New York City’s economic rebound has surprised many, but don’t start kicking your legs out and spreading the news just yet.
That’s the message from the city’s Independent Budget Office, which says Mayor Michael Bloomberg’s proposed budget for fiscal 2012 sidesteps key political issues that could result in further cutbacks.
The IBO projects a $2.9 billion surplus in the current fiscal year ending June 30. Although that forecast is $258 million below the administration’s projection, the city watchdog calls New York’s fiscal condition “comparatively good” as other city halls are awash in red ink.
The assumed surplus results from three main causes: higher tax revenue than originally forecast, a delay in changing how pension contributions are calculated, and nearly $600 million of agency initiatives to reduce spending and increase revenue.
More good news: the city has regained nearly half of the 131,700 private-sector jobs lost during the downturn and the IBO expects to see another 73,200 jobs created in the 12-month period that began in the fourth quarter of 2010.
But the IBO warned about becoming complacent. Its analysis of the mayor’s preliminary budget for 2012 and financial plan through 2015 found that projected expenditures begin to overtake revenues in 2012 and will lead to a $3.9 billion deficit in 2013.
Bloomberg’s 2012 budget counts on $400 million in direct state aid — though it isn’t in Gov. Andrew Cuomo’s spending plan — and he presumes legislative action by Albany to save the city $200 million by cutting variable supplement fund benefits for future police and firefighter retirees.
“Without this help from the state the mayor says further cuts by the city will be necessary,” the IBO reports in its 60-page analysis published Friday. It called new aid from Albany “far from certain” given the state’s $10 billion shortfall this year.
Without the aid, the city will have to make additional cuts beyond the $5.2 billion of gap-closing measures projected for 2012, the IBO said.
Bloomberg also doesn’t account for a number of proposed aid reductions, the office added. These include a potential $140 million cut for the Advantage rental subsidy program, which would “almost certainly” require the city to spend more on shelter programs.
The 2013 picture is murkier. Total spending is expected to rise a cumulative 9.92% to $72.2 billion that year from $65.7 billion this year, while revenues are anticipated to climb only 3.92% to $68.2 billion from the same starting point.
The trend of upward outlays occurs despite relatively flat spending by city agencies as fixed pension and health care benefits for city workers need to be paid.
Debt service as a percentage of revenue remains a problem too. The $4.7 billion of interest payments in 2011 equals 7.1% of all revenue. Over the next five years the IBO projects the average annual growth of debt-service payments to rise 9.5% — one of the fastest growing expenditures in the budget — so that by 2015 interest payments will equal 10% of all revenue.
Tax revenues could also come in short of expectations under the new regulatory environment. Wall Street profitability and executive compensation could diminish as banks grapple with the Dodd-Frank bill, and national health care reform could hinder the long-term growth of a sector that plays a significant role in the city, according to the IBO.
Moreover, while the labor market continues to improve, the latest unemployment figure was a less-than-inspiring 8.9%. More layoffs in the public sector, particularly among teachers and child care workers, will make trimming that figure a slow process.
But future uncertainties shouldn’t undermine the present reality: the city’s fiscal health is “stronger at the moment than that of many states or municipalities,” the IBO concludes.
It will publish a companion piece on budget options for New York City in the coming weeks.
