PR10-12-114 December 15, 2010

Contact: Sharon Lee, (212) 669-3747 Page(s): 4
 

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LIU: STATE OF THE CITY’S ECONOMY FACES
HUGE RISKS IN THE COMING YEARS
National recession, coupled with risks to
November plan could result in ballooning deficits
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NEW YORK, NY – New York City’s economy has bounced back from the turbulent times of
2008 faster than most expected, but the troubling national outlook coupled with significant risks
in the Mayor’s Plan may lead to larger than expected outyear budget gaps, according to a report
issued today by New York City Comptroller John C. Liu.

According to Liu’s “State of the City’s Economy and Finances” report, New York City gained
74,000 private sector jobs during the first 10 months of 2010, representing 6.6 percent of all
private jobs created nationally during the same period. The growth was an about-face from the
City’s performance during the past two recessions, during which New York lagged far behind
the nation.

“Traditionally strong areas of our City’s economy have struggled during this recession as other
areas demonstrated growth and job creation,” said Comptroller Liu. “For instance, while finance
was declining, we saw an influx of tourists, which boosted hospitality-related jobs. There was
also strong growth in the health and education sectors.”

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 Change in NYC and U.S. Payroll Jobs, First 10 Months of 2010 

 
SOURCE: Monthly Data from U.S. Department of Labor and NYC Comptroller’s Office.

Liu pointed out that the most influential factor on the local economy is the pace of national
economic growth. He said that the nation’s growth has slowed significantly, with consumers still
hesitant to spend in the face of high unemployment and high household debt levels. In fact,
consumer spending, a key catalyst in economic recovery has increased by a mere 2 percent
annual rate over the past five quarters (through 3Q10) even with tax reductions contained in the
2009 economic stimulus legislation.

Comptroller Liu anticipates slow job and Gross City Product (GCP) growth in the coming years
which will result in the unemployment rate remaining high for the foreseeable future.

Selected City Indicators, Actual 2009 and Comptroller’s Forecasts,

2010 – 2014
2009 2010 2011 2012 2013 2014
Real GCP, (2005 $), % Change (3.0) 1.3 2.5 2.8 3.0 3.1
Payroll Jobs (Annual Change), ‘000s (107.0) (7.0) 35.0 35.0 42.0 57.0
Wage-Rate Growth, % (8.1) 2.4 2.3 3.2 3.5 3.8
Consumer Price Index (1982=100), % Change 0.4 1.6 1.1 1.7 2.2 2.3
Unemployment Rate, % 9.5 9.6 9.1 8.4 7.6 6.8

SOURCE: NYC Comptroller’s Office based on BLS and BEA. GCP=Gross City Product.

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Battling unemployment remains a critical component of placing the City on the path to recovery.
As evidenced by a recent report released by the Comptroller’s Office, huge disparities in
unemployment rates persist among African-American and Hispanic New Yorkers compared to
their white counterparts throughout New York City.

“We must use our City’s purchasing power to help battle these consistent disparities in
unemployment,” said Comptroller Liu. “We can’t take comfort in the fact that the City is doing
slightly better than the nation, when we should be coming up with real solutions to get people
back to work, especially in communities of color.”

RISKS TO THE CITY’S BUDGET

As part of the report, Comptroller Liu outlined risks to the Mayor’s November Budget Plan that
result in growing budget gaps in the coming years.

The table below outlines potential risks to the Mayor’s November Plan.

Risks and Offsets to the November 2010 Financial Plan

($ in millions)
FY 2011 FY 2012 FY 2013 FY 2014
City Stated Gap $0 ($2,357) ($4,838) ($5,578)

Tax Revenues
Property Tax ($39) ($67) ($98) ($92)
Personal Income Tax ($115) ($117) ($69) ($151)
Business Taxes $120 $193 $171 $316
Sales Tax $0 $99 $121 $132
Real-Estate-Related-Taxes $233 $379 $476 $512
Subtotal $199 $487 $601 $717

State Aid $0 ($1,000) ($1,000) ($1,000)

Expenditures
UFT/CSA Collective Bargaining ($898) ($800) ($897) ($900)
Overtime ($152) ($100) ($100) ($100)
Judgments and Claims $85 $135 $185 $235
Subtotal ($965) ($765) ($812) ($765)

Total Risks/Offsets ($766) ($1,278) ($1,211) ($1,048)

Restated (Gap)/Surplus ($766) ($3,635) ($6,049) ($6,626)

 

As seen above, reduction in State aid, coupled with the Mayor’s assumption that his collective
bargaining strategy with the United Federation of Teachers and Council of School Supervisors
and Administrators will come to fruition, represent a significant portion of the risks to the City’s
budget.

As is the case year after year, the City is underestimating its overtime expenditures as well.
However, Comptroller Liu estimates that the City will have better than expected revenue
collections as a result of the real estate market picking up and business taxes bouncing back.

These risks place the potential City deficits at $766 million in FY 2011, $3.63 billion in FY
2012, $6.04 billion in FY 2013, and $6.62 billion in FY 2014.

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Comptroller Liu has noted that the City’s annual debt service burden as a percent of the total
City budget is increasing. According to the Mayor’s Plan, annual debt service costs will increase
from $5.12 billion in FY 2011 to $6.60 billion in FY 2014, a 28.8 percent increase.

“As Comptroller, it is my job to get the best deal for the taxpayer when issuing bonds to pay for
City debt, and we have been extremely successful this past year in our bond offerings,” said
Comptroller Liu.

The Mayor’s Plan assumes a change by the City Actuary relating to the rate of return for the
City’s Pension Funds, resulting in an increase of contributions from $6.8 billion in FY 2011 to
$8.2 billion in FY 2012. However, pension investment returns in excess of the assumed rate this
past fiscal year (14.2 percent) help slow the growth of the City’s pension contributions in the
outyears of the plan. In fact, this gain allowed the City to reduce projected pension contribution
by $63 million in FY 2012, $123 million in FY 2013, and $179 million in FY 2014. Through
October of FY 2011, the City Pension Systems have achieved a 12 percent rate of return.

“While many have argued that the pension system is to blame for rising budgetary constraints, it
is merely one of many costs that the City incurs,” Comptroller Liu said. “As we have found,
relying heavily on predictions of labor contract negotiations and consistently underestimated
overtime costs contribute to our budget gaps, especially when added to the expected loss of State
aid and rising debt created by our expanding debt service.”

Comptroller Liu credited Deputy Comptroller for Budget and Accountancy Simcha Felder and
his team for presenting the report, which can be can be viewed at:

http://comptroller.nyc.gov/bureaus/bud/budget_reports.shtm

“My office will continue to identify savings through our Audit and Contracts bureaus to help put
New Yorkers back to work and ensure that our City remains on the path to recovery. In the
coming months we will present our findings and recommendations to the Mayor and City
Council,” Comptroller Liu said.

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