Thursday, February 16, 2017

Comptroller Stringer Presents Analysis of New York City’s Preliminary FY 2018 Budget and January Financial Plan


   With the City’s economic growth beginning to slow, and rising fears of federal budget cuts under a Trump White House, New York City Comptroller Scott M. Stringer today presented his analysis of New York City’s Preliminary Fiscal Year 2018 budget and the January Financial Plan.
“Our economy is strong, but with the pace of growth slowing and with uncertainty surrounding the Trump White House mounting, we have to prepare for whatever comes our way. I believe that we must prepare for the challenges ahead,” New York City Comptroller Scott M. Stringer said. “Mayor De Blasio has presented a Preliminary Budget that contains a number of laudable new initiatives, which I support.  Yet, as we face challenges ahead, we will have to grow our budget cushion and a more vigorous agency savings program will be necessary.”
The presentation covered several aspects of the City Preliminary budget and the state of the City’s economy, including:
The Comptroller’s Economic Outlook: Slowing Growth
The rate of economic growth is expected to slow for New York City during the Financial Plan period (2017-2021). 
  • The current economic expansion since the Great Recession will go on record as one of the strongest. The city has created 635,000 jobs since 2009, totaling a historic high of nearly 4.4 million jobs, and unemployment rates are down in all five boroughs.
  • Over half of new jobs have been in industries such as retail, leisure and hospitality, and healthcare, where wages are generally low.
  • Real earnings for high-income sectors saw dramatic rises between 2009-2015. Lower paid workers, in contrast saw much smaller gains, with workers in the healthcare and education super-sector, who earn on average just $52,000, seeing no gains in real earnings at all.
  • This year and next, the Comptroller’s Office expects growth to be sustained at better than two percent, due to a predicted artificial stimulus through potential tax cuts and proposed infrastructure spending.
  • If President Trump implements his threats regarding trade and immigration restrictions, a more drastic slowdown should be expected in the years to come.
Possible Federal Budget Cuts Would Fall Most Heavily on the Safety Net
Federal budget cuts could seriously harm New York’s ability to protect its most vulnerable citizens, who rely on numerous programs funded with Federal Aid.
  • The City relies on $7 billion annually in federal aid to help fund a wide range of city programs and services.
  • Examples include 124,000 families who rely on HUD Section 8 vouchers, 770,000 low-income and elderly households who get federal assistance to keep their homes warm in winter, and 105,000 jobseekers who were served by City Workforce One centers last year.
  • Repealing the Affordable Care Act could have a devastating impact on 1.6 million newly enrolled New Yorkers and the NYC Health + Hospitals system. NYC Health + Hospitals is in the midst of a Transformation Plan to address budget gaps that reach $1.8 billion by 2021, which could be derailed by ACA repeal.
The Budget Cushion Needs to Be Built Up to Meet the Challenges Ahead
The City’s budget cushion – the amount available in reserves and accumulated surpluses at the beginning of each fiscal year – is below the optimal level to meet the likely challenges.
  • The Comptroller’s Office believes the optimal range for a budget cushion is between 12 percent and 18 percent of adjusted City expenditures.
  • The City began fiscal year 2017 with a cushion of $9.6 billion, or 11 percent of spending.
  • As of the Preliminary Budget, the City would start 2018 with a cushion of 10 percent of spending – about $8.5 billion.
  • An additional $1.7 billion would be required to reach the minimum 12% threshold.
Great Effort Will be Required by Agencies to Identify Savings
City agencies will need to make a greater effort to identify savings and efficiencies in order to help build up the budget cushion.
  • The Comptroller’s analysis found that the vast majority of the City’s $2.1 billion savings in FY 2017 and FY 2018 comes from spending re-estimates, funding shifts, and debt service, while $139 million – or just seven percent of all savings – comes from City agency efficiencies.
  • As a percentage of total spending, agency savings have averaged just 1.0 percent in the last three budgets, compared to 2.7 percent in the six budgets during and after the Great Recession.
Homelessness Spending Continues to Climb Steeply
The continuing rise in homelessness spending shows the need for a clear strategy with measurable and transparent milestones.
  • Citywide spending on homelessness has nearly doubled from $1.2 billion in FY 2014 to $2.3 billion in FY 2017. Spending on citywide homeless services is projected to increase by $460 million over last year.
  • Those dramatic rises are driven in part by the cost of commercial hotels, spending for which reached $102 million in calendar year 2016.
  • DHS has failed to update the metrics in its online dashboard for over a year.
Risks and Offsets Analysis Shows Somewhat Higher Gaps than the Mayor’s
The Comptroller’s analysis of the assumptions and methods in the Mayor’s Preliminary Budget proposal, as required by the City Charter, show somewhat higher budget gaps.
  • The Comptroller’s Office is more optimistic in its tax revenue forecast than OMB’s. However, the assumption that the City will realize $731 million from the sale of taxi medallions may be optimistic, and the Preliminary budget continues to leave out the intercept of sales tax revenue imposed by the State last year to recapture savings from the 2014 refinancing of STAR-C bonds.
  • The analysis also shows several areas where spending is likely underestimated, including overtime, homelessness, DOE’s Medicaid claiming, and City support for NYC Health + Hospitals.
  • As a result, budget gaps beginning in FY 2018 are projected to be somewhat higher than those predicted by OMB.
To view Comptroller Stringer’s budget analysis presentation, click here.

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