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«Comments on New York City’s Fiscal Year 2016 Executive Budget June 9, 2015 SCOTT M. STRINGER Comptroller Deputy Comptroller for Budget Tim Mulligan ...»

-- [ Page 1 ] --

Office of the

New York City Comptroller

Scott M. Stringer

Bureau of Fiscal and Budget Studies

www.comptroller.nyc.gov

(212) 669-2507

Comments on New York City’s

Fiscal Year 2016 Executive Budget

June 9, 2015

SCOTT M. STRINGER

Comptroller

Deputy Comptroller for Budget

Tim Mulligan

Assistant Director for Budget

Suri Grussgott

Bureau Chief

Eng-Kai Tan

Chief Economist

Frank Braconi

Project Coordinator Principal Economist Manny Kwan Farid Heydarpour Staff Kettly Bastien Robyn Liverpool Amitabha Basu Irina Livshits Rosa Charles Andrew McWilliam Stephen Corson Marcia Murphy Peter E. Flynn Jane Pyon Michele Griffin Andrew Rosenthal Michael Hecht Orlando Vasquez Dahong Huang

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY

II. THE CITY’S ECONOMIC OUTLOOK

A. COMPTROLLER’S ECONOMIC FORECAST FOR NYC, 2015- 2019

B. UNDERLYING FACTORS AFFECTING THE FORECAST

III. THE FY 2016 EXECUTIVE BUDGET

A. CITYWIDE SAVINGS PROGRAM

B. RISKS AND OFFSETS

IV. REVENUE ASSUMPTIONS

Tax Revenues

Miscellaneous Revenues

Federal and State Aid

V. EXPENDITURE ANALYSIS

Labor

Overtime

Headcount

Pensions

Health Insurance

Department of Education

Health and Hospitals Corporation

Debt Service

Capital Commitment Plan

Ten-Year Capital Strategy

VI. APPENDIX

GLOSSARY OF ACRONYMS

ii

LIST OF TABLES

TABLE 1. MAY 2015 MODIFICATION AND FY 2016–FY 2019 FINANCIAL PLAN

TABLE 2. PLAN-TO-PLAN CHANGES MAY 2015 PLAN VS.

FEBRUARY 2015 PLAN

TABLE 3. PLAN-TO-PLAN CHANGES MAY 2015 PLAN VS.

JUNE 2014 PLAN

TABLE 4. RISKS AND OFFSETS

TABLE 5. SELECTED NYC ECONOMIC INDICATORS, ANNUAL AVERAGES, COMPTROLLER AND

MAYOR’S FORECASTS, 2015-2019

TABLE 6. CHANGES TO FY 2016 CITY-FUNDS ESTIMATES FY 2016 EXECUTIVE BUDGET VS.

FY 2016 PRELIMINARY BUDGET

TABLE 7. CHANGES IN FY 2016 BASELINE AGENCY SPENDING FROM THE PRELIMINARY BUDGET.

........14 TABLE 8. CHANGE TO FY 2015 BSA

TABLE 9. COMBINED FY 2015 AND FY 2016 AGENCY SPENDING REDUCTIONS IN THE CITYWIDE

SAVINGS PROGRAM

TABLE 10. RISKS AND OFFSETS

TABLE 11. REVISIONS TO THE CITY’S TAX REVENUE ASSUMPTIONS FEBRUARY 2015 VS.

MAY 2015........20 TABLE 12. CITY’S TAX REVENUE FORECAST, GROWTH RATE, FYS 2016 – 2019

TABLE 13. RISKS AND OFFSETS TO THE CITY’S TAX REVENUE PROJECTIONS

TABLE 14. CHANGES IN FY 2016 ESTIMATES MAY 2015 VS.

FEBRUARY 2015

TABLE 15. FY 2016 – FY 2019 EXPENDITURE GROWTH ADJUSTED FOR PREPAYMENTS

TABLE 16. PROJECTED OVERTIME SPENDING, FY 2016

TABLE 17. CITY-FUNDED FULL-TIME YEAR-END HEADCOUNT PROJECTIONS

TABLE 18. CHANGES TO FYS 2015 – 2019 CITY-FUNDED FULL-TIME HEADCOUNT MAY 2015 FINANCIAL PLAN VS.

FEBRUARY 2015 FINANCIAL PLAN

TABLE 19. CITY-FUNDED FULL-TIME HEADCOUNT MAY 2015 PLAN TARGET FOR JUNE 30, 2015 VS.

MARCH 31, 2015 ACTUALS

TABLE 20. FY 2015 – FY 2019 CITY PENSION EXPENDITURES

TABLE 21. FY 2016 EXECUTIVE BUDGET HEALTH EXPENDITURES

TABLE 22. MAY 2015 FINANCIAL PLAN DEBT SERVICE ESTIMATES

TABLE 23. MAY FINANCING PROGRAM, FYS 2015 – 2019

TABLE 24. FYS 2015 – 2019 CAPITAL COMMITMENTS, ALL-FUNDS

TABLE 25. FYS 2015 – 2019 CAPITAL COMMITMENTS, CITY-FUNDS

TABLE 26. MAY 2015 TEN-YEAR CAPITAL STRATEGY, FYS 2016– 2025 COMPARISON TO THE FEBRUARY 2015 PRELIMINARY TEN-YEAR CAPITAL STRATEGY

TABLE A1. MAY 2015 FINANCIAL PLAN REVENUE DETAIL

TABLE A2. MAY 2015 FINANCIAL PLAN EXPENDITURE DETAIL

LIST OF CHARTS

CHART 1. CHANGE IN THE NYC PAYROLL-JOBS, APRIL 2014 TO APRIL 2015

CHART 2. COMBINED FY 2015 AND FY 2016 BENEFITS FROM CITYWIDE SAVINGS PROGRAM

CHART 3. DEBT SERVICE AS A PERCENTAGE OF TAX REVENUES, 1992 – 2019

iii iv I. Executive Summary New York City’s recovery from the recession has matured into a solid expansion, with the city’s economy 13 percent larger compared to what it was before the recession.

Unlike expansions of the late 1990s and mid-2000s, Wall Street is not a major force driving the current growth, although it is supporting it. Rather, the drivers have been traditional business services industries such as accounting, advertising, architecture and engineering, as well as a new cluster of activities related to computer systems and technology.

Construction, commercial real estate and tourism have also prospered during the recovery. Permits for new housing units, which had dropped to about 7,500 per year from 2009 to 2011, recovered to over 20,000 units in 2014 and are running ahead of this pace in 2015. In commercial real estate, new leasing activity in Manhattan office space in 2014 was the highest since 1998, totaling over 32 million square feet leased. Consequently, the vacancy rate fell from 9.3 percent at 2013 year-end to 7.9 percent at 2014 year-end.





Leasing activity continues to be strong in 2015 though not at quite the pace of 2014.

Finally, tourism continues to fare well with the number of foreign and domestic visitors reaching 56.4 million in 2014, a 23 percent increase since 2009. All these positive gains in the economy bode well for the fiscal condition of the City. The FY 2016 Executive Budget and Financial Plan reflects the solid state of the current economy. The FY 2016 budget, totals $78.3 billion after a prepayment of $3.037 billion from FY 2015. This is more than the $2.006 billion that was rolled into FY 2015, indicating that the City is projected to generate an operating surplus in FY 2015.

The FY 2016 Executive Budget includes $2.1 billion of additional resources since the Preliminary Budget. The bulk of the resources are from a $1.46 billion increase to the roll-in from FY 2015. The roll-in was $1.58 billion in the Preliminary Budget. The remaining additional resources stem from a Citywide Savings Program of $465 million and increased tax revenue estimates of $185 million. These additional resources are used to support additional spending of $938 million, an increase of $250 million in the General Reserve, the establishment of a $500 million Capital Stabilization Reserve, and a $418 million downward revision in miscellaneous revenues mainly from delaying the planned auction of additional taxi medallions.

The current Citywide Savings Program represents a new approach to agency savings. Unlike past programs, where agencies were given specific reduction targets, the new program is voluntary with no specific reduction targets. The savings plan is expected to produce $2.9 billion of budget relief in FYs 2015 through 2019 and a combined $1.06 billion in budget relief for FYs 2015 and 2016. Debt service reductions account for $400 million or 38 percent of the savings. The other components include $125 million from additional revenues, $65 million from miscellaneous expenditures reduction and the ability to switch certain expenditures from City funds to State or Federal funds, and $56 million from a reduction to the City’s other than personal services (OTPS) inflator.

Agency spending reductions, across 31 agencies account for $409 million or 39 percent of the combined FYs 2015 and 2016 savings, the largest component of the Citywide v Savings Program. This savings represent 0.58 percent of agency City-funds expenditures.

Agency reductions from past programs had averaged 2.6 percent of agency City-funds budget.

The May 2015 Financial Plan projects budget gaps of $1.57 billion in FY 2017, $1.97 billion in FY 2018, and $2.88 billion in FY 2019. The cumulative gap of $6.42 billion over FYs 2017 through 2019 is $1.93 billion more than the cumulative gap in the February Plan. The increase in the gap can largely be attributed to the increases in reserves. Since the Preliminary Budget, the City has established the new Capital Stabilization Reserve of $500 million, planned a $280 million deposit in the Retiree Health Benefit Trust, and an increase of $250 million to the General Reserve in each of FYs 2016 through 2019, for a total of $1.78 billion in additional reserves. While the cumulative gap is higher than in the Preliminary Budget, it compares favorably with those of past Executive Financial Plans. It is the third lowest since the FY 2003 Executive Financial Plan and is significantly below the $10.3 billion average in Executive Financial Plans from FYs 2003 through 2015.

The Comptroller’s Office’s analysis of the FY 2015 Executive Budget and Financial Plan shows that the outyear gaps could be lower than projected in the Plan. The Comptroller’s Office projects a surplus of $422 million in FY 2016 and gaps of $716 million in FY 2017, $752 million in FY 2018, and $1.57 billion in FY 2019. The lower gaps result mainly from the Comptroller’s Office’s higher tax revenue forecasts, which are projected to exceed Plan projections by $594 million in FY 2016, $1.04 billion in FY 2017, $1.40 billion in FY 2018, and $1.49 billion in FY 2019. These higher tax revenues projections are partially offset by higher expenditure estimates of $172 million in FY 2016 and $180 million in each of the outyears of the Plan.

The City has added to its cushion against future downturns by increasing its General Reserve, depositing $280 million to the Retiree Health Benefits Trust (RHBT), and establishing a new $500 million Capital Reserve Fund. While the RHBT is not a true reserve — its purpose is to fund Other Postemployment Benefits (OPEB) liabilities — it has been used to provide budget relief in the past to avoid or mitigate cuts to essential services and layoffs. However, even with the increase in the RHBT, the General Reserve and the Capital Stabilization Reserve, the cushion against future downturns is still short compared to the reserves that were available entering the Great Recession.

–  –  –

II. The City’s Economic Outlook A. COMPTROLLER’S ECONOMIC FORECAST FOR NYC, 2015The Comptroller’s Office forecast anticipates continued moderate economic growth in the U.S. and in New York City during 2015. Although the national economy has now expanded for six consecutive years, there are no major imbalances that appear to pose significant recession risks and, with inflation running well below the Federal Reserve’s 2 percent target rate, the central bank has no motive to induce a slowdown.

The American economy has experienced several growth spurts since the recovery began in July, 2009, each time kindling hopes that a more vigorous pace of expansion would take hold. The most recent surge spanned the second and third quarters of 2014, when real gross domestic product (GDP) grew at the brisk annual pace of 4.8 percent.

However, the pace of growth tapered to 2.2 percent in the final quarter of the year and fell by 0.7 percent in the first quarter of 2015. Even though growth is expected to strengthen again in the spring, the winter setback makes it likely that GDP growth for the full year 2015 will again fall below 3.0 percent.

There are two principle reasons for GDP declining in the first quarter of the year.

The rapid appreciation of the dollar relative to most major trading partner currencies during the past year has made imported goods relatively cheaper, resulting in a sharp increase in imports in late 2014 and a drop in U.S. industrial production in the first quarter of 2015. Another explanation is the unusually harsh winter weather in the Northeast and Midwest. Those two factors can account for some of the decline in GDP growth but not for all of it. During this recovery first quarters of the year have been, on average, notably weaker than the others, suggesting that changes in the seasonal nature of business activity are occurring that may not be fully captured in the seasonality adjustments for GDP.

With at least some of the winter doldrums expected to be transitory, the Comptroller’s Office expects national economic growth to pick up in the second quarter and to remain fairly robust for the rest of the year. Year-over-year GDP growth is forecast at 2.6 percent. The nation is expected to add approximately 2.9 million new jobs, lowering the unemployment rate to 5.5 percent by the end of the year.

The Comptroller’s Office forecasts that moderate economic growth will continue through 2019. Although there are risks to the economy that could manifest in an economic recession during the Plan period, none of them are great enough to lower the long-term growth forecasts at this time.

During the first five years of the recovery, New York City’s economy grew at an average annual rate of about 2.8 percent, faster than the national economy’s growth of

2.2 percent. While that reflects the underlying resilience of the city’s economy and suggests an improving competitiveness in key business sectors, the Comptroller’s Office believes the growth rates will begin to converge. The long-run rate of national labor force growth is much higher than the city’s and, as the economic expansion lengthens, office leasing and other cost pressures will encourage more firms to spin off operations to lowercost locations.

The City’s economy generated a record-setting 120,000 new jobs in 2014 (on a year-over-year basis). With over 36,000 jobs added in retail trade, food service and home health care, job creation was again skewed toward low-wage sectors. In 2015 and subsequent years, the Comptroller’s Office expects that the overall pace of job creation will slow and the proportion accounted for by low-wage sectors will diminish, as servicesector employment must in the long-run stay in proportion to the “export” base jobs that stimulate income growth.

Table 5 shows the Comptroller’s and the Mayor’s forecast of five economic indicators for 2015 to 2019.

–  –  –

B. UNDERLYING FACTORS AFFECTING THE FORECAST



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