Comptroller Stringer: City Has Made Progress, But Needs At Least $1.2 Billion More Toward Budgetary Cushion To Protect Fiscal Health

(New York, NY) – On Tuesday, New York City Comptroller Scott M. Stringer released a new report illustrating the need to capitalize on the City’s progress in building a budgetary cushion to have in case of an economic downturn. Stringer, who will present this new report as part of his testimony at the annual Financial Control Board meeting to be held today in Midtown Manhattan, used historical data from the past two recessions to show why the City should continue the progress made by the de Blasio administration in putting put additional funds into reserve.

“Mayor de Blasio has proactively increased the size of the City’s fiscal cushion, which is smart budgetary policy,” Comptroller Stringer said. “However, our analysis shows that we still haven’t restored the level of available resources we had before the recession. In fact, we’re at least $1.2 billion short of what we should have on hand to be truly prepared for an economic downturn.”

The Comptroller’s report examines the historical strength of the City’s financial position by measuring the size of the budgetary cushion. The cushion allows the City to cover unexpected revenue shortfalls, or expenditure needs, with a minimum of disruption to services. Because the City is required to balance its operating budget according to Generally Accepted Accounting Principles (GAAP), it is prohibited from using prior-year surpluses in any future years.

As a result, the City has developed several techniques to use resources to provide current and future budgetary relief, including rolling over prior-year resources through debt service pre-payments, utilizing the Retiree Health Benefits Trust (RHBT) and increasing the size of the General Reserve.

The Comptroller’s Office has developed a new measure of the cushion, Prior-year Accumulated Resources and Reserves (PARR). PARR is comprised of funds available for current and future budget relief. The advantage of PARR as a measure is that it gives a more comprehensive picture of the various sources of the prior-year funds utilized for balancing the current and out-year budgets.

PARR includes:

• Resources used to prepay debt service and subsidies – known as “the roll”;
• The General Reserve at the beginning of the year – a contingency reserve that serves to increase the roll at the end of the fiscal year;
• The Retiree Health Benefits Trust – the Trust dedicated to already-earned future health insurance costs of City retirees;
• Bond defeasance – paying off the City’s debt, which reduces the cost of out-year debt service; and
• The Capital Stabilization Reserve – funds that can be used for non-capital eligible project costs or to prepay debt service or defease bonds.

PARR has ranged from a low of 2 percent -of the adjusted operating budget in FY 2003 to a high of 17.4 percent in 2009. Based on the guidelines of rating agencies and historical experience over the past two recessions, the Comptroller’s Office has determined that the appropriate PARR is 12 to 18 percent of the City’s adjusted operating budget.

As of the start of FY 2016, the City’s PARR was $8.5 billion, 10.5 percent of the adjusted operating budget, which puts the City $1.2 billion short of the bottom of the desired range. The FY 2016 PARR is comprised of:

• A $3.55 billion roll committed for FY16 expenditures;
• $3.3 billion in the RHBT;
• $1 billion in the General Reserve;
• A new $500 million Capital Stabilization Reserve; and
• $103 million from bond defeasance.

“In many ways, the City has recovered from the recession – we’ve gained back more jobs and collected more tax revenues than we had before the downturn. But one way in which we haven’t fully recovered is in replenishing our budgetary cushion. We must work together to repair our City’s fiscal roof while the sun is still shining,” Stringer said.

To read the full report, click here.

To read Comptroller Stringer’s testimony, click here.

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