Mayor Michael R. Bloomberg today announced his Fiscal Year (FY) 2008 Preliminary Budget and presented the four-year financial plan for New York City. The $57.1 billion budget delivers $1 billion in tax relief to New Yorkers while maintaining the City’s firm financial footing in the near-term, puts aside an additional $500 million in the Retiree Health Benefits Trust Fund created last January, and uses $1.4 billion in one-time resources to help reduce the FY 2009 budget gap. The Preliminary Ten-Year Capital Plan accompanying the budget identifies critical investments which the City must make to remain the best place in the world to live, work and do business. It extends the five-year, $13 billion school capital construction plan, for which the City won $6.5 billion from Albany last spring, at the same level of annual commitment through 2017.
“Because of our strong economy, tax revenues are running higher than expected this year. That’s good budgetary news, including $1 billion in tax cuts for the people of New York City,” Mayor Bloomberg said. “If conditions permit, we’ll propose extending that tax cut in the future. But with slower job growth and other indications of economic uncertainty on the horizon, it’s wiser to take a wait-and-see approach, while also putting $500 million more into our Retiree Health Benefits Trust Fund and using $1.4 billion to close the expected budget deficit in 2009.”
Continued Economic Growth:
New York City’s economy continues to strengthen in the near term and jobs are being created throughout the City. The Administration’s Five Borough economic development strategy has helped push unemployment to its lowest levels ever in 2006, with an annual unemployment rate of 5.0%. New York City has added 124,00 private sector jobs since 2003; the City’s leisure and hospitality sectors alone created 8,000 new jobs in 2006, and are expected to continue expanding. In 2006, wage earnings far exceeded those of the 2001 peak and the securities sector bonus pool topped $25 billion in 2006, by far the highest level ever. But while Wall Street profits are estimated at $16.8 billion in 2006, forecasts predict profits closer to $14 billion in 2007, with significant softening in 2008.
Because of New York City’s strong economy, tax revenues are running higher than expected, with an anticipated surplus of $3.9 billion in FY 2007. As the Mayor first announced in last week’s State of the City address, he intends to return $1 billion to the people of New York City in cuts to business, sales, and property taxes. Some $750 million of this tax relief will come as a temporary, one-year property tax rate reduction, which would come in addition to the extended $400 property tax rebates for homeowners (which total $256 million a year). In addition, the Mayor outlined $250 million in proposed permanent tax cuts for families and small businesses: $140 million in sales tax relief by eliminating City sales taxes on all clothing and shoes, and $110 million in five job-creating tax breaks for small businesses and S-corporations in New York City.
Retiree Health Benefits Trust Fund:
Last January, the Mayor announced that New York City will set aside $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. Today, he announced that he will place another $500 million in this trust fund, for a total of $2.5 billion. The fund will provide long-term budget stability for the City. Government Accounting Standards Board rules require state and local governments to report their obligations on retiree health insurance. New York has exceeded that standard by not only reporting the total liability it faces, but also putting funds aside toward this future liability. 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.
Out-Year Gaps - $1.4 Billion to Reduce FY 2009 Gap:
While the City’s economy is booming today, good times do not last forever, and New York City is familiar with the negative effects of fiscal downturns. Facing multi-billion dollar budget gaps in the out-years of the plan (FY2009 – FY2011), Mayor Bloomberg emphasized that this is no time to be squandering our good fortune on unsustainable spending increases. The FY 2008 Preliminary Budget therefore uses $1.4 billion in one-time resources to help reduce the FY 2009 budget gap.
Ten-Year Capital Plan – Expansion of School Capital Program and Lower Manhattan Security Initiative:
The City’s preliminary ten-year capital strategy is focused on education and economic development. Over 37% of the $77 billion capital plan between FY2008 and FY2017 will be spent on educational facilities. The Administration’s plan assumes that New York State continues to fund 50% of the capital plan of the Department of Education, as it currently does. In addition, the City is making vital economic development investments in the Hudson Yards area of Manhattan, the Atlantic Yards in Brooklyn, and in projects large and small Citywide. The capital plan also includes an initial City investment of $15 million in the Lower Manhattan Security Initiative that will help safeguard bridges, tunnels, and infrastructure as well as everyone who lives, works, and does business downtown. The Administration expects the Federal government to invest $10 million in the first stages of this project, which is essential to protecting our nation’s financial center.
State and Federal Aid:
While New York City is not specifically requesting budget gap closing items from the State or Federal governments for FY 2008 in this plan, the Administration does still have important fiscal issues and budget gaps in future years that require State and Federal assistance to close. This budget plan relies on significant State funding for education. At the Federal level, the City would greatly benefit from additional flexibility in many areas, including community development and homeland security, as well as more funding for World Trade Center health and compensation programs.