QUARTERLY CASH REPORT: October – December 2016 Second Quarter of Fiscal Year 2017
March 3, 2017
At the end of the second quarter of FY17 (hereafter 2Q17), the City recorded an unrestricted cash balance of $10.349 billion, down $1.255 billion compared to last year. The average daily balance in the second quarter measured $8.234 billion versus $8.831 billion a year ago. However, the city’s liquidity position continues to be strong.
Expenditures exceeded receipts by $69 million during the quarter, in part due to lower capital transfers from the Capital Fund to the General Fund. About every two weeks the City receives large infusions of cash from bond sales, which finance the City’s spending on infrastructure and other capital assets. Capital transfers in 2Q17 totaled $1.529 billion, versus $1.910 billion in 2Q16.
Typically, the lowest daily cash balance of a fiscal year occurs during the second quarter. This year’s seasonal low occurred on December 5, 2016, and measured $5.421 billion. Last year’s low occurred on December 14, 2015, and measured $7.086 billion. This is the first time in 6 years that the low point in annual cash balance has declined from the prior year.
This year, as in most years past, balances recovered sharply in the second half of December due to incoming real estate tax receipts.
The 1H17 daily cash balance averaged $9.332 billion, compared to $9.448 billion during the same period last year. For the thirteenth consecutive year, the City maintained sufficient operating cash without issuing short-term notes.
Total cash receipts in 2Q17 declined 9.8% versus a year ago. In 2Q17, the City received $1.528 billion in reimbursements for capital expenditures, versus $1.910 billion in 2Q16. Removing the effect of capital transfers, receipts declined 9.0%. The weakening in cash receipts is also attributable to a 23.1% decrease in miscellaneous revenues and to a 6.1% decrease in federal and state aid. The drop in miscellaneous revenues stems from lower receipts from water and sewer charges, fines and forfeitures, senior college tuition and fees, restitution and other non-recurring reimbursements. Also impacting receipts was debt service funding. In 1Q17, debt service funding decreased total cash revenues by $305 million. In contrast, in 1Q16 debt service funding increased total cash revenues by $658 million.
Tax collections in 2Q17 were nearly unchanged compared to last year. The real property tax was up 1.8%, and the personal income tax increased 2.2%. The sales tax was flat versus a year ago, in part due to the State intercept of sales tax revenue to recoup savings from refinancing the State-backed Sales Tax Asset Receivable Corporation (STARC) bonds. The State’s FY 2016-17 Adopted Budget included a provision that authorizes a three-year sales tax revenue intercept to recapture benefits accrued to the City from refinancing STARC bonds. Beginning in May 2016, the State is authorized to retain $16.7 million from the City’s sales tax each month, for a total of $50 million per quarter. The banking corporation tax was down 33.5%, while the general corporation tax was up 9.5%. Beginning in tax year 2015, the general corporation tax and the banking corporation tax merged. All New York City C-corporations are now taxed under the general corporation tax. Other hard hit taxes were mortgage and real property transfer taxes (down 12%) and the unincorporated business tax (down 5%).
Total cash receipts for 1H17 declined 7.1% versus a year ago. The cash receipts include the retention of real property and personal income tax revenues for GO and TFA PIT debt service payments. Debt service funding is usually counted as a negative inflow (rather than a positive expense). In 1H17, debt service funding decreased total cash revenues by $943 million. In comparison, in 1H16 funding for debt service showed a net positive inflow of $1.128 billion. In 1H16, the Office of the State Comptroller released $1.186 billion back to the City because it had over-retained $2.3 billion in real estate revenue for debt service payments through October 2015.
Also impacting receipts was a $524 million increase in capital transfers (represented within the “Other” category). Removing the impact of capital transfers, 1H17 cash receipts decreased 8.9% compared to 1H16.
Tax receipts in 1H17 increased only 0.9% compared to 1H16, driven by continued growth in real property and personal income taxes. Property tax revenue remained strong, increasing 3.9% versus a year ago. Personal income tax revenue grew a modest 1.4%. However, sales tax revenue fell 4%. The recent tax revenue growth slowdown points toward a potential economic slowdown in NYC.
The combined 1H17 total of Federal and State aid fell 9.8% compared to the same period last year, mostly due to lower funds received from the Federal government for educational purposes.
Cash expenditures, including capital, totaled $22.306 billion in 2Q17, averaging $365.7 million daily. During the same period last year, cash expenditures totaled $22.553 billion and averaged $363.8 million daily. Gross payroll decreased 4.5%, while fringe benefits rose 7.5%. Fringe benefits include pension, social security, and health insurance payments. Other than personal service expenditures grew 2.8%, due to increases in public assistance, other social services, and vendor-related spending. Outlays in the “All Other” category fell 11%, due to decreased capital spending and a negative Fund 700 adjustment.
Cash expenditures for 1H17 were flat compared to the same period last year. Personal service expenditures grew 1.6%, driven by consistent increases in spending on fringe benefits. Other than personal service expenditures increased 5.2%. Outlays for public assistance jumped 10.3%, followed by vendor and other payments (up 8.3%) and other social services disbursements (up 7.1%). Medical assistance disbursements were down 8.6%. Outlays considered “All Other” fell 13.6%, mostly due to the outflow of cash from the restricted Fund 700 account.
Capital Expenditures (CapEx)
Total 2Q17 CapEx decreased 9.8% versus a year ago. Non-City-funded CapEx dropped 29.2% while City-funded CapEx fell by 3.5%.
Reimbursements to the Central Treasury for CapEx exceeded reimbursable expenditures during 2Q17. CapEx is initially paid from the City Treasury and then reimbursed from bond proceeds as appropriate. Over the long term, CapEx and reimbursements should balance. However, from quarter to quarter, the lag between an expenditure and the offsetting reimbursement can result in a gain or loss to the Central Treasury. In 2Q17, this dynamic resulted in a gain of $33 million.
Total CapEx equaled $4.012 billion in 1H17 compared to $3.975 billion during the same period last year. The increase was due to a 7.8% jump in City-Funded CapEx.
1H17 reimbursements exceeded eligible spending, resulting in an $833 million gain to the Central Treasury during 1H17. Over the past ten years, 1H reimbursements have exceeded eligible spending by 11.6%.
In FY17, the City plans to issue $5.5 billion in new money GO and TFA PIT bonds for capital purposes. The City issued $4.5 billion of new money debt in 1H17, leaving $1 billion of issuance planned for the remainder of the current fiscal year.
In 2Q17, the City of New York sold $850 million in new money GO bonds. The transaction included $650 million of tax-exempt fixed rate bonds and $200 million of taxable fixed rate bonds.
In addition, the sale included a conversion of $154.3 million of existing index rate bonds to fixed-rate bonds.
The pace of bond issuance in 1H17 exceeded last year’s pace. In 1H17, the City issued $4.5 billion in new money bonds. Over the same period last year, the City issued $2.2 billion in new money bonds and $750 million in refunding bonds.