Sharon Lee,(212) 669-3747 December 15, 2010
NEW YORK, NY – New York City’s economy has bounced back from the turbulent times of 2008 faster than most expected, but the troubling national outlook coupled with significant risks in the Mayor’s Plan may lead to larger than expected outyear budget gaps, according to a report issued today by New York City Comptroller John C. Liu.
According to Liu’s “State of the City’s Economy and Finances” report, New York City gained 74,000 private sector jobs during the first 10 months of 2010, representing 6.6 percent of all private jobs created nationally during the same period. The growth was an about-face from the City’s performance during the past two recessions, during which New York lagged far behind the nation.
“Traditionally strong areas of our City’s economy have struggled during this recession as other areas demonstrated growth and job creation,” said Comptroller Liu. “For instance, while finance was declining, we saw an influx of tourists, which boosted hospitality-related jobs. There was also strong growth in the health and education sectors.”
Liu pointed out that the most influential factor on the local economy is the pace of national economic growth. He said that the nation’s growth has slowed significantly, with consumers still hesitant to spend in the face of high unemployment and high household debt levels. In fact, consumer spending, a key catalyst in economic recovery has increased by a mere 2 percent annual rate over the past five quarters (through 3Q10) even with tax reductions contained in the 2009 economic stimulus legislation.
Comptroller Liu anticipates slow job and Gross City Product (GCP) growth in the coming years which will result in the unemployment rate remaining high for the foreseeable future.
Battling unemployment remains a critical component of placing the City on the path to recovery. As evidenced by a recent report released by the Comptroller’s Office, huge disparities in unemployment rates persist among African-American and Hispanic New Yorkers compared to their white counterparts throughout New York City.
“We must use our City’s purchasing power to help battle these consistent disparities in unemployment,” said Comptroller Liu. “We can’t take comfort in the fact that the City is doing slightly better than the nation, when we should be coming up with real solutions to get people back to work, especially in communities of color.”
RISKS TO THE CITY’S BUDGET
As part of the report, Comptroller Liu outlined risks to the Mayor’s November Budget Plan that result in growing budget gaps in the coming years.
The table below outlines potential risks to the Mayor’s November Plan.
As seen above, reduction in State aid, coupled with the Mayor’s assumption that his collective bargaining strategy with the United Federation of Teachers and Council of School Supervisors and Administrators will come to fruition, represent a significant portion of the risks to the City’s budget.
As is the case year after year, the City is underestimating its overtime expenditures as well. However, Comptroller Liu estimates that the City will have better than expected revenue collections as a result of the real estate market picking up and business taxes bouncing back.
These risks place the potential City deficits at $766 million in FY 2011, $3.63 billion in FY 2012, $6.04 billion in FY 2013, and $6.62 billion in FY 2014.
Comptroller Liu has noted that the City’s annual debt service burden as a percent of the total City budget is increasing. According to the Mayor’s Plan, annual debt service costs will increase from $5.12 billion in FY 2011 to $6.60 billion in FY 2014, a 28.8 percent increase.
“As Comptroller, it is my job to get the best deal for the taxpayer when issuing bonds to pay for City debt, and we have been extremely successful this past year in our bond offerings,” said Comptroller Liu.
The Mayor’s Plan assumes a change by the City Actuary relating to the rate of return for the City’s Pension Funds, resulting in an increase of contributions from $6.8 billion in FY 2011 to $8.2 billion in FY 2012. However, pension investment returns in excess of the assumed rate this past fiscal year (14.2 percent) help slow the growth of the City’s pension contributions in the outyears of the plan. In fact, this gain allowed the City to reduce projected pension contribution by $63 million in FY 2012, $123 million in FY 2013, and $179 million in FY 2014. Through October of FY 2011, the City Pension Systems have achieved a 12 percent rate of return.
“While many have argued that the pension system is to blame for rising budgetary constraints, it is merely one of many costs that the City incurs,” Comptroller Liu said. “As we have found, relying heavily on predictions of labor contract negotiations and consistently underestimated overtime costs contribute to our budget gaps, especially when added to the expected loss of State aid and rising debt created by our expanding debt service.”
Comptroller Liu credited Deputy Comptroller for Budget and Accountancy Simcha Felder and his team for presenting the report, which can be can be viewed at:
“My office will continue to identify savings through our Audit and Contracts bureaus to help put New Yorkers back to work and ensure that our City remains on the path to recovery. In the coming months we will present our findings and recommendations to the Mayor and City Council,” Comptroller Liu said.