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New York City Comptroller William C. Thompson, Jr. today provided his forecast on the City’s economic outlook as well as his analysis of the Mayor’s Preliminary Fiscal Year 2010 Budget and Five-Year Financial Plan.

“New York City withstood the weakening national economic trend in the first half of 2008 but contracted dramatically late in the year, all but ensuring that 2009 will be the one of the worst years for the local economy since 2002, and possibly since the end of the Second World War,” Thompson said.

Thompson’s full report is available at www.comptroller.nyc.gov.

The Comptroller projected that real Gross City Product (GCP) will contract by 4.6 percent in 2009 and by an additional 2.9 percent in 2010, with local economic growth not returning until late 2010. In addition, Thompson projected that New York City, on an annual average basis, will lose approximately 121,000 payroll jobs in 2009 and 82,000 jobs in 2010, with minimal job growth to resume in 2011.

Thompson noted that portions of the American Recovery and Reinvestment Act of 2009, which was enacted after the Mayor’s January plan was issued, will provide budget relief and permit the restoration of services, such as reduced Medicaid expenses for the City and increased education funding.

Nevertheless, Thompson identified risks and offsets that show the City facing budget gaps of $54 million and $1.865 billion in Fiscal Year 2009 and Fiscal Year 2010, respectively. Risks approximate $3 billion in the outyears, leading to budget gaps of $6.684 million in FY 2011, $6.982 billion in FY 2012 and $6.862 billion in FY 2013.

The immediate risks identified stem mainly from lower tax revenue projections and higher overtime estimates. In fact, the city is on pace to spend more than $1 billion in overtime during this Fiscal Year, an increase of $111 million over the budgeted amount and the second year in a row in which overtime has surpassed $1 billion.

In the outyears of the Plan, the bulk of the risks result from gap-closing initiatives that rely on actions by third parties. Specifically, the City expects to save an average of $1 billion annually in budget relief from FY’s 2010 to 2013 from proposed health insurance restructuring and employee premium contributions, pension reform and the restoration of State revenue sharing.  These actions require legislative or labor union approval.

In addition, the City assumes that an increase in sales tax will generate revenue of $77 million in FY 2009, $894 million in FY 2010, $920 million in FY 2011, $972 million in FY 2012, and $1.023 billion in FY 2013. These revenues are projections and require legislation that has yet to be enacted.

Thompson reported that the City’s situation would be worse had it not accumulated surpluses when the economy was growing and applied a portion to help cushion subsequent years.  The City also provided an asset base for a Retiree Health Benefit Trust Fund (RHBTF) during better financial times to partially offset the growing value of health benefits promised to municipal retirees.  The Mayor plans to draw upon $1.2 billion of the RHBTF to help offset part of the increased pension contributions as a result of market losses.

“The actions proposed have a cost in the form of higher retiree health bills in the future,” Thompson said. “City budget planners need to explicitly consider the balance between costs to future taxpayers and the maintenance of current services before action is taken.”

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