Originally published in Issue 3 - Mar 3, 1997

On February 14th, the Independent Budget Office released an independent City revenue and expenditure estimate for fiscal years 1998-2001. New York City’s Fiscal Outlook meets the challenge set forth in the City Charter for IBO to issue a report each February discussing expected levels of revenues and expenditures for the City in the coming fiscal year. The IBO is the only entity in City government, other than the Mayor, that is required to issue a revenue projection. The Fiscal Outlook report marks IBO’s first formal participation in the City’s budget process since the agency was formed last year.

Fiscal Outlook projects that tax revenue will grow from $18.8 billion in FY 1997 to $20.9 billion in FY 2001. As compared to the Mayor’s preliminary budget tax forecast (excluding new Mayoral tax reduction proposals), IBO’s forecast of tax revenues is slightly more optimistic in the first three years, and then somewhat more pessimistic in the last two years of the forecast period. The differences are attributable to slight variations in assumptions about the state of the economy over the next five years and the impact on tax revenues.

Based on new research which reconstructs the history of tax policy changes and tax revenues, IBO finds that City baseline revenue growth has lagged behind local economic growth over most of the past two decades. The IBO’s analysis shows that this structural lag has played a much larger role than tax policies in influencing the size of the City tax burden and the mix of City revenue sources. While weak baseline revenue growth has reduced New York City's tax burdens, it has also constrained City revenue policy in several ways:

• City policymakers have little control over the timing of the relative revenue declines.
• Policymakers have relatively little to say about which taxes to cut.
• Long-term budget balance may be more difficult to attain.

Fiscal Outlook applies a new concept to New York City municipal budgeting by establishing a current services baseline projection of revenues and expenditures. The current services concept, used extensively by the federal government, projects spending and revenues into the future assuming continuation of inflation-adjusted current spending levels and static tax laws. Such a policy-neutral baseline provides a meaningful starting point for analysis of the City’s fiscal condition as the annual budget process gets underway.

Fiscal Outlook concludes with an analysis of issues likely to become increasingly important in the months and years ahead. These include closure of the Fresh Kills landfill on Staten Island, reauthorization of the federal ISTEA transportation aid program, and implementation of recent major changes to federal welfare programs.

Copies of the report are available upon request. An analysis of the Mayor’s preliminary budget will be issued by IBO later this month as required by the Charter.