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City Comptroller William C. Thompson, Jr. today issued his analysis of the Mayor’s Preliminary Fiscal Year 2008 Budget and Five-Year Financial Plan, noting that the City’s expected $3.9 billion surplus at the end of FY 2007 will help to balance budgets for the next two years.

“Better-than-expected economic growth has generated tax revenues in excess of the City’s expectations at the time of the Adopted Budget,” Thompson said. “Wall Street profits and bonuses, tourism, and other sectors turned in a solid performance in 2006, and New York City has so far escaped the correction gripping many of the nation’s housing markets.”

Under the Charter, the Comptroller is required to annually review the Mayor’s budget and financial plan, which was issued on January 25. Thompson’s analysis noted that the City raised its FY 2007 tax revenue forecast $1.2 billion in its January Plan, marking a cumulative $3.47 billion upward adjustment in the current year’s expected tax collections since the budget was adopted in June.

In FY 2008, tax revenues would be $659 million more than projected in November, while upward adjustments in the outyears total $439 million in FY 2009 and $742 million in FY 2010. Among the other findings:

• The City’s revenue projections are relatively conservative. In the current fiscal year, the City should collect an additional $100 million in taxes, while taxes in the subsequent years of the Plan are likely to be higher by $380 million in FY 2008, $930 million in FY 2009, and $490 million in FY 2010. Slower economic growth toward the end of the plan period is expected to boost tax collections in FY 2011 by only $85 million compared to the City’s forecast. Except for FY 2011, the additional revenues anticipated by the Comptroller’s Office are more than enough to offset risks identified in this report.

• If the City’s current revenue and expenditures assumptions are borne out, the City will have $1.376 billion to prepay FY 2009 expenses and will have reduced the FY 2009 gap from $4.068 billion projected in November to $2.617 billion.

• The City’s overtime projections for FY 2008 are significantly below revised projections for FY 2007, and recent policy changes in the Police Department are likely to add upward pressure to overtime spending. The Comptroller’s Office projects overtime spending will exceed the City’s estimates by $147 million in FY 2008, and $100 million in subsequent years of the Plan period.

• Pension contributions, which have grown substantially in recent years primarily as a result of actuarial investment losses incurred in FYs 2001 through 2003, should grow more slowly than in the past, at an average rate of 3.7 percent through FY 2011.

• City Medicaid spending growth has been capped through State actions and is projected to increase about 3 percent annually.

• The Department of Education budget is now projected to grow about $1 billion per year from FY 2007 to FY 2010. By 2011, Department spending would have increased 24 percent. This growth reflects a substantial increase in both City funds and expected contributions from the State, which appears poised to comply with the November 2006 Campaign for Fiscal Equity court ruling.

• The Governor’s budget proposes to reduce the State’s revenue sharing program and redirect a small portion of it to upstate localities primarily by eliminating revenue sharing completely for New York City. This change impacts the current fiscal year since the next payment of $328 million from the State was earmarked as FY 2007 revenue.

“Revenue sharing has been an important component of the City’s ability to weather the volatility of the tax revenues it uses to fund basic municipal services,” Thompson notes in the report. “While the City is currently flush with cash, elimination of this important revenue source will certainly prove problematic when the City confronts future economic downturns.”

Thompson additionally cautioned that the City needs to take steps to prepare for less ideal economic conditions.

“The City’s current financial condition is a remarkable change from the situation just a few years ago. In these good times, it is important to keep in mind the rapidity and extent to which the City’s budget situation can worsen,” the Comptroller said. “The City should consider additional steps to ensure that resources accumulated during flush years are available to sustain services when economic events reduce revenues.”

You can view the full report at www.comptroller.nyc.gov.