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PR- 033-06
January 31, 2006


$3.5 Billion Set Aside to Fund Long-Term Costs

Mayor Michael R. Bloomberg today announced his Fiscal Year (FY) 2007 Preliminary Budget and presented an updated four-year financial plan for New York City.  The $52.2 billion budget maintains the City’s firm financial footing in the near term and uses one-time resources to help fund $3.5 billion in long-term health care costs, pay-go capital and debt reduction. The $3.5 billion investment in the City’s future aims to improve the long-term financial health of New York City, provide counter-cyclical funding of expenses and address the structural imbalance of New York’s budget. Instead of increasing spending in the short-term, the Mayor is using current revenue to invest in the long-term fiscal health of New York City.  In addition, the Mayor proposed pension reform to curb spiraling pension costs and protect the City’s ability to fund necessary services and provide wage increases to municipal employees.

“Now is the time to address the long-term structural problems in New York City’s Budget,” said Mayor Bloomberg.  “We have made the tough decision, endured years of difficult choices and our fiscal prudence has temporarily produced additional revenue. In the short term, New York’s budget is stable and strong.  However, structural imbalance and large out-year budget gaps persist and not only threaten the City’s long-term solvency, but could force painful budget cuts and tax increases in the future.  We are capitalizing on one-shot revenues that will be used for pay-go capital, debt relief and as a down payment on future health care costs for City retirees.  For too long, New York City has not prepared for fiscal downturns and the ensuing budget problems they produce. We must seize this opportunity, marshal our current resources and work with our partners in government and labor to make the structural changes necessary to the City budget to put our City on track for long-term and growth and fiscal stability.”

Continued Economic Growth:
New York City’s economy continues to strengthen in the short-term and jobs are being created throughout the City.  The Administration’s five borough economic development strategy has helped push unemployment to 5.8%, the lowest level since 2000. Wall Street’s revenues have rebounded to pre-September 11th levels, reaching $225 billion, an increase of nearly 50% between calendar year 2004 and 2005. The securities sector bonus pool is forecasted to top $20 billion in calendar year 2005 and 2006, the highest levels ever.  However, rising interest rates will slow Wall Street’s advances and profits have declined this year. Visitors to New York topped 41 million in 2005 and employment in the tourism sector topped 305,000 in 2005. The City’s commercial occupancy rate is the highest in the nation.  New York’s real estate market is expected to slow, however, with a 10% decline in home prices, a 14% decline in home sales over the next few years and a significant decline in real estate transaction taxes that have buoyed the City’s tax revenue in the last few fiscal years.

FY ’07 Gap Closing
Prior to the Preliminary Budget, the FY ’07 budget gap was forecast at $2.25 billion.  Since the November Plan Update, there has been $795 million in increased revenue, $487 million in decreased expenses and a $228 million agency program in FY ’06. The FY ’07 gap is partially closed by rolling this $1.5 billion from FY ’06. The FY ’07 gap is swelled by $505 million in additional agency expenses and is closed with $633 million in additional revenue, a $262 million agency program, $100 million in Federal Actions and $250 million in State Actions.   

Long-Term Budget Risks:
Despite the City’s strong economy and fiscal stability, significant risks exist in the out-years.  In FY ’07 the gap between agency and non-discretionary spending grows to $5.5 billion compared to a gap of $932 million in 2002.  Non-discretionary expenses such as Medicaid, pensions, fringe benefits and debt service will increase by nearly 15% in FY ’07.  Pensions and fringe benefits now consume more than 62% of the total salaries for municipal employees and there are projected budget gaps of $3.5 billion gaps in FY ’08 and ’09. Without long-term solutions to these recurring problems and structural shortfalls the City will be plagued by a continuous boom-bust cycle that invariably causes painful budget cuts and
tax increases.

Long-Term Budget Stability:
The Mayor will reserve a total of $3.5 billion to solidify the City’s long-term finances. Extraordinary one-time resources, including increased real estate transaction taxes, the Personal Income Tax and delays in the City’s pension contributions have generated $3.5 billion in resources that will be used to reduce long-term costs to the City.  This includes $1 billion in pay-go capital between 2006 and 2010, $500 million in pre-payment of debt and $2 billion to establish a trust fund for retiree health benefits. 

Retiree Health Benefits Trust Fund:
New York City will appropriate $1 billion in both FY ’06 and ’07 to establish a trust to fund a portion of its liability for the benefits of its current and future retirees.  The fund will not only provide long-term budget stability for the City, but put New York in compliance with Government Accounting Standards Board rules that require state and local governments to report obligations on retiree health insurance. Deposits into the trust are irrevocable and all money deposited into the trust must be used to pay the costs of retiree health care benefits in future years.

State and Federal Aid:
The FY ’07 Financial Plan calls for additional Federal and State aid to New York City, including many items that are of no cost to the State or Federal Governments.  New York City is requesting $250 million of assistance from Albany and $100 million of assistance from Washington, DC.

New York City pays over $13 billion more in Federal taxes than it receives from the Federal Government in spending.  The City has provided a menu of $900 million in initiatives to the Federal Government to reach its goal of $100 million in assistance.  The menu includes reimbursement for UN protection, adequate child care funding to meet TANF work requirements and reprogramming community development bloc grant allocations.  In addition, the City requests that the State Homeland Security Grant program must be changed so that it is distributed on a threat-based allocation rather than a population-based formula. 

New York City pays $11 billion more in State taxes than it gets back in funding despite being the economic engine of the State.  The City has provided a menu of $500 million in initiatives to the State to achieve the $250 million in budget relief it needs.  The goal of City’s State Agenda is to control capital construction costs and debt financing and growing pension obligations. In addition, the City seeks the State’s assistance in utilizing government resources more efficiently and creating an equitable human service partnership that will update reimbursement rates and provide the necessary resources to meet TANF mandates. Included in the menu to the State are a $0.50 increase in the City’s share of the cigarette tax, reductions in the State imposed mandates on OTB and repeal of the Wicks Law. In addition, the Mayor will continue to fight for the $6.5 billion in capital construction dollars owed to the City under the CFE lawsuit. The Mayor will also request that Albany extend the $400 property tax rebate for three more years.

Preliminary Capital Plan:
The Preliminary Capital Plan invests more than $40.7 billion in City infrastructure over the next four years.  A total of $11.1 billion or 27% is invested in New York City schools. The plan invests more than $2.5 billion in bridge maintenance, $265 million to renovate firehouses and EMS stations, $209 million to construct and renovate police precincts, $133 million for the development of the Moynihan Station, $100 million for Greenpoint-Williamsburgh waterfront development, $42 million for the New York Aquarium, $33 million for the Bronx Zoo, $31 million for the Queens Museum, $22 million for the Snug  Harbor Cultural Center and $16 million for Electronic Medical Records for Community Health Centers.


Stu Loeser / Jordan Barowitz   (212) 788-2958

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