New York City will end fiscal 2017 with a $4 billion surplus – about $310 million more than what Mayor Bill de Blasio’s administration forecast – according to the watchdog Independent Budget Office.
“We assume that surpluses are used to prepay some succeeding year expenses, leaving 2017 and 2018 with a balanced budget,” IBO said in a report it released on Monday.
De Blasio is up for re-election this year. His $84.9 billion executive budget is before the 51-member City Council, which must act on it by June 30. The plan is fractionally higher than the $84.7 billion preliminary budget he proposed in January.
According to IBO, a surplus of $943 million estimated for fiscal 2018 will reduce the 2019 gap to $1.9 billion. Additionally, IBO’s forecasts of revenue and expenditures in 2020 and 2021 will reduce the budget gaps in those years to $2.2 billion and $1.3 billion, respectively.
The administration, in the face of a slowing economy and fiscal policy threats from Washington, has identified $700 million in additional resources for 2017 and 2018 that it would use to fund a variety of programs while maintaining reserve levels.
“Although the budget includes a handful of big-ticket initiatives, they would require relatively little in the way of additional spending over the next few years,” said IBO.
Moody’s Investors Service rates the city’s general obligation bonds Aa2, while S&P Global Ratings and Fitch Ratings rate them AA. All three assign stable outlooks.
The city has $37.8 billion of general obligation debt as of Sept. 30, 2016.
IBO said debt service and fringe-benefit costs are major drivers of overall expenditure growth, rising by 7.3% and 6.3%, respectively, on average annually from 2017 through 2021.
“Big-ticket initiatives such as the initial steps to shift prisoners from Rikers Island to new facilities spread around the city, and an investment to deepen the affordability levels in the mayor’s housing program are part of the capital plan, so that their impact on the expense budget will come later in the form of debt service,” said the report.
Adjusting for prepayment of debt-service costs with prior-year revenues, IBO estimates that city debt-service expenses will increase from $6.4 billion in 201, or 7.5% of total adjusted city expenses, to $6.6 billion in 2018, up 3.2%.
“By 2021 we estimate debt service costs will total $8.4 billion [8.8%]. IBO expects adjusted debt-service costs will increase at an average rate of 7% from 2017 through 2021,” said the report.