Comptroller Stringer Executive FY 2017 Budget Analysis Identifies Additional Financial Risks; City Faces Larger Projected Budget Gaps

(New York, NY) – An analysis released today by New York City Comptroller Scott M. Stringer of the City’s Executive Fiscal Year 2017 Budget and Financial Plan for Fiscal Years 2016-2020 anticipates higher projected tax revenues but growing out-year budget gaps. With a projected $3.8 billion budget gap in FY 2019 and signs of a potential economic slowdown, Comptroller Stringer emphasized the importance of building up the City’s budget reserves and finding savings in his testimony before the City Council Committee on Finance’s hearing on the Fiscal Year 2017 Executive Budget.

“Slow but steady economic growth has produced additional funds for the City budget, but signs of a potential slowdown are on the horizon,” Comptroller Stringer said. “Larger projected out-year budget gaps emphasize the need for the City to manage its resources efficiently so that vital services can be protected in the event of an economic downturn.”

The new report analyzes the Administration’s revenue and spending assumptions for FY 2016-2020 and identifies risks and offsets to the financial plan. Key findings from the report are highlighted below.

Economic and Tax Assumptions

• From FY 2016 to FY 2020, Comptroller Stringer expects economically sensitive taxes, including personal and corporate income taxes and real estate transaction taxes, to grow more slowly than the City’s property tax. The Comptroller’s analysis shows higher collections of property and personal income taxes than assumed in the Executive Budget, but lower business tax collections.
• While strong job growth has continued, nearly half of the record new jobs created in the first quarter of 2016 were in low-wage sectors, continuing a years-long trend. Not only do these jobs not provide enough to make a decent living, wage growth in these sectors has not kept pace with the cost of living.

Growing Gaps

• The Comptroller’s office forecasts the City’s budget gaps will be $3.3 billion in FY 2018, $3.8 billion in FY 2019, and $3.1 billion in FY 2020.
• These gaps are larger than the Administration’s forecast and are based on identified net risks of nearly $607 million in FY 2018, $863 million in FY 2019, and $789 million in FY 2020 due in part to larger City contributions to NYC Health + Hospitals (NYC H+H), higher overtime costs, higher shelter operation expenses and lower Medicaid reimbursements for the Department of Education.

Need for Greater Resources to Bolster the Budgetary Cushion

• While there is no indication of a near-term recession, the Comptroller’s analysis found some signs of an economic slowdown. Profits on Wall Street fell 10.5 percent last year, and in the first quarter of this year both venture capital investment and commercial real estate leasing activity were down. This economic data comes on the heels of a Comptroller’s Office analysis last August which found that the City’s budget cushion fell short of the target range needed to weather the next big economic downturn or crisis without making cuts to services and layoffs.
• However, the Administration has only committed to growing the Retiree Health Benefits Trust by $250 million in FY 2016. While the cushion can only be measured at the end of the fiscal year, without additional action, this contribution will not be enough to make progress on bringing the City into the optimal budget cushion range of 12 to 18 percent of adjusted operating expenses.

Modest Efficiency Gains

• The Executive Budget expands upon a savings plan introduced in the January Preliminary Budget. Savings over FYs 2016 and 2017 total $2.3 billion, but the plan depends largely on items that would have occurred even in the absence of a savings plan, such as baseline re-estimates and spending and hiring delays.
• Over the next two years, only 25 percent of the savings are to be derived from City agency actions and even less from true efficiencies and productivity such as using technology more effectively and eliminating obsolete programs.

Significant Risks from Public Hospital System

• The Administration has pledged an additional $497 million in cash and other assistance over the course of the current year to NYC Health + Hospitals (H+H), plus $735 million in additional assistance over the next four years.
• Returning NYC H+H to financial health and reducing the City’s subsidies will require securing additional state and federal revenues, increasing patient market share, and implementing efficiencies. Such strategies have previously proved challenging.
• Total risks to the City’s financial plan from NYC H+H are $365 million in FY 2017, growing to $515 million in FY 2020.

Homeless Services Spending Continues to Grow

• In FY 2017, the City is projected to spend $1.9 billion through three separate agencies on homeless services. For the current fiscal year to date, the average shelter census has exceeded 57,400 per day.
• Spending on shelter operations and homelessness is projected to grow 61 percent from FY 2014 to 2017. High growth results primarily from new resources dedicated to rental assistance and prevention and aftercare services.
• The Executive Budget includes additional funds for shelters and security that would bring estimates in line with the current shelter population level. However, because a significant portion of these funds were not included in future years, the Comptroller projects a risk of $130 million annually beginning in FY 2018.

Overtime Continues to be Under-Budgeted

• Given current trends, overtime costs will be about $302 million higher than the Administration’s forecast in FY 2017 and $250 million in each year of the financial plan. In the current year the City is on track to exceed budgeted overtime expenses by $96 million, despite increases in uniformed headcount.
• The City is also on track to exceed the stated spending level on Police Department uniformed overtime by $58 million. The Administration and City Council entered into an agreement last year to cap overtime to partially fund the hiring of 1,300 new police officers.

Hiring Trails the Administration’s Forecast for Headcount

• Full-time headcount is projected to be 294,009 by the end of FY 2016. However, as of March 31, 2016, three-quarters into the fiscal year, headcount has increased by only 7,820, about 46 percent of the planned increase.
• Headcount at some agencies has actually fallen despite planned increases, including civilians at the Police Department, the Administration for Children’s Services, and the Department of Social Services (Human Resources Administration).
• However, some agencies have already exceeded their year-end headcount targets. As of the end of March, the Department of Education has already exceeded its pedagogical year-end target, and the Police and Sanitation Departments have exceeded their uniformed year-end targets.

Large Increase in Capital Commitments

• The Executive Budget increased the Capital Commitment Plan for FY 2016 to FY 2019 by $4.8 billion, or 9.2 percent, since the plan released in January.
• The current five-year Capital Commitment Plan for FY 2016 to FY 2020 now totals $67 billion, 17 percent larger than the five-year plan released with last year’s Executive Budget.

“The City has taken steps to address our homeless crisis and provide additional assistance to our public hospital system, but risks remain over the course of the financial plan. The Administration’s commitment to building reserves is good for taxpayers, but more can be done to identify agency savings while preserving vital programs and services. I look forward to working with the Mayor and the Council on these important priorities for our City,” Stringer said.

To read the Comptroller’s full analysis of the Mayor’s FY 2017 Executive Budget and FY 2016 to 2020 Financial Plan please click here.

To read the Comptroller’s testimony, please click here.

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