NYS Financial Control Board July 2008 Report

FOR IMMEDIATE RELEASE:
Tuesday, July 22, 2008

FOR FURTHER INFORMATION CALL:
Jeffrey L. Sommer (212) 417-5066

PRESS  RELEASE

The Financial Control Board Staff’s report on the FYs 2009-2012 Financial Plan finds that the city has presented a balanced budget for FY 2009.  With the city-centered financial services industry in the midst of a significant downsizing, the economic downturn being faced by the city is likely to be more severe here than for the nation.  Fortunately, the city accumulated a surplus of $6.6 billion in FY 2008 that it used to prepay $3 billion of FY 2009 debt service expenses as well as $960 million of subsidies and retiree health benefits.  Additionally, the city provided a grant of $546 million to the New York City Transitional Finance Authority in FY 2008 that it applied to its FY 2009 debt service payment, which freed up an equivalent amount of personal income tax for the city to use to balance its budget.  The remainder of the surplus is being used to shrink the FYs 2010 and 2011 budget deficits.

While the city has presented a balanced budget, our analysis indicates that there is a $334 million risk to the budget.  Such a risk is manageable for the city particularly at this early stage of the fiscal year when the city still has a general reserve of $300 million, among other options.  However, the risks to the outyears of the plan are much larger and, when combined with already identified budget gaps, require immediate attention if the city is to achieve budget balance in the outyears.  The city should consider, as they successfully did in FY 2008, taking actions during FY 2009 to either raise revenues or reduce expenditures, to build up a surplus to help balance FY 2010.
To narrow the budget gap projected for FY 2010, which increased due to the recent arbitration award concerning police salaries and the expectation that other uniformed services will reopen their negotiations, the city has applied $2.4 billion of surplus resources from FY 2008 to reduce FY 2010 expenses.  Additionally, the Mayor has proposed eliminating the seven percent property tax cut and has in fact augmented tax revenue by $1.2 billion to $1.4 billion in each of FYs 2010-12 to reflect this proposal.  Despite these actions, the city estimates budget gaps of $2.3 billion for FY 2010, $5.2 billion for FY 2011 and $5.1 billion for FY 2012. 

We project, however, that the gaps could be larger by as much as $2 billion in FY 2010 and $2.4 billion in each of FYs 2011 and 2012, producing budget deficits totaling $4.3 billion in FY 2010 and $7.5 billion in each of FYs 2011-12.  We believe that risks of $1.2 billion to $1.4 billion exist to the financial plan until the city council approves the Mayor’s plan to increase property taxes by seven percent.  Furthermore, recent negative economic news and the severe downturn of the stock market have caused us to become increasingly pessimistic regarding the city’s tax revenue plan.  We expect that the nonproperty taxes will fall below the city’s collection targets by $400 million in FY 2009, $425 million in FY 2010, and $200 million in each of FYs 2011-12.  These reductions are in addition to our expectation that there will be a $200 million property tax shortfall in each of FYs 2010-2012, due to weak assessment growth.