New York City Mayor Bill de Blasio’s budget proposal appropriately uses higher than expected tax revenues to reduce out-year budget gaps and to replenish reserves, according to a review of New York City’s financial plan released today by New York State Comptroller Thomas P. DiNapoli. The report notes, however, that the potential cost of labor negotiations casts a shadow of uncertainty on the city’s finances.

“While strong economic growth has boosted city revenues, Mayor de Blasio continues to grapple with ongoing structural deficits and labor contracts that have remained unsettled for far too long,” DiNapoli said. “The final cost and structure of these agreements may not be known for some time. This plan is a strong starting point for the mayor and I urge him to remain cautious and look at the long-term picture.”

As chief fiscal officer for the state and a member of the Financial Control Board for New York City, the State Comptroller regularly examines New York City’s budget and financial plan. 

DiNapoli’s analysis suggests that revenues could be higher than the city’s forecast, but found it still faces a number of large budget risks. Besides the outcome of collective bargaining, other risks include the anticipated receipt of $1.2 billion from the planned sale of taxi medallions during fiscal years 2015 through 2017 and whether the Health and Hospitals Corporation will require additional financial assistance from the city. It is also unclear if federal aid for recovery from Superstorm Sandy will fall short of expectations.

While the Mayor and the Governor agree that universal full-day prekindergarten and after-school programs should be expanded, they have yet to reach a funding agreement. More will be known about the cost of these initiatives and funding source by the time the Mayor presents his executive budget in May 2014.

The report also examines economic trends in the city, which point to steady economic growth in the coming years, but there are areas of concern.

DiNapoli noted employment growth has been strong with the addition of 275,000 jobs since 2009 (two and a half times as many jobs as were lost during the Great Recession) and total employment has reached a record 4 million jobs. Most of this growth, however, has occurred in lower-paying industries. Private sector job growth has averaged 2.8 percent over the past three years, rivaling the fastest three-year rate of job growth in the past 50 years.

The unemployment rate has declined from a recessionary peak of 10.1 percent to 7.8 percent in January 2014, the lowest level in five years. Nevertheless, the city’s unemployment rate is higher than before the recession and higher than the national rate. About half of unemployed people in the city have been without a job for more than six months, and this figure has barely budged for three years.

Although Wall Street had a good year in 2013 generating $16.7 billion in profits, it was considerably less than in 2012 when the industry earned $23.9 billion. The securities industry, however, has not played a large role in adding jobs, accounting for only 1 percent of the private sector jobs gained during the current recovery, compared to more than 10 percent during each of the two prior economic recoveries. DiNapoli will release his annual estimate of Wall Street bonuses on Wednesday.

Since June 2013, the city has raised its tax revenue forecast by more than $5 billion for fiscal years 2014 through 2018. More than half of the additional tax revenue comes from the real property tax, reflecting growth in property values (particularly commercial properties, apartment buildings and coop/condos). The remainder of the increase comes from higher personal income tax collections from strong job growth and capital gains on stock transactions, among other factors.

Another concern cited in the report is the projected growth in debt service and health insurance costs. Together they are projected to grow by $4.6 billion, or 47 percent, between FY 2013 through FY 2018, and to consume 24 percent of city fund revenue by FY 2018.

In recent years, DiNapoli notes the city has relied heavily on nonrecurring resources to balance the budget. The budgets for fiscal years 2014 and 2015 each count on about $2.5 billion in nonrecurring resources.

For a copy of the report, visit: http://www.osc.state.ny.us/osdc/rpt12-2014.pdf