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Report to Financial Control Board(pdf)
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Comptroller Thompson’s
Testimony (pdf)
New York City Comptroller William C. Thompson,
Jr. today reported to the Financial Control Board that the City’s
$47.8 billion Fiscal Year 2005 budget is likely to end in balance,
although the City faces multi-billion dollar deficits in Fiscal
Years 2006 to 2008.
“The City’s budget condition is healthier than it
was two years ago,” Thompson said. “Nevertheless, the
City must take immediate action to chart a prudent and responsible
course to avert significant fiscal challenges in the future.”
According
to Thompson, the City’s revenue and expenditure
projections are “reasonable” estimates and the level
of reserves available to the City appear to be sufficient to offset
any risks previously identified by Thompson’s office. However,
the out-years of the Financial Plan contain multi-billion dollar
deficits - $3.7 billion in FY 2006, $4.5 billion in FY 2007, and
$3.7 billion in FY 2008 – because the City’s expenses
continue to outpace the growth of its revenues.
To achieve balance in the FY 2005 budget, the City is using $3
billion in non-recurring resources. These include $1.9 billion
in rolled-over budget surplus from FY 2004, an expected 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,
a $502 million reimbursement to the City for Municipal Assistance
Corporation debt service, and $150 million from the Battery Park
City Authority for the sale of City-owned properties.
Thompson cautioned that the reliance on these non-recurring resources
will spur greater challenges ahead.
“To overcome these challenges, the City must devise a long-term
financial plan that includes recurring savings and stable growth
in revenues,” he said. “The City has taken an important
step in this regard by re-establishing a Budget Stabilization Account
(BSA) for FY 2006. However, the BSA contains just $220 million,
which will do little to mitigate the projected FY 2006 budget deficit.
“For the BSA to serve as an effective means of balancing
the FY 2006 budget, the City should increase the funds in the BSA
throughout FY 2005,” he said.
Thompson forecasts tax revenues to grow by 12.1 percent over
the financial plan period. That growth is significantly higher
than the 7.6 percent growth in expenditures. But tax revenues account
for only about 60 percent of the funds necessary to support City
spending.
“Since non-tax revenues, such as federal and state aid,
will likely remain unchanged over the term of the Financial Plan,
the City will be confronted with persistent budget gaps despite
a stabilized economic outlook,” Thompson said.
The Comptroller also encouraged the City to address fluctuations
in the City’s pension fund contributions.
“The value of assets invested in the City’s pension
funds tracks yearly changes in the financial markets,” Thompson
said. “As a result, the high level of market volatility over
the past decade has resulted in significant fluctuations in the
level of annual pension contributions. Adjusting the method
by which the City recognizes gains and losses in its pension investments
may reduce its exposure to this market volatility. This adjustment
is especially important because pension expenses tend to increase
when City revenues decline.”
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