The record-breaking pace of job growth in New York City is slowing, a trend that could affect the city's budget and finances, officials said.
Independent Budget Office Director Ronnie Lowenstein and City Comptroller Scott Stringer testified Thursday before the City Council as it held hearings on Mayor Bill de Blasio's $84.7 billion preliminary fiscal 2018 budget and $89.6 billion 10-year capital program. The city charter requires submittal of a capital plan every two years.
"After a period of really, really strong growth, the city's economy has slowed," Lowenstein said in testimony to the City Council's Finance Committee. "Just two years ago New York City added a record breaking 136,000 jobs as measured on a cumulative basis over the year. Now in the year that just ended, we wound up with just half of that.
"Now 70,000 jobs is nothing to sneeze at, but compared to the record-breaking numbers that we were seeing, it's obviously disappointing," she said.
Lowenstein said IBO expects employment growth to continue to slow, with job gains of about 61,000 this year and 55,000 in 2018.
"The good news is, in terms of job growth, the current expansion will go on record as one of the strongest in recent history," Stringer said, while stressing that not all New Yorkers were benefitting from the growth in employment.
"We've added the most jobs in the sectors with the lowest wages, such as retail, bars and restaurants, and healthcare – and these sectors have seen little or no growth in their earnings after adjusting for inflation," he said. "In contrast, sectors such as information, finance, and professional services, which pay four times as much, have added one-third as many jobs, and have seen wage increases that outpace inflation, often substantially."
Lowenstein testified that slower economic growth will be reflected in tax revenues. "In fiscal years 2014 and 2015 we were enjoying rates of tax revenue growth in the order of 6% and 7.5%, which was very strong and then last fiscal year that growth rate slowed down to 3.6% -- so going from 7.5% to 3.6%," she said. "And we are forecasting tax revenues will increase less than 3% in the current fiscal year and perhaps slightly stronger the next year."
After the council's hearings on the preliminary proposal, the mayor will present a revised executive budget in April. By law, the 51-member Council must vote on it by July 1, when the new fiscal year starts.
The fiscal 2018 preliminary budget estimates the city will sell $37.6 billion of long-term debt between fiscal 2017 and 2021 to pay for the capital plan.
"The city's debt issuance remains well below the city's constitutional debt limit of $90.2 billion, with the margin between debt service and debt outstanding the highest it has been in a decade," said a briefing paper from the council's finance division. "The debt limit is forecast to grow sufficiently to accommodate new borrowing in the capital financing plan."
Moody's Investors Service rates the city's general obligation bonds Aa2, while S&P Global Ratings and Fitch Ratings each assign AA. All three assign stable outlooks.
At the end of fiscal 2016, city debt outstanding stood at $112 billion.
Last year's fiscal 2017 budget was finished a month ahead of schedule.
IBO said it expects economic growth to rise to 2.4% in calendar 2017 and 2.6% in 2018 from the 1.6% real GDP growth in 2016, its slowest gain in five years. Consumer spending and growth in real wages are seen as driving the increase.
"Our forecast also assumes that the Federal Reserve successfully navigates the monetary policy challenge of gradually raising interest rates without cutting off the current expansion which is now in its eighth year," IBO said in written commentary.
Stringer saw a slowing economic backdrop.
"As we look ahead to our forecast of the city's economy over the financial plan period, my office expects the economic expansion to continue, but the rate of that growth will continue to slow down, as it has in the last two quarters," he testified. "The rate of job creation will be lower than the record levels of the last several years."
Uncertainty over federal government intentions hovers over the entire budget process.
"For now we have made few adjustments to our forecasts to account for potential adjustments to fiscal and monetary policy that may result from changes enacted by President Trump and the Republican-led Congress," IBO said. "There is little clarity on the timing and specifics of potential changes to tax policy, health care, trade, immigration, infrastructure investment, and other federal spending priorities."
While the city faces several risks to its budget estimates, Stringer said the most dangerous one comes from Washington.
"The biggest risk of all that confronts us is the federal budget," Stringer testified. "We've heard this week that the president could propose cutting federal non-defense discretionary spending by about 9%. That's equal to blowing a $670 million hole in the city budget."
He said that the city must prepare for anything.
"We will not know what the federal budget looks like until later this year, so there is no way to quantify the risk quite yet," he said. "But that does not mean we should not prepare, because we all know it's coming. And I am concerned that we are not as ready as we need to be."
Stringer said the mayor's budget contains several new initiatives he supports including hiring school crossing guards, protecting police officers, providing better Internet access at schools and investing in public housing.
"These are all important priorities," he said. "But … I am concerned that, in the face of the threat of federal budget cuts and a slowing economy, we need to do more to prepare for the possibility of challenging times ahead."
Stringer cited two areas in this budget that need scrutiny.
"The mayor continues to ignore the legislation enacted in last year's state budget that reduced city sales tax revenues by $600 million over three years, related to the 2014 refinancing of so-called STAR-C [Sales Tax Asset Receivable Corp.] bonds," he said. "Although he recognized $200 million of this 'intercept' so far, the remaining $400 million must be considered at risk."
Stringer also said he believes the city is unlikely to see any revenue from taxi medallion sales -- postponed for four straight years -- that the budget assumes.
"Given the disruption in the yellow taxi industry from for-hire car service companies, these sales – worth a total of $731 million – are unlikely to occur over the period of the plan," he said.
"Let me be clear on this," Stringer said. "It's not going to happen, so let's assume the risk and move on. It's not a good way to budget when you put things in that you know are not going to happen."
