Mayor's '05 Plan Contains Nearly $1 Billion in Risks

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New York City Comptroller William C. Thompson, Jr. today released his charter-mandated report on the Mayor's Preliminary Budget for Fiscal Year 2005, noting that "while the City's finances appear to have weathered the storm, our recovery is fragile."

Thompson noted that the City has made significant strides to overcome the City's economic difficulties over the last two years

"Two years ago, the City faced a $6.7 billion budget deficit," Thompson said. "Fortunately, the City took the actions necessary to balance a budget battered by recession and the destruction of the World Trade Center . While the City's finances appear to have weathered the storm, our recovery is fragile."

The Comptroller pointed out that the outlook for New York City 's economy in 2005 is less promising than the nation's. In 2003, the City's rate of unemployment - at 8.3 percent - was the highest of the 20 largest metropolitan areas in the nation. I n the last three years, the City lost more than 230,000 jobs. Furthermore, the cost of living in New York is accelerating rapidly: The New York City metro area's inflation rate rose 24 percent in the last year, from 2.5 percent in 2002 to 3.1 percent in 2003.

"Economic indicators demonstrate that many New Yorkers are struggling," Thompson said. "Prosperity may be returning to some sectors of the economy, most notably Wall Street and tourism; however, other sectors, including manufacturing and information, have not recovered. As such, many New Yorkers have not benefited from this upturn."

In his analysis of the Mayor's $45.7 billion plan, Comptroller Thompson identified $939 million in risks, indicating that the FY 2005 budget could swell to $46.6 billion.

Thompson projects that the budget underestimates the amount the City will likely spend on overtime pay by $217 million for FY 2005. Yet, the Comptroller cautioned that the City's workforce reduction could cause overtime costs to swell.

"Overtime spending increases in periods of headcount reduction," he said. "The City must be careful that the savings it gains from headcount reductions are not negated by resultant increases in overtime spending. Sound management dictates that any headcount initiative must take into account the implications for overtime expenditures."

Among the other risks cited by the Comptroller:

• The City has assumed $400 million in aid from the state in its gap-closing program. The Comptroller's office projects $200 million of that amount is at risk, mostly because of shortfalls in Medicaid savings and education aid due to shortcomings contained in the Governor's Executive Budget. Until the State passes its budget, the City's assumptions of additional State assistance will remain an element of risk in its financial plan assumptions.
• The City maintains that it will be relieved of $490 million in Municipal Assistance Corporation debt service. While there are currently two proposals with different mechanisms for providing MAC debt relief, it is uncertain if either will materialize.
• The City assumes that the Metropolitan Transportation Authority will take over private bus operations, relieving the City of $145 million in subsidies. However, that action also remains in question.
• The preliminary budget does not provide for wage increases for City employees in Fiscal Years 2005 through 2008. In its collective bargaining negotiations with labor representatives, the City has maintained its position that any wage increases for employees be funded through productivity initiatives. Thompson notes that it will cost the City approximately $212 million annually for every one-percentage point wage increase granted to employees.

"The challenge ahead is ensuring that this recovery will be long, sustained, and shared by all New Yorkers," Thompson said. "It will require a delicate balance, one that can be achieved through efficient management, prudent allocation of available resources, realistic budgeting and assistance from our partners in Albany ."