The New York City Independent Budget Office today released its annual Fiscal Outlook report, which finds that although the city will end the current fiscal year with a large surplus for the fifth consecutive year, substantial budget shortfalls loom for the ensuing years. The report, which bases its assumptions on current spending and tax policies, projects that city spending will rise from $40 billion in fiscal year 2001 to $46.7 billion in 2004. Budget gaps will grow from $2.4 billion in 2002 to $4 billion in 2004.
“Unlike recent years, these gaps will be increasingly difficult to close,” said IBO Director Ronnie Lowenstein. “The robust national and local economies produced extraordinary budget surpluses over the past few years. Those days are behind us, as a slowdown in the national economy begins to affect city tax receipts,” added Lowenstein. IBO’s budget projections are based on a slowing rate of economic growth in the city—not a recession.
IBO finds that city spending will rise at an annual average rate of 3.8 percent from 2001-2004, eclipsing yearly revenue growth of 2.2 percent over the same period. Several key factors driving increases in city spending are:
- Labor settlements that increase wages at the rate of inflation would add $1.5 billion to city spending by 2004.
- Spending on education will increase by $1.3 billion over the four years. While this increase is substantial, it reflects average annual growth of 3.8 percent—well below the nearly 10 percent annual rate of 1997-2000.
- Medicaid spending, fueled by inpatient hospitalization and prescription drug costs, will increase $700 million between 2001 and 2004.
- Rising debt service will consume nearly 19 cents of every city tax dollar by 2004.
IBO annually prepares its Fiscal Outlook report to provide the public with an objective starting point for considering the city’s preliminary budget for the coming fiscal year. The preliminary budget is scheduled to be released by the Mayor later this week.
The Fiscal Outlook report is available in hard copy or on IBO’s Web site at www.ibo.nyc.ny.us. IBO’s Web site also includes additional tables detailing its budgetary projections.
IBO is an independent city agency whose mission is to provide nonpartisan budgetary, economic and policy analysis for the residents of New York City, and to increase New Yorkers’ understanding of and participation in the budget process.