N.Y.C. Should Build Surplus to Fill Looming Gap: Board

New York City should start to build a surplus for fiscal 2012 close to the level just achieved, to deal with a projected $4.6 billion gap in 2013, according to New York State’s Financial Control Board.

“With the uncertainty in the economy and the likelihood of further federal and state requirements, the city’s ability to avoid contentious expenditure reductions will be tested,” the board said Thursday in a staff report.

Fiscal 2012 for New York City began July 1. The city used $3.7 billion of surplus cuts to help balance the budget as it faces a decrease in state and federal aid. It was able to avoid thousands of teacher layoffs and the closing of fire stations.

An increase in teacher retirements, union concessions, and further spending cuts within the Department of Education helped offset the potential layoffs. Earlier this year, Mayor Michael Bloomberg proposed cutting 4,000 teaching jobs.

The city has projected higher expenses this year, anticipating a return to the high historical levels in Medicaid after the phase-out of federal stimulus money. “Growth in pensions and fringe benefits, including health care costs, as well as the escalating cost of debt service … continue to drive the increase in expenditures,” the control board said.

As a positive, the board cited the increase in city-fund revenue by $1.9 billion to $46.5 billion, because of stronger tax collections and miscellaneous revenues. “However, this growth is insufficient to cancel out the financial stresses resulting from the depth of the recession and three years of revenue declines or stagnant growth for the non-property taxes.”

Without the availability of any surplus budget resources beyond fiscal 2012, budget gaps for the next three years are projected at $4.6 billion, $4.8 billion, and $4.9 billion, respectively.

The state Legislature created the control board in 1975 at the height of the city’s financial crisis. Among other requirements, the city must submit a “rolling” four-year financial plan to the board before the start of each city fiscal year, and modify it if necessary.

All three major credit agencies have rated the city’s general obligation bonds double-A.

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