While praising New York City for closing a $4.6 billion fiscal 2013 budget gap and narrowing its gap for the following year to $2.5 billion with reserves and other one-shot measures, New York State Comptroller Thomas DiNapoli warned Monday that debt service costs are rising and reserve funds to balance future budgets are limited.
“New York City is in better fiscal shape than many cities because it has managed its finances well, but challenges remain,” DiNapoli said in his review. Challenges, he said, include a high unemployment rate, federal budget uncertainty and ongoing Wall Street fallout from the financial crisis.
“Recovery remains vulnerable. Many economists believe that the combination of higher federal taxes and spending cuts, which are scheduled to take effect in January 2013, could bring about a severe fiscal shock that could send the national economy into a new recession,” he added.
The city passed its $68.5 billion spending plan on June 28.
The city plans to use most of the fiscal 2012 surplus — $2.4 billion — to balance the fiscal 2013 budget, along with $1 billion from the retiree health benefits trust. These funds had been set aside during the last economic expansion to help pay the future cost of retirees’ health insurance. By 2014, the city will have redirected all of the funds, totaling $3.1 billion, to help balance the budget.
DiNapoli identified the sale of taxi medallions, still the subject of litigation, as the largest budget risk for 2013.
Debt service is expected to spike from $5.1 billion in fiscal 2012 to $7.3 billion by fiscal 2016, a more than 40% increase, according to DiNapoli. The city also has yet to reach new labor agreements with the unions that represent its employees.
Most of the agreements expired in 2009 and 2010. The city’s financial plan assumes a three-year wage freeze followed by annual wage increases of 1.25%.
Moody’s Investors Service rates the city’s general obligation bonds Aa2, while Fitch Ratings and Standard & Poor’s each assign equivalent AA ratings.