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Comptroller notes extraordinary increase in Capital Commitment Plan; forecasts city’s economy to experience slow, continued growth in ’04 and ‘05

New York City Comptroller William C. Thompson, Jr. today issued his charter-mandated report analyzing Mayor Bloomberg’s Fiscal Year 2005 Executive Budget, maintaining that the budget is manageable.

“As the start of the new fiscal year approaches, the City appears on course to adopt a balanced FY 2005 budget,” Thompson said. “However, of concern is the fact that the City is allocating approximately $3 billion in non-recurring resources to balance the FY 2005 budget.”

Thompson pointed to the use of a $1.3 billion rolled-over budget surplus from FY 2004, the expected receipt of a lump-sum payment of $690 million from the Port Authority of New York and New Jersey as a result of a new lease agreement for City airports, the reimbursement to the City of the $502 million it paid in FY 2004 for Municipal Assistance Corporation debt service, and the expected receipt of $150 million from the Battery Park City Authority for the sale of City-owned properties adjacent to the Battery Park City complex.

The reliance on non-recurring revenues to foster fiscal balance in the near-term creates greater challenges for the City’s fiscal situation in FYs 2006 and 2007. The City projects a budget deficit of $3.76 billion in FY 2006 and $4.2 billion in FY 2007.

The out-year deficits have been exacerbated by the City’s decision to use the $695 million Budget Stabilization Account - which had been earmarked to balance the FY 2006 budget - to close the FY 2005 gap.

Thompson expressed continued concern about City spending exceeding its revenues.

“The City’s use of non-recurring revenues does not address the central budgetary challenge: the fact that year after year, the growth of the City’s expenses outpaces the growth of its revenues,” Thompson said. “Until the causes of this structural imbalance are addressed, the City will continue to face budget deficits on an annual basis.”

Among several budgetary risks noted by the Comptroller is one involving the Health and Hospitals Corporation. The Mayor’s Budget has provided a subsidy increase and assumed certain debt service costs totaling $200 million for HHC, but HHC still faces projected operating deficits of $273 million in FY 2005 and more than $500 million in each of the out-years. These operating deficits are mainly a function of HHC’s stagnant revenues and rising cost structure and warrant careful monitoring.

Thompson noted an “extraordinary increase” in the City’s Capital Commitment Plan, which for FY 2005 is substantially higher than the City announced it would be one year ago. The City first projected a plan in FY 2005 of $5.69 billion, but it now is $9.4 billion, an increase of $3.7 billion in all funds, or 66 percent. In the 12 months leading up to FY 2004, for example, the amount of planned capital commitments decreased 11 percent.

The comptroller pointed out that the major assumption contained in the FY 2005 capital plan is the City’s reliance upon New York State to provide $1.3 billion in capital funds annually starting in FY 2005 to match the City capital contribution to the Department of Education. Yet, it is unclear if the State will have the resources to support this proposed level of capital support. Thompson noted that the State budget process is not yet resolved and so it is difficult to estimate what the State’s capital support for education projects will be for New York City.

Additionally, Thompson’s forecast for the New York City economy in calendar years 2004 and 2005 is for slow, continued growth. “However, the City’s fragile economic recovery is subject to substantial risks, including higher interest rates and the cloud of uncertainty created by the prolonged war in Iraq,” he said.