Today, New York City Comptroller Brad Lander delivered remarks during the New York State Financial Control Board’s annual meeting. Full text of Comptroller Lander’s remarks, as prepared for delivery, is available below.
Comptroller Lander also released an analysis of the City’s fiscal year 2023 (FY) Adopted Budget of $101 billion. At a time of ongoing economic uncertainty and mixed signals, the City is facing record inflation, stock market volatility and rising interest rates, but the City has also benefited from stronger-than-expected tax revenue, strong job growth, rebounds in tourism levels and record numbers of new business applications. According to the analysis, the FY 2023 budget is $10.44 billion less than in FY 2022, predominantly driven by a reduction in COVID assistance from federal relief measures. The analysis also highlights changes to the Executive Budget that were supported by the Comptroller’s office.
Thank you and good morning.
I’m pleased to attend my first Financial Control Board meeting and honored to join my partners in government, Governor Hochul, Mayor Adams, and Comptroller DiNapoli, and the esteemed private members of the Financial Control Board, Bill Thompson, Rossana Rosado, and Steve Cohen. I’m joined today by Executive Deputy Comptroller Francesco Brindisi and Deputy Comptroller for Budget Krista Olson.
As we meet today, as summer turns to fall, as we move into what will, we pray, be a durable emergence from the pandemic, and with new political leadership in place, we have both an opportunity and a responsibility to rise to this complex economic moment with far-sighted action that helps to secure a more vibrant, inclusive, resilient economic future for New York.
As you are all well aware, we are currently facing a period of significant economic uncertainty and mixed signals. Fiscal Year 2022 was a year of robust economic recovery in New York City. Private sector payrolls increased by 300,000 and they were back to 96% of pre-pandemic levels, and the unemployment rate dropped by 4.6 percentage points. Tourism made a strong comeback. We saw a record number of new business applications. The City’s tax revenues reached a new peak. It is a testament to the strength of federal fiscal and monetary policy interventions and to the City’s economic resiliency that tax revenues continued to grow throughout the pandemic.
However, the recovery remains incomplete, precarious, and uneven. High inflation is biting sharply into families’ purchasing power to afford housing, food, health care, child care, and transportation. The City is still 160,000 jobs short of the pre-pandemic peak and commercial real estate faces a challenging adjustment to new work practices.
Even if the Federal Reserve successfully lowers inflation without causing a recession, higher interest rates will slow economic growth, causing real pain for New Yorkers and reducing revenues for the City. And we must reckon with the fact that the pains of both inflation and job losses are borne disproportionately by low-income New Yorkers. The unemployment rate among Black New Yorkers remains above 10%, three times the national average.
In June 2021, the Mayor forecasted FY 2022 tax revenues at $62.4 billion. In June 2022, the forecast rose to $68.6 billion, 10% higher than originally projected. And based on June tax collections, the final amount will be closer to $69.5 billion. No one sitting here today believes that these trends will continue.
Looking ahead, we believe that economic growth will moderate and tax revenues will drop next year, in line with OMB’s expectations. Only in FY 2025 and FY 2026 does our tax forecast rise moderately above City Hall’s. Even with that slightly rosier outlook in the outyears, we do not expect tax revenues to cover additional expenses not yet reflected in the financial plan. Systematically under-budgeted expenses on overtime, Carter cases, homeless shelters, and others remain areas for concern. In addition, the expiration of stimulus funds creates fiscal cliffs in FY 2025 and FY 2026, particularly for important recurring programs funded through these one-time dollars like the 3K expansion.
Finally, starting in FY 2024 the budget will start reflecting the impact of adverse financial market conditions on pension returns. In the first half of 2022, equities had the worst performance in 50 years, and all major asset classes except commodities incurred significant losses. As a consequence, the combined return of the five pension systems was -8.65%. The pension funds remain well-funded, and the retirement security for the City’s current and future retirees is extremely solid. Still, we estimate that this will translate in higher pension contributions totaling nearly $6 billion from FY 2024 to FY 2026. Going forward, it will be important to reassess the pension systems’ asset allocations to better position the funds to meet the required rate of return.
Overall, we estimate budget gaps of $869 million in FY 2023, $6.43 billion in FY 2024, $7.07 billion in FY 2025, and $9.55 billion in FY 2026. These are sizable gaps and will require strong fiscal discipline in order to avoid harmful cuts to services. Ensuring the City can meet its obligations – to our creditors, our workforce, our vendors, and to the services expected and needed by our residents – is essential to our shared long-term thriving.
The City set aside $2.2 billion in long-term reserves (the Revenue Stabilization Fund and the Retiree Health Benefit Trust) in FY 2022 to help weather the possibility of a recession. While this deposit was slightly lower than the $2.5 billion that my office recommended, it was a strong step towards fiscal stability, and the Mayor and City Council deserve credit for it. The total of our long-term reserves currently sits at 9.4 percent of tax revenues, below the 16 percent we estimate is needed to weather the full length of a recession. For this reason, and given the FY22 year-end excess revenues, an additional $800 million should be deposited into the Revenue Stabilization Fund at this time.
We continue to recommend that the City formally adopts an explicit policy, backed by a quantitative assessment of economic risks and revenue volatility, to set a goal for the size of long-term reserves and policies for deposits and withdrawals.
Over the years, many of the provisions of the Financial Emergency Act have been incorporated in the City Charter, with the notable exception of the General Debt Service Fund, whereby the State Comptroller retains property tax revenue for general obligation bonds’ debt service before it goes into the City’s general fund. My office supports state legislation to make the General Debt Service Fund a permanent feature of the City’s financial and budgetary system.
This period of high inflation, tight labor markets, and shifts in working patterns poses unique challenges for maintaining a strong public workforce, which is essential to serving New Yorkers. Most labor contracts will soon be expired, and the financial plan funds annual increases of 1.25 percent. Given current inflationary pressures, it is likely contractual increases will be higher and add to projected budget gaps.
Beyond the fiscal impact, there are important medium- and long-term questions about the City’s workforce, including how the shift to hybrid and remote work and other transformations in the labor market will affect the City’s ability to meet its staffing needs.
In the coming months, we also have the best opportunity in many years to reform New York City’s broken property tax system to address both the unequal burden on outer borough and working-class homeowners, and the excessive burden on multifamily rentals. Working together with a coalition of city and state elected officials, we are building public support for much needed reforms, and with the help of everyone in the room today, I hope this will be the year to finally pass changes in Albany and implement a new property tax system in New York City.
Many critical questions about our City’s economic and fiscal future remain.
- How will shifts to remote and hybrid office work affect our central business district, our commercial corridors, and our property tax revenues over the long term?
- How will we live up to the commitment we made to address the inequalities in the labor force and health care that played a deadly role in determining who contracted and died from Covid?
- How can New York City confront the ongoing crisis of housing affordability, which is increasing homelessness, preventing families from buying homes and building wealth, and serving as a disincentive for families and businesses to locate here?
- How will demographic and migration patterns affect the city’s economy, the services we need to provide, and the cost of providing them? We are already seeing those questions play out in our schools. While I support using the remaining federal stimulus funds to cover this year’s $469 million reduction to individual school budgets, in the longer run we need to make a plan for our public school system that balances City and State resources, students’ needs, and educational goals. The Foundation Aid funding levels that Governor Hochul secured in the budget this year will be essential to that plan.
- How will we make the upgrades needed to our public transit system with lower fare box revenue? Both the federal infrastructure bill and the implementation of congestion pricing will help, but more resources will be needed to secure the transit improvements and operations necessary for a thriving city and region.
These are large and daunting questions. Nonetheless, while the economic uncertainty of this unique time in New York City history remains challenging, it is beyond doubt that the City is in a far stronger governance position than during the crisis that drove the creation of this Board in the 1970s.
I want to credit Governor Hochul and Mayor Adams for establishing a joint task force, co-chaired by former Deputy Mayors Dan Doctoroff and Richard Buery, an important and unusual sign of collaboration on the critical challenges. And I want to thank the Mayor for his collaboration with my office on important long-terms questions of procurement, infrastructure, and capital projects management.
The challenge of our moment is to build thoughtfully on NYC’s strengths, to remain diligent in our fiscal responsibilities, and to guide the city toward a more just, inclusive, and fiscally sustainable future for all New Yorkers.
Thank you for the opportunity to comment on the City’s Adopted Budget and financial plan, and on our shared economic future.
To read the Comptroller’s full report on New York City’s FY 2023 Adopted Budget, click here.
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