New York City's tax revenues will fall by nearly $2 billion in the next fiscal year as the city sheds a net 59,400 jobs and the local economy slips into recession, according to a report by the New York City Independent Budget Office.
"While we expect the city to enter the recession later than the rest of the country, the local downturn is expected to be longer, with recovery not occurring until the second half of 2009," the report stated.
Despite taking a revenue hit - the IBO projects tax revenues to fall to $35.8 billion from $37.7 billion - the city will not have budget shortfalls in fiscal 2009 and fiscal 2010, the report said. The IBO attributed this to the use of an estimated $4.6 billion budget surplus to close shortfalls over the next three years, $1 billion of annual spending cuts, the early retirement of debt, and its own projection for tax revenues in fiscal 2010 that were higher than the city's.
The report, which is required by statute to analyze the mayor's executive budget, paints a somewhat brighter picture of the city's financial outlook than did Mayor Michael Bloomberg in his presentation of a $59.1 billion budget earlier this month.
IBO tax revenue estimates are slightly higher over the next two years than the city's, but in 2010 the IBO's estimate was $1.2 billion higher than the city's. The IBO projects "virtually no personal income growth" for calendar 2008 and 2009. While all taxes except for property and hotel taxes are expected to decline in fiscal 2009, foreign tourists taking advantage of the weak dollar will make a drop in sales tax much milder than it would'nt have been otherwise, the report said.
For Fitch Ratings analyst Douglas Offerman, the city's more conservative revenue forecasts have been a credit positive.
"Obviously the economy is softening - that's certainly, in the city, an important factor as Wall Street starts to see significant job losses, and as the risk rises that the city's personal income tax base will be affected by that, and so the conservative budgeting is particularly important," Offerman said.
The financial services industry will be the "epicenter of the local downturn" losing 33,300 jobs of which 17,300 will come from the securities sector, according to the report. Despite announced layoffs at some large firms, employment growth in New York City in 2008 has slowed, but remains positive. Private sector employment gained 35,000 jobs in April compared to 12 months earlier. Securities industry employment dropped in all but one month since last August when turmoil in the credit markets began, though it is still slightly higher than a year ago, according to the IBO.
The IBO said city-funded spending will grow by 4.8% under the mayor's budget, not the 0.1% spending growth announced by Bloomberg earlier this month. IBO spokesman Doug Turetsky said its funding estimate includes money used to pre-pay debt service, debt service on New York City Transitional Finance Authority debt, and certain discretionary fund transfers that the mayor's budget does not.
Last year, Bloomberg's budget called for retiring about $700 million of general obligation debt, but this year the city plans to instead prepay $1.32 billion into a budget stabilization account to pay future debt service on general obligation debt.
Office of Management and Budget spokesman Raymond Orlando declined to comment on the report.
City Comptroller William Thompson's office, which has its own report on the budget due out next week, declined to comment on the report. Thompson is scheduled to testify on the budget on May 30.