Comments on New York City’s Fiscal Year 2016 Executive Budget
New York City’s recovery from the recession has matured into a solid expansion, with the city’s economy 13 percent larger compared to what it was before the recession. Unlike expansions of the late 1990s and mid-2000s, Wall Street is not a major force driving the current growth, although it is supporting it. Rather, the drivers have been traditional business services industries such as accounting, advertising, architecture and engineering, as well as a new cluster of activities related to computer systems and technology.
Construction, commercial real estate and tourism have also prospered during the recovery. Permits for new housing units, which had dropped to about 7,500 per year from 2009 to 2011, recovered to over 20,000 units in 2014 and are running ahead of this pace in 2015. In commercial real estate, new leasing activity in Manhattan office space in 2014 was the highest since 1998, totaling over 32 million square feet leased. Consequently, the vacancy rate fell from 9.3 percent at 2013 year-end to 7.9 percent at 2014 year-end. Leasing activity continues to be strong in 2015 though not at quite the pace of 2014. Finally, tourism continues to fare well with the number of foreign and domestic visitors reaching 56.4 million in 2014, a 23 percent increase since 2009. All these positive gains in the economy bode well for the fiscal condition of the City. The FY 2016 Executive Budget and Financial Plan reflects the solid state of the current economy. The FY 2016 budget, totals $78.3 billion after a prepayment of $3.037 billion from FY 2015. This is more than the $2.006 billion that was rolled into FY 2015, indicating that the City is projected to generate an operating surplus in FY 2015.
The FY 2016 Executive Budget includes $2.1 billion of additional resources since the Preliminary Budget. The bulk of the resources are from a $1.46 billion increase to the roll-in from FY 2015. The roll-in was $1.58 billion in the Preliminary Budget. The remaining additional resources stem from a Citywide Savings Program of $465 million and increased tax revenue estimates of $185 million. These additional resources are used to support additional spending of $938 million, an increase of $250 million in the General Reserve, the establishment of a $500 million Capital Stabilization Reserve, and a $418 million downward revision in miscellaneous revenues mainly from delaying the planned auction of additional taxi medallions.
The current Citywide Savings Program represents a new approach to agency savings. Unlike past programs, where agencies were given specific reduction targets, the new program is voluntary with no specific reduction targets. The savings plan is expected to produce $2.9 billion of budget relief in FYs 2015 through 2019 and a combined $1.06 billion in budget relief for FYs 2015 and 2016. Debt service reductions account for $400 million or 38 percent of the savings. The other components include $125 million from additional revenues, $65 million from miscellaneous expenditures reduction and the ability to switch certain expenditures from City funds to State or Federal funds, and $56 million from a reduction to the City’s other than personal services (OTPS) inflator. Agency spending reductions, across 31 agencies account for $409 million or 39 percent of the combined FYs 2015 and 2016 savings, the largest component of the Citywide Savings Program. This savings represent 0.58 percent of agency City-funds expenditures. Agency reductions from past programs had averaged 2.6 percent of agency City-funds budget.
The May 2015 Financial Plan projects budget gaps of $1.57 billion in FY 2017, $1.97 billion in FY 2018, and $2.88 billion in FY 2019. The cumulative gap of $6.42 billion over FYs 2017 through 2019 is $1.93 billion more than the cumulative gap in the February Plan. The increase in the gap can largely be attributed to the increases in reserves. Since the Preliminary Budget, the City has established the new Capital Stabilization Reserve of $500 million, planned a $280 million deposit in the Retiree Health Benefit Trust, and an increase of $250 million to the General Reserve in each of FYs 2016 through 2019, for a total of $1.78 billion in additional reserves. While the cumulative gap is higher than in the Preliminary Budget, it compares favorably with those of past Executive Financial Plans. It is the third lowest since the FY 2003 Executive Financial Plan and is significantly below the $10.3 billion average in Executive Financial Plans from FYs 2003 through 2015.
The Comptroller’s Office’s analysis of the FY 2015 Executive Budget and Financial Plan shows that the outyear gaps could be lower than projected in the Plan. The Comptroller’s Office projects a surplus of $422 million in FY 2016 and gaps of $716 million in FY 2017, $752 million in FY 2018, and $1.57 billion in FY 2019. The lower gaps result mainly from the Comptroller’s Office’s higher tax revenue forecasts, which are projected to exceed Plan projections by $594 million in FY 2016, $1.04 billion in FY 2017, $1.40 billion in FY 2018, and $1.49 billion in FY 2019. These higher tax revenues projections are partially offset by higher expenditure estimates of $172 million in FY 2016 and $180 million in each of the outyears of the Plan.
The City has added to its cushion against future downturns by increasing its General Reserve, depositing $280 million to the Retiree Health Benefits Trust (RHBT), and establishing a new $500 million Capital Reserve Fund. While the RHBT is not a true reserve — its purpose is to fund Other Postemployment Benefits (OPEB) liabilities — it has been used to provide budget relief in the past to avoid or mitigate cuts to essential services and layoffs. However, even with the increase in the RHBT, the General Reserve and the Capital Stabilization Reserve, the cushion against future downturns is still short compared to the reserves that were available entering the Great Recession.