New York City Comptroller William C. Thompson, Jr. has released his Comprehensive Annual Financial Report for Fiscal Year 2008, which shows that New York City ended the year with a General Fund surplus for the 28th consecutive year.

The General Fund, a primary indicator of the financial activity and legal compliance for the City, shows revenues and other financing sources of $61.976 billion for FY 2008 and expenditures and other financing uses of $61.971 billion, resulting in a surplus of $5 million.

The expenditures and other financing uses include transfers and subsidy payments of $4.635 billion to help eliminate the projected budget gap for FY 2009 and help reduce the gap in FY 2010 and FY 2011. Excluding the transfers and subsidy payments to eliminate future fiscal year projected gaps, expenditures and other financing uses increased by $3.203 billion, or by 5.5%.

The report, the seventh issued by Thompson, details economic conditions within the city and the outlook for FY 2009.

“The economy in Fiscal Year 2008 was dominated by the national housing slump, which triggered a chain reaction in financial markets that has seriously undermined the nation’s economic health,” Thompson said. “Although U.S. Gross Domestic Product (GDP) grew 2.4% in Fiscal Year 2008, compared to 2% in Fiscal Year 2007, most of the growth was attributable to net export demand and tax rebates, factors which are not likely to repeat during fiscal year 2009.”

The housing slump took a toll on consumers. Housing prices, as measured by the Case-Shiller index, fell 16% from June 2007 through June 2008, substantially diminishing home equity of U.S. households and leaving many owing more money on their homes than the homes are worth. According to the Mortgage Bankers Association, the declining home process exacerbated sub-prime mortgage delinquencies, which reached 12.63% of all sub-prime loans outstanding by June 2008.

Assessing the economic outlook for New York City, the Comptroller noted that problems in the financial sector will continue to exact a strain on the City’s economy during Fiscal Year 2009 as Wall Street losses accumulate and the size of employee bonuses shrink. The New York Stock Exchange Euronext data show that the NYSE member firms’ aggregate, before-tax losses totaled $42.6 billion in the first three quarters of fiscal year 2007. The company also reported that the six largest City-based financial institutions suffered a combined loss of $13.5 billion in Fiscal Year 2008 compared with a gain of $72.3 billion in Fiscal Year 2007.

“Fiscal Year 2009 began with a sputtering economy, a constrained consumer, and tight credit conditions,” Thompson said. “A second wave of financial panic struck in September, causing a freezing of credit markets and triggering an extraordinary level of federal government intervention in the private economy in an effort to stabilize markets. The risks to the City’s economy increase as the economic turmoil spreads from the financial industry to other areas of the City’s economy.”

Among the results of operations reported in the Financial Report are the following:

Budget:

The Mayor’s FY 2008 Executive Budget, released on April 26, 2007, projected a budget of $59 billion. During the course of FY 2008, as the economy slowed, the City took actions to mitigate the impact of a downturn on the outyears. These actions included implementing gap-closing actions totaling $618 million, and removing pay-as-you-go capital funding ($100 million in Fiscal Year 2008 and $200 million in each of the three outyears in the Financial Plan.)

As a result of these actions and higher than expected tax revenues, the City’s May Modification of the FY 2008 budget, submitted with the Mayor’s FY 2009 Executive Budget on May 1, 2008, projected a FY 2008 surplus of $4.5 billion. The surplus is reflected in the Budget Stabilization Account (BSA) line. The May 2008 Financial Plan for FYs 2009 through 2012 reflected the use of this BSA to provide budget relief of $3.2 billion in FY 2009, $969 million in FY 2010 and $350 million in FY 2011.

Additionally, the May modification includes a pre-payment of $1.986 billion of Fiscal Year 2010 debt service, bringing the total Fiscal Year 2008 funds used to provide budget relief in the outyears to $6.5 billion.

Public Finance:

In FY 2008, the City and its blended component units issued $8.08 billion of long-term bonds to finance the City’s capital plan and to refinance certain outstanding bonds. Additionally, the New York City Municipal Water Finance Authority, a discretely presented component unit, issued $3.28 billion of long-term bonds to finance the City’s capital plan and to refinance certain of its outstanding bonds. As of June 30, 2008, the City’s outstanding General Obligation fixed and variable rate debt totaled $28.69 billion and $7.41 billion, respectively.

Pension Funds:

The Comptroller’s Office serves as the financial advisor to the five New York City Pension Funds. As a result of asset allocation reviews, the Funds decided to increase their level of investment in longer term, less liquid securities, in particular, real estate and private equity. The allocations were designed to increase the diversification of the assets by reducing the Funds’ concentration in traditional U.S. equity and fixed income strategies.

During Fiscal Year 2008, the Pension Funds paid benefits totaling $9.8 billion. As of June 30, 2008, the Pension Funds had assets of $104.7 billion, including $45.1 billion in U.S. Equity, $30.9 billion in U.S. Fixed Income, and $19 billion in International Equity.

“Due to the long-term nature of its liabilities, the Funds’ assets are invested with a long-term investment horizon,” Thompson said. For the 10-year period ended June 30, 2008, the Pension Funds had annualized returns of 5.5%.

Commercial Banking:

During his tenure, the Comptroller has successfully spearheaded the development and implementation of authorize deposits of City funds at bank branches in Banking Development Districts (BDD), traditionally under-banked neighborhoods. The City has since deposited $200 million in BDD branches, and the number of BDD branches has to date risen to 24 since the announcement of the BDD program in November 2003.

Audits:

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