller.nyc.gov.

The Comptroller’s report found that the credit market turmoil continues to batter financial firms and reverberate throughout the economy.  New York City’s economy, which has outperformed the nation thus far, can be expected to weaken considerably as cutbacks at local financial firms take effect. 
 
“The financial sector accounts for less than 10 percent of the City’s employment, but for more than 30 percent of salaries and wages,” said Comptroller Thompson.

Although the City added 14,100 more payroll jobs in the first four months of 2008, largely due to very strong job growth in January, there has been little growth since. While Thompson does not expect the current slowdown to be as disastrous for the City’s workforce as the recessions of 1990 and 2001, he estimated that the City is poised to lose 85,000 payroll jobs.
Thompson noted that not all workers will become unemployed, as self-employment will continue to serve as a counter-cyclical buffer to the payroll job base.

In the portion of the report analyzing the Mayor’s budget, Thompson commended Mayor Bloomberg for his “record of responsible stewardship of the City’s budget during his tenure” and cited his focus on using surplus resources to offset the impacts of the volatility of New York City’s revenues.

“The Mayor should be commended for his work to balance the budget and plan ahead for tougher times,” Thompson said. “He has kept spending by agencies restrained and his Program to Eliminate the Gap (PEG) includes a high proportion of recurring actions… However, budgetary challenges remain in good times and bad.”

Through a number of factors, the City has expanded the Budget Stabilization Account from $2.552 billion (at the time of budget adoption) to $4.519 billion; this money will be used to prepay certain FY 2009 subsidies and debt service in FY’s 2009-2011.

Even with spending reductions included in gap-eliminating programs the proposed FY 2009 budget grows 3.1 percent from FY 2008, and spending growth for FY 2009-2012 averages 4.3 percent, mainly due to debt service and healthcare costs.

The report also found that the FY 2010 gap, which was estimated at $4.2 billion in the Preliminary Budget, has been reduced to $1.34 billion, mainly a result of prepayment of debt service enabled by higher-than-expected tax revenues from FY 2008, the rescission of the 7 percent property tax reduction, and recurring PEGs.

Thompson estimated that, due to weaker property tax collections, tax revenues are expected to decline in 2009 by 6 percent, or $2.32 billion. However, the speedier recovery projected by the Comptroller’s Office will bolster income, sales and real estate related taxes beginning in FY 2010, resulting in collections that are $565 million more than the Mayor had initially forecasted.

In his report, Thompson resurrected his call for the City to establish a statutory Rainy Day Fund to help manage finances in a more transparent, straightforward fashion. The current formula of applying surplus funds to future years is complicated, difficult for the public to understand, and, in some instances, lacking in flexibility to allow resources to be applied when truly needed. The Comptroller also called on the City to resume pay-as-you-go financing to reduce debt service costs over the long run. The program currently is suspended due to budgetary pressures.

The Comptroller remains particularly concerned about the siphoning of water system resources into the City’s General Fund via the Water Board’s annual rental payments to the City. Thompson has proposed an alternate use of the Board’s rental payment that would result in rate reduction and pay-as-you-go financing for water-related capital projects. The Board is poised to issue a Request for Proposals to evaluate the current water, sewer and storm water rate structure.

“The best outcome of this process would be a more transparent assignment of the costs of government services and slower rate of growth for water and sewer rates,” Thompson said. 

Furthermore, Thompson pointed out in the report that the New York City Health and Hospital Corporation (HHC) continues to face budget problems in the absence of federal reform. Although the City has addressed these budgetary issues recently, Thompson cautioned that “the long-term health of the Corporation is uncertain and measures currently being discussed in Washington could limit HHC’s financial flexibility and increase demands on the City for assistance.”

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