The New York State Financial Control Board on Wednesday said that New York City’s finances are in good shape and that the city’s doesn’t need a resumption of state control.
The control board, which was created by the state legislature during the city’s financial crises, voted unanimously to remain in sunset mode. What that means is that the board has no approval authority, but rather acts as a fiscal monitor. The board issues quarterly reports on the city's financial plan and board members meet with the mayor and the governor's office on a regular basis.
From 1975 to 1986, the board had control over the city's financial plan, plan modifications, bond issuance and large contracts. These powers were sunset in 1986. By law, the board can re-activate its controls if it finds such budgetary red flags, like an operating deficit of more than $100 million or a default on bonds or notes.
Among those attending Wednesday’s meeting in Manhattan were New York City Mayor Bill De Blasio, New York City Comptroller Scott Stringer, New York State Comptroller Thomas DiNapoli, NYS Budget Director Robert Mujica, NYC First Deputy Mayor Anthony Shorris, NYC OMB Director Dean Fuleihan, NYC Deputy Comptroller Preston Niblack and the control board’s acting director Jeffrey Sommer.
The board said that a review of the city’s Fiscal Years 2018-2021 financial plans and adopted FY18 budget “shows that the city continues to follow a successful strategy of conservative revenue estimates and large reserve to ensure budget balance.”
It favorably cited the city’s $4.2 billion budget surplus, which was used to prepay fiscal 2018 expenses.
“The surplus was mainly built on higher revenues, the takedown of unnecessary reserves and the quarterly implementation of agency savings programs,” according to the board.
De Blasio said the city is economically strong and fiscally stable.
“From the beginning, we’ve had a clear commitment to honest and responsible management of the city’s finances. I have said many times that we can’t achieve our goals related to a more equitable and inclusive city if we don’t first take care of our fiscal reality. And I know our colleagues on the city council have shared that view,” de Blasio said.
He told the meeting that the adopted fiscal 2018 budget is $85.24 billion while the 10-year capital strategy is $95.85 billion, adding that both the FY 17 and FY budgets are balanced.
“And in a very positive sign on the state of decision-making here in the city, the adopted budget was the earliest achieved in a quarter century,” de Blasio said. “Pointing to a greater consensus between the mayor’s office and the city council in terms of the core principles that we want to act on in our budget process.”
De Blasio also said the city’s economy was now less reliant on Wall Street than in the past.
“Our economy today is so different, so much more diverse. And our economy is increasingly less reliant on Wall Street as a financial industry, which now accounts for 18.1% of the city’s wages down from over 25% before the recession,” he said.
Stringer said there was deep uncertainty surrounding policies coming from Washington.
“The good news is, despite these challenges at the national level, New York City’s economy is strong. My office recently put out a report that found payroll employment in the city is 14% higher than before the recession in 2008. That’s more than half a million additional people working in New York City,” Stringer said.
Stringer said there was also good news on the pension front as well.
“Based on our preliminary estimate, our pension funds produced returns of 12.95% in FY2017, significantly above our actuarial target of 7%,” he said. “Working together with the mayor and the boards of our city employee retirement systems, we have achieved a compound rate of return of 7.4% over the last four fiscal years, slightly above our long-term expected return of 7%. My office projects that last year’s performance will reduce pension contributions by more than $800 million over the financial plan period. While this is certainly good news, we should remember that our investment focus remains on the long term and the markets may be more challenging in the coming year.”
Despite the favorable look for the city, DiNapoli said a number of trends bear close watching.
“For example, tax collections have slowed,” DiNapoli said. “Last year collections slowed to an estimated growth rate of 1.8%, with non-property taxes declining for the first time since FY10.”
He added that job creation has slowed as the labor market has tightened.
“The city is on pace to add 70,000 jobs in 2017, compared with 86,000 last year and an average of 128,000 in each of the two prior years,” he said.
He said that the city’s June plan assumes the expansion will continue without interruption.
“With each passing year, however, the likelihood of an economic setback grows because changes in the business cycle are inevitable,” DiNapoli said.
He added that changes in federal fiscal policies present the greatest and most imminent risk to the city’s financial outlook.
The control board expressed its concern about what federal policies could do to health-care costs and the city’s Health + Hospitals unit as well as to the local economy.
“While the known risks are historically minor, the great unknown risk of what actions may be taken by the federal government is still of concern,” the board said. “What, if any, changes due to healthcare reform, tax reform or just federal budget cuts could affect the city’s financial plan are unknown. Medicaid reductions would affect the city directly as well as Health + Hospitals. Removing tax deductions for state and local taxes would affect the local economy.”
The board said the city was wise in continuing to forecast conservatively, building up large surpluses and implementing agency savings programs.
De Blasio said the rating agencies are taking note of the city’s bolstering of its reserves.
“We’ve achieved the highest level of general reserves of any administration in the city’s history -- $1.2 billion in FY 18 alone and $1 billion annually in FY 19-21 compared to the traditional level of $300 million,” de Blasio said. Total reserves for FY 18 now stand at $5.65 billion, he said. the highest ever achieved in city history.
Moody's Investors Service rates the city's general obligation bonds Aa2, while S&P Global Ratings and Fitch Ratings assign AA ratings to the city’s GOs. All three agencies maintain stable outlooks on the credit.