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NEWS from the Office of the New York State Comptroller
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DiNapoli: External Risks Threaten NYC Budget

Reserves and Savings Program Helps City Face Difficulties

March 2, 2017

Slower economic growth and proposed federal and state actions present potential risks to the city's budget, according to a report released today by New York State Comptroller Thomas P. DiNapoli.

"While the city faces significant budget risks, it has record reserves to use if needed and Mayor de Blasio plans to expand the citywide savings program to help cut the size of the projected budget gaps," DiNapoli said. "New York City's economy is strong, but job growth and tax collections are slowing and risks beyond the city's control, including possible changes in federal policy, are creating uncertainty."

City officials project a budget surplus of nearly $3.1 billion in the current fiscal year that will be used to balance the budget for fiscal year 2018. The surplus was generated almost exclusively from unneeded reserves and by the citywide savings program.

Nonproperty tax collections have been slowing and are now expected to be lower in fiscal years 2017 and 2018 than projected before the start of the fiscal year. If these collections continue to disappoint, closing the out-year budget gaps could be more challenging, especially if the city also has to address unplanned spending or the impact of federal or state actions.

The President recently signed an executive order to pressure "sanctuary cities" into providing information on undocumented immigrants. The executive order permits the federal government to withhold funds to those jurisdictions that refuse to comply. New York City anticipates the receipt of $8.8 billion in federal funding in FY 2017, which represents about 10 percent of its budget. The budgetary impact will depend on how the executive order is implemented, the role of Congress, and possibly the courts.

The President also supports other initiatives that could affect New York City, including the repeal and replacement of the Affordable Care Act (ACA), tax reform, increased infrastructure spending, cuts to nondefense spending, and rolling back securities industry regulations. The full impact of these changes cannot be quantified at this time, creating added uncertainty.

The repeal of the ACA could result in 1.1 million city residents losing Medicaid coverage, and another 460,000 losing coverage through insurance plans offered through the state's health insurance exchange. It is unclear whether the city or the state would assume financial responsibility for these individuals if this were to happen. It is likely that the city would lose $305 million annually beginning in FY 2018 if a provision in the ACA that increased Medicaid reimbursement rates to states that expanded eligibility is repealed.

On the state level, DiNapoli notes the Executive Budget proposal for state fiscal year (SFY) 2017-18 would adversely impact the city by an estimated $561 million beginning in FY 2018. For example, the budget would increase education aid to New York City by $295 million, $244 million less than the amount anticipated by the city for FY 2018.

While the city's economy remains strong, it is showing signs of slowing down. Job growth has declined from an average of nearly 125,000 jobs during calendar years 2014 and 2015, to less than 90,000 in 2016. The city assumes job growth will slow further to 55,500 jobs in 2017.

Tax collections have also weakened. Last year, collections grew by 3.2 percent, less than half the average gain during fiscal years 2011 through 2015. Tax collections are projected to slow further to 2.4 percent in FY 2017.

The city projects budget gaps of $3.3 billion in FY 2019, $2.5 billion in FY 2020 and $1.8 billion in FY 2021. Still, the gaps are relatively small as a share of city fund revenues, averaging 3.8 percent.

New York City has record reserves that will help it manage through difficult times. The general reserve stands at $1 billion annually beginning in FY 2018, and the city has set aside $250 million annually in its Capital Stabilization Reserve. It has also replenished the Retiree Health Benefits Trust, which now has a balance of $4 billion.

Mayor de Blasio has indicated that the city will continue to expand the citywide savings program, which would help reduce the size of the projected budget gaps and mitigate adverse developments. The current program is expected to generate savings of nearly $4.2 billion over five years.

DiNapoli's report also notes the Health and Hospitals Corporation (HHC) continues to face serious financial challenges, including a decline in patient utilization. Nonetheless, the city remains confident that HHC will not require further assistance in the current fiscal year because of expected additional Medicaid payments. HHC could require assistance in the future since its transformation plan relies heavily on federal aid.

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