Comments on New York City’s Fiscal Year 2016 Adopted Budget
EXECUTIVE SUMMARY
Since last year’s June FY 2015 Adopted Budget and Financial Plan, which showed a projected FY 2016 gap of $2.63 billion, the City has identified $5.94 billion of additional resources. These resources eliminated the projected gap and funded $1.77 billion of additional expenditures, $335 million in City Council initiatives, increased the General Reserve by $250 million and established a new Capital Stabilization Reserve with $500 million. The additional resources also offset reductions of $360 million from taxi medallion sales — due to planned delays to the outyears — and $101 million in other non-tax revenues.
The majority of the additional resources came from the rolling of prior year resources into FY 2016 through a prepayment of $3.55 billion of FY 2016 debt service in FY 2015. The remaining additional resources came from a $1.33 billion increase in estimated FY 2016 tax revenues, $753 million in debt service savings from lower than budgeted interest rates and $306 million in FY 2016 budget relief from the Citywide Savings Program, the first expenditure reduction program of the de Blasio administration.
The City was able to generate a significant prepayment for FY 2016 as a result of strong FY 2015 tax revenues which are projected to come in $3.13 billion above what was forecast at FY 2015 Budget adoption last year. FY 2015 tax revenues of $51.75 billion came in above trend at 7.0 percent above FY 2014 — almost a full percentage point higher than the 6.1 average growth from FY 2009 through FY 2014.
Other FY 2015 resources included: $545 million in non-tax revenues, a $730 million take-down of the General Reserve, $642 million in debt service savings, $349 million in FY 2015 budget relief from the Citywide Savings Program, and $100 million from prior-year payable adjustments — bringing total additional FY 2015 resources to $5.5 billion. In addition to funding the $3.55 billion prepayment of FY 2016 debt service, the additional resources allowed the City to deposit $955 million into the Retiree Health Benefits Trust (RHBT), to fund $454 million of additional spending, and to offset a $532 million reduction in FY 2015 taxi medallion sales revenue. The strong revenue growth in FY 2015 will enable the City to close the fiscal year with the first operating surplus since the Great Recession.
Looking ahead, expenditures, adjusted for prepayments and other prior-year actions, are projected to grow by 6.9 percent from FY 2016 through FY 2019, averaging 2.3 percent a year (after accounting for the Capital Stabilization Reserve). The high growth areas — salaries and wages, debt service, health insurance, other fringe benefits and judgments and claims — grow by 14 percent over the Plan period, averaging 4.6 percent a year. The low growth areas in this financial plan are pensions, Medicaid, public assistance and the remaining other than personal service (OTPS) which together are budgeted by the City to grow by 0.5 percent over the Plan period, or 0.2 percent a year.
Despite the increase in expenditures, the fiscal outlook in the Adopted Budget Financial Plan, which shows cumulative outyear gaps totaling $6.23 billion, is stronger than that of the Executive Budget Financial Plan which had cumulative outyear gaps of $6.42 billion. The outyear gaps decreased even as the FY 2015 prepayments and RHBT deposits increased by $517 million and $675 million, respectively. The cumulative outyear gap in the current Financial Plan is the second smallest since FY 2003.
The Comptroller’s Office’s analysis of the budget indicates that the fiscal outlook may be stronger than projected by the City. The Comptroller’s Office has identified net resources of $41 million in FY 2015, $839 million in FY 2016, $1.06 billion in FY 2017, $1.17 billion in FY 2018, and $1.30 billion in FY 2019. These resources stem primarily from the Office’s higher tax revenue forecast which is more than the City’s forecast by $81 million in FY 2015, $822 million in FY 2016, $1.12 billion in FY 2017, $1.33 billion in FY 2018, and $1.54 billion in FY 2019.
Other additional resources identified by the Comptroller’s Office include debt service savings of $189 million in FY 2016 and additional fine revenues from the extension and expansion of the bus lane camera program of $12 million in FY 2016, $21 million in FY 2017, $19 million in FY 2018, and $17 million in FY 2019. Risks to the City’s estimate for overtime, Department of Education (DOE) Medicaid reimbursement, Universal Pre-Kindergarten (UPK) funding, and pension contributions offset some of the additional resources. The Comptroller’s Office estimates that overtime spending could exceed the Plan’s estimate by $104 million in FY 2016 while DOE Medicaid reimbursements could be below the City’s estimate by $60 million in FY 2015 and $80 million annually beginning FY 2016. In addition, UPK funding could fall short by $21 million annually beginning FY 2017.
In addition, the Plan’s projections of pension contributions do not take into account the impact of the FY 2015 pension investment return which is preliminarily projected to be 3.3 percent compared to the Actuarial Interest Rate Assumption of 7.0 percent. The Comptroller’s Office estimates that this shortfall in investment return will result in additional pension contributions of $70 million in FY 2017, $141 million in FY 2018, and $211 million in FY 2019.
Even as the City is benefiting from strong revenues which allows it to fund new initiatives, it is important to keep in mind the rapidity and extent to which the City’s budget situation can worsen, as experienced in the Great Recession. The City has used part of its additional resources to increase the fund balance in the RHBT, to increase the General Reserve and establish a new Capital Stabilization Reserve. In order to be prepared for the next cyclical downturn, the City must continue to find a balance between additional spending and accumulating the resources needed to build up a larger cushion, which remains billions below what it was entering the Great Recession.