New York City's enacted $59.59 billion fiscal 2010 budget is balanced but options to close projected multibillion gaps in the future have narrowed, according to reports released ahead of a meeting of the city's control board yesterday.
The New York State Financial Control Board held its annual meeting yesterday in Manhattan with Gov. David Paterson, Mayor Michael Bloomberg, state Comptroller Thomas DiNapoli and city Comptroller William Thompson Jr.
"We are still in throes of a very profound economic downturn a crisis of finance and a crisis of credit," Paterson said. "We're going to have to limit spending ... we're going to have to stay the course, as we have to get out of this."
The city faces a $4.93 billion gap next year, which rises to $5.63 billion in fiscal 2013. A slumping economy is taking a bite out of revenue while growing costs for wages, pensions, health coverage and debt service are driving the deficits, the control board report said.
The city relied on a combination of tax increases, budget cuts and federal stimulus funds to balance the current year budget. Conservative budgeting and windfalls from the credit bubble created surpluses that have helped the city weather the current downturn, but those will soon be used up.
"With no prior-year surpluses left to be used, the city, as it has successfully done over the last two years, should develop actions that, while not needed to balance the budget in fiscal 2010, can be used to start to deal with the large fiscal 2011 problem," the report said.
"The current economic downturn is not likely to end quickly or painlessly," Bloomberg said in prepared testimony. "But the city entered this recession at a higher point than we've ever been and better positioned than ever to ride out the storm."
While employment in the city has contracted by 2.9% over the past 12 months and the financial services industry has been hit hard, other sectors are performing better than expected and the labor force is growing faster in New York City than elsewhere in the country, the mayor said.
"Even though the financial markets remain stressed, they have shown some signs of recovery since late 2008," he said. The city's real estate market, however, continues to slide, he added.
Thompson said that tax revenues "have evaporated," with personal income tax collections expected to be approximately $3 billion less in fiscal 2010 than they were two years ago. Baseline revenues are expected to be $1.56 billion less than they were last year, he said.
"So far the city has been very proactive in making budget adjustments to deal with the downturn," said Moody's Investors Service analyst Nicholas Samuels. "Clearly significant challenges lay ahead for the city. The surplus to roll forward to help balance the future year budget gaps won't be there, so enacting structural changes that will help the budget becomes even more important and that extends into some of the most quickly growing cost-drivers for the city, like pensions and retiree health care and other labor costs."
With revenue falling and debt service rising, the city cut back its four-year capital plan and then cut its 10-year capital strategy by $22 billion. Even with cutbacks, annual debt service is projected to grow from $4,791 per capita in the current fiscal year to $6,530 by fiscal 2013 - an annual growth rate of 10.9% compared to a 5.9% annual growth rate for tax revenue.
The Financial Control Board pointed out that the 10-year strategy, which is revised every two years, is at about the same level as it was before the credit bubble caused spikes in both revenue and projected spending. The 2010 10-year capital strategy envisions $61.7 billion of capital spending, roughly the same as the $62.4 billion in fiscal 2006. The spike was in 2008, when the city was reaping record revenues and projected $83.7 billion of capital spending over ten years.
With the reduction in capital spending came a reduction in projected borrowing.
The 10-year capital strategy relies on $32.5 billion of general obligation bonds, a $13.3 billion reduction from fiscal 2008's strategy. The New York City Municipal Water Finance Authority would also use fewer bonds for its capital program, cutting issuance in the fiscal 2010 strategy to $12.8 billion, a $6.6 billion drop over the previous strategy.
The one area of projected increase in bonding is the expected use of $1.7 billion of aualified school construction bonds or qualified zone academy bonds.