View The State of the City’s Economy and Finances, 2006

Comptroller William C. Thompson, Jr. today issued his Charter-mandated report on the State of the City's Economy and Finances, indicating the City could end Fiscal Year 2007 with a surplus of more than $2 billion, $125 million more than the City’s new projection.
Thompson noted while the City has added $2.2 billion in tax revenue projections since the Budget was adopted earlier this year, an additional $160 million in tax revenues is likely to be collected in FY 2007. This marks the fifth consecutive year in which revenues will significantly exceed earlier projections.

Along with the changes to the FY 2008 revenues and expenses, the extra funds would further narrow the projected FY 2008 gap between revenues and expenses to $205 million, a dramatic reduction from the $3.8 billion gap that was projected in June.
The report contains an analysis of the Mayor's November Modification to the Fiscal Years' 2007-2010 Financial Plan. In its Modification, the City projects an FY 2007 surplus of $1.946 billion, before prepayments of FY 2008 expenses.

“The improvement in the City’s revenue picture stems mostly from economic growth and real estate activity that are well above earlier expectations,” Thompson said in his report’s Executive Summary. “In the Adopted Budget, the City had expected a softening real estate market, higher interest rates and the risk of higher oil prices to exert more restraint on local and national economic growth than so far has been the case.”

Thompson’s report notes that the City’s economy has expanded for the last 12 quarters. The City’s prosperity – featuring improved job growth and a declining unemployment rate – contributed to higher revenue projections, which raised Thompson’s projected collections for the business taxes and the personal income tax by $509 million and $724 million, respectively, above the City’s Adopted Budget projections.

Additionally, the projected decline in real-estate-related tax collections has not been as rapid as previously anticipated. The City projects that FY 2007 collections for these taxes will exceed earlier expectations by $812 million.

Thompson, however, cautioned of less robust growth in 2007, pointing to signs of a slowdown on both the national and local economies and citing the loss of momentum in growth of the City’s economic output (GCP) through the first three quarters of 2006.

The report noted some higher-than-projected expenses. The City’s overtime costs likely will be $87 million greater than reflected in this Modification, and the recent United Federation of Teachers labor contract will add another $73 million to this year’s expenses. But Thompson noted that the additional expenses will be more than offset by a combination of higher tax revenues and lower Medicaid costs than are accounted for in the current plan.

“Thompson projected that compared to the City’s latest plan the City will have additional resources of $125 million in FY 2007, $305 million in FY 2008, $90 million in FY 2009, and $270 million in FY 2010. However, there still will be out-year gaps of $3.978 billion in FY 2009 and $3.338 billion in FY 2010.”

“The out-year gaps reflect rapid growth in non-discretionary spending categories such as debt service, health insurance costs, and pensions,” Thompson said.
The Comptroller also emphasized that the surplus should be used to help the City mitigate future budget problems.

“Experience has shown how quickly the City’s fortunes can swing from abundance to shortfalls, so prudent management of surpluses in good years is necessary to prepare the City for inevitable fiscal tightening,” Thompson said. “The City should continue to develop a thoughtful and creative approach to the use of surplus resources.”

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