-Comptroller calls on City to formalize a “rainy day fund”-

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New York City Comptroller William C. Thompson, Jr., noting that the nation’s economic expansion has dramatically unraveled this past year, will report tomorrow to the Financial Control Board that the City’s Fiscal Year 2009 budget is balanced but warn of larger-than-expected budget gaps in the future.

At the forefront of Thompson’s concerns is the increasing burden of debt service on City taxpayers. Debt service is expected to increase 7.6 percent per year from FY 2008 through FY 2012, growth fueled by General Obligation debt borrowing that will average $6 billion per year and push the City’s debt burden from 13.8 percent in FY 2009 to 15.1 percent in FY 2012. New York City’s gross debt outstanding exceeded $7,000 per capita in FY 2007.

Thompson is urging the City to return pay-as-you-go capital spending to its financing program in order to help ease the debt service burden over the long term.

“In the face of dwindling revenues, the City removed pay-as-you-go capital spending to free up resources for other purposes and has eliminated it from each year of the financial plan,” Thompson said. “Since the benefits of this program to the City’s overall debt and the long-term capital program are cumulative, pay-as-you-go should be reinstituted as soon as possible.”

The Comptroller’s new report – which is available today at www.comptroller.nyc.gov - analyzes the FY 2009 adopted budget and FYs 2009-2012 Financial Plan. Thompson will formally present it at the Financial Control Board hearing on Monday morning.
The Comptroller reports that stated spending is projected to decline from $62.94 billion dollars in Fiscal Year 2008 to $59.39 billion dollars in Fiscal Year 2009. However, these figures reflect surplus resources transferred from one year to the next.

Adjusted for the transfers, Thompson found spending will grow 4 percent from FY 2008 to FY 2009, and growth will average 4.1 percent per year for the entire Financial Plan period. Revenues are projected to grow at the same rate. However, they start from a lower base and thus persistent gaps in the out-years are created.

New York City was able to preserve surpluses built up in previous years and add nearly $2 billion to balance the FY 2009 budget and considerably narrow the FY 2010 budget gap. However, adjustments to the Mayor’s plan show increases to projected future gaps.

The Comptroller’s analysis of the Financial Plan shows that on net, the City faces a gap of $68 million in FY 2009, due to lagging tax revenues and larger overtime expenditures. Additional resources are identified that will narrow the gap in FY 2010 from the City’s estimate of $2.334 billion to $2.049 billion. However, larger gaps of $5.696 billion and $5.442 billion for FY’s 2011 and 2012 are identified, greater than the City’s estimate of $5.158 billion and $5.108 billion, respectively.

The Comptroller’s Report found that out-year spending risks derive from four sources:

• The City estimates $200 million annual savings beginning in FY 2010 from restructuring health insurance, but a plan has yet to be put forth;
  
• The City’s optimistic projection of overtime costs is underestimated and will exceed predictions by $100 million per year;
  
• Pension costs will be higher due to less-than-expected returns in FY 2008; the costs are estimated to grow from $83 million in FY 2010 to $225 million in FY 2012; and,
  
• Changes in accounting standards will prevent the City from borrowing for activities that have been considered capital expenditures due to State Law. These expenditures are estimated to total $500 million per year.

The Comptroller is warning that, as rising costs and revenue stagnation continues, the City’s budget will continue to be under pressure for some time. This will provide considerable challenges in balancing both current and future needs, and the City should resist, as it has to date, from borrowing from the future to solve current problems.

“Mayor Bloomberg’s administration has set aside surplus resources to use in funding future projected gaps,” Thompson said. “The Mayor is to be commended for balancing immediate needs with preparation for the downturn.”

However, Thompson added, “Even more commendation would be in order if the City would establish a formal budget reserve – a ‘rainy day fund’ – to institutionalize the practice of smoothing the City’s volatile revenues as we move ahead into more troubling economic times.”

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