Comptroller Stringer Releases Annual Report on the State of the City’s Economy and Finances
December 15, 2017
Despite solid growth for City economy, Comptroller’s analysis warns of slowing revenue growth and shrinking annual surpluses in the face of hostile Federal policy
(New York, NY) — Despite continued growth by the City and U.S. economies in 2017, a new report by New York City Comptroller Scott M. Stringer released today finds that budget gaps are likely to be larger than projected by the City over the next four years, rendering current spending growth potentially unsustainable.
According to the Comptroller’s annual analysis of the City’s economic and financial position, which is required by the City Charter, the overall economic outlook for New York City remains reasonably positive. Unemployment is low and labor-force participation sits at record highs. Job growth remains solid, if slowing, and earnings are rising. The Comptroller expects economic growth to continue at a reasonable pace until 2020, when a slow-down could occur as the Federal Reserve tightens monetary policy. The Comptroller’s forecast does not incorporate the possible impacts of federal tax bills that had yet to be finalized at the time of this analysis.
However, despite generally positive economic conditions, tax revenue growth has decelerated from 7.4 percent in FY2015, to 3.2 percent in FY2016, and 1.9 percent in FY2017. The report notes that:
- Personal income tax revenues have been essentially flat the last two years. While wage withholding has grown robustly, tax payments on capital gains and other non-wage income has fallen, likely in anticipation of federal tax rate cuts on non-wage income.
- Business income taxes and property transaction taxes were both lower in FY 2017 than in FY 2015.
- Declining cash balances in the City’s central treasury account signal potential headwinds confronting the City’s fiscal condition. After reaching historically high levels in Fiscal Years 2016 and 2017, cash balances have fallen precipitously, reaching a low point of $1.02 billion in the beginning of December – or $4.4 billion below last year’s low. That is the lowest balance since FY 2010.
These indicators, coupled with shrinking contributions to the City’s accumulated surplus, highlights the need for a more significant effort to identify agency spending efficiencies to avoid tapping into budgetary reserves.
Comptroller Stringer’s analysis of the November Financial Plan – which includes the current year (FY 2018) through FY 2021 – has identified net risks to the November Plan projections ranging from $15 million in FY 2018 to as high as $1.3 billion in FY 2020, resulting in outyear gaps of as much as $3.6 billion
“There are reasons to be concerned. Revenues are slowing, operating surpluses are shrinking, and federal policies are only going to make things worse. We believe the time to start preparing for tougher fiscal conditions is here. We must plan strategically in the short-term to be ready for whatever long-run challenges come our way,” said New York City Comptroller Scott M. Stringer. “Though the outlook for the city’s economy may be positive, it’s impossible to predict what exactly might come from Washington at this point. As the GOP attempts to pass a tax plan for the wealthiest, our safety net could get gutted to pay for it. The last thing we want to do is start drawing funds from our budgetary reserves. That’s an alarming prospect when our economy is still growing. The time to get our house in order is now.”
- The City’s FY 2018 tax revenue forecast decreased by a net $207 million, driven by a projected decline of $240 million in anticipated revenues from business taxes, as well as a decrease of $60 million in anticipated sales tax revenue.
- Growth in the City’s personal income tax (PIT) declined last year by 1.0 percent, the first slowdown since the great recession. Sales taxes grew by just 0.2%.
City Spending and Saving
- FY 2018 budgeted spending hit $85.99 billion, an increase of approximately 3 percent from actual FY 2017 spending.
- After netting out the impact of prepayments in order to get a more accurate comparison, FY 2018 expenditures excluding reserves total $88.7 billion, an increase of 5.2 percent over FY 2017 actual spending.
- In FY 2015, the City added $1.52 billion to the accumulated surplus of $2.01 billion that was rolled in. The following fiscal year the City added just $514 million to the accumulated surplus, and last fiscal year the City added $142 million.
- This is the first time the City has not set aside funds in November to begin accumulating a surplus for the year since November 2014.
- The November Plan Citywide Savings Program totals $1.15 billion over the four years of the Financial Plan period, but just 1.3 percent of the savings are from agency program efficiency initiatives.
Higher Budget Gaps in Future Years
- The Comptroller’s analysis of the November Plan shows that the outyear gaps could be larger than projected by the City.
- The analysis of the November Plan has identified net risks to the City’s revenue and expenditure projections of $15 million in FY 2018, $386 million in FY 2019, $1.29 billion in FY 2020, and $1.05 billion in FY 2021.
- The Comptroller’s Office projects a slight gap of $15 million in FY 2018 and larger gaps of $3.56 billion in FY 2019, $3.57 billion in FY 2020, and $2.66 billion in FY 2021.
- Full-time headcount has grown rapidly over the last three fiscal years, rising by 23,688 or 8.7 percent between fiscal year-end 2014 and fiscal year-end 2017.
- The November 2017 Financial Plan continues this trend with a planned increase of 7,612 or 2.6 percent in total-funded full-time headcount to 303,067 for fiscal year-end 2018.
- Several agencies are significantly short of their headcount targets while others are well above. Among those with significant shortfalls are:
- The Administration for Children’s Services, which has added only 10 of the planned increase of 812 positions.
- The Department of Correction, which has added only 16 of the planned increase of 443 civilian headcount.
Compounding the budgetary risks to the City is Federal policy, which imposes a high degree of uncertainty on both the City’s economic forecast and budget projections. While the Comptroller’s economic and revenue forecasts do not incorporate the impact of federal tax and budget changes, which have yet to be finalized, the trillion-dollar increase in the federal deficit likely to result from the tax bills could lead to substantial cuts to the social safety net and a range of federal aid programs that support New York’s most vulnerable residents.
To read Comptroller Stringer’s full analysis of the November Plan, click here.