View Budget Report (pdf)

New York City Comptroller William C. Thompson, Jr. today issued his charter-mandated report analyzing Mayor Bloomberg's Fiscal Year (FY) 2006 Executive Budget, recommending that the City implement a system to change its reliance on non-recurring revenues to balance the budget.

“ An extraordinary surge in FY 2005 revenues is enabling the City to end the current fiscal year with an unprecedented surplus of $3.3 billion ,” Thompson said. “ Because the extraordinary revenue growth that generated this year's surplus is not expected to continue, large gaps characterize subsequent years of the financial plan. ”

Thompson cautioned that the budget contains $665 million in risks for Fiscal Year 2006. He estimated that the City may need an additional $455 million in FY 2006 to fund a portion of retroactive wage increases for teachers, firefighters and police. The proposed budget assumes that a portion of wage increases will be paid for with productivity increases, but these are not achievable retroactively. Thompson added that overtime costs, especially for the Police Department, will likely be greater than calculated since the costs have been consistently under-budgeted. Additionally, Thompson noted that the introduction of a new State social services block grant could require service reductions unless the City replaces $35 million in funding.

According to Thompson, higher-than-projected tax revenues of $485 million may be available to offset the budget risks in FY 2006. Of this amount, $240 million is attributable to sales tax, mostly because the State is unlikely to reinstate the City's exemption on clothing and footwear items costing up to $110 in FY 2006, as the Mayor is assuming. The offsets reduce the net risk to the FY 2006 budget to $180 million.

Thompson, however, warned that the budget risks in FY 2006 could fluctuate given several factors, including the outcome of collective bargaining agreements, the financial condition of the Health and Hospitals Corporation (HHC), and decisions to be made by the boards of the City's pension systems regarding the Chief Actuary's recommendations. Collective bargaining agreements with the teachers, firefighters and police could be even more costly should the agreements include higher wage increases than those assumed in the budget. Further, given its continued need for subsidies, the HHC could require at least $200 million to help ensure its financial health in FY 2006. On the other hand, if the boards of the City's five pension systems adopted all of the Chief Actuary's recommendations the City' pension costs would be $764 million below projections, provided necessary State legislation is enacted.

Thompson again cautioned about the practice of relying on non-recurring actions to balance its budget. Because these resources are not available to fund recurring expenses in coming years, there are large budget gaps of $4.473 billion in FY 2007, $4.236 billion in FY 2008, and $3.703 billion in FY 2009. Further, the City may have to cover increased education costs as ordered by the State, which would further increase the gaps in the coming years. Also, should the State reverse its cap on Medicaid costs to local governments, increased Medicaid costs would increase budget gaps substantially.

“The pattern of significant current-year surpluses accompanied by large outyear budget gaps is by now a familiar one,” Thompson said. “The City's heavy reliance on year-to-year surpluses to balance the budget is unsustainable over the long term, because surpluses can disappear quickly and without notice.”

In a final recommendation, Thompson called for the creation of a Rainy Day Fund (RDF), which would both provide a cushion during downturns and create incentives for better fiscal management.

“Any changes to the City Charter and modifications to State law required to implement a Rainy Day Fund would be well worth the effort,” Thompson said.