The City of New York

For Immediate Release
May 18, 1998
Contact: Herbert Block
(212) 442-0629



Inability To Close Future Gaps Leaves City Vulnerable To Downturn; Report Also Points to Need for Unified City Budget

The city will realize a budget surplus of $1.1 billion in fiscal year 1999¾ $670 million more than projected by the Mayor¾ if the Mayor's recently proposed budget is adopted in its entirety, according to the latest report of the Independent Budget Office (IBO), Analysis of the Mayor's Executive Budget for 1999. Moreover, the current year is expected to end with a surplus of nearly $2 billion. The forecast surpluses result primarily from ongoing growth in the city's economy coupled with the continuing record profitability of Wall Street securities firms.

"While the strength of the local economy is helping the city solve many of its near-term budget problems, persistently large projected out-year gaps at this point in the business cycle could be an omen of difficult times ahead," said IBO Director Douglas A. Criscitello. If the city follows its recent practice and uses the lion's share of its 1999 surplus to prepay debt service scheduled for 2000, the projected gap looking two years ahead would be at its lowest level in percentage terms since the 1990 executive budget. However, in 2001 and 2002 the projected gaps remain much larger than the comparable out-year gaps of the mid- and late-1980s, the city's previous period of sustained economic growth. In fact, the 1988 and 1990 executive budgets actually projected surpluses at the end of the respective plan periods.

Those projected surpluses were rapidly transformed into large deficits by the steep recession of the early 1990s. But the city's fiscal situation would have been even more dire had it entered that period of rapidly declining revenues and rising spending needs with significant out-year budget shortfalls. The danger facing the city today is that even a modest slackening of the still-robust growth forecast for the next four years could quickly push projected out-year budget gap percentages back up to the double-digit levels of the early 1990s. Spreading surplus 1999 funds over the entire financial plan period and beyond by reducing the city's outstanding debt would help fortify the city's long-term fiscal position, according to IBO.

With recent data showing that economic growth and tax collections have remained robust, IBO has revised upward its forecast of baseline 1999 tax revenues-excluding proposed tax cuts-by $266 million since March.

Moreover, IBO's baseline tax revenue forecast for 1999 is $505 million higher than the Mayor's due to differing estimates of cyclically sensitive personal and business income taxes. Similarly, for the 2000 through 2002 period, IBO's forecast of baseline tax revenues is considerably more optimistic than the executive budget. IBO estimates that total spending under the policies proposed by the Mayor would decrease overall spending by $600 million from 1998 to 1999; if debt service prepayments are excluded, however, spending rises by $900 million.

The Mayor introduces two changes that would obfuscate certain details of the city's budget. First, it removes from the primary city budget the debt service of the Transitional Finance Authority (TFA) and the personal income tax revenues dedicated to paying that debt service. Second, it similarly moves the expenses of a proposed Sports Facilities Corporation (SFC) and the commercial rent tax revenues that are to be dedicated to SFC out of the city budget. "A unified budget is needed to enable creditors, legislative and oversight officials, and the general public to accurately assess the full scope and costs of city government activities. Any move to make the budget more confusing should be resisted by the City Council," said Criscitello.

Moving TFA and SFC expenses and revenues off-budget distorts the city's fiscal record in several ways:

The Mayor's executive budget also proposes no funding for the IBO in 1999 and beyond, despite a provision in the City Charter guaranteeing IBO funding at the level of at least ten percent of the funds allocated to the Mayor's Office of Management and Budget. Based on the Charter and several previous court decisions, IBO's repricing of the executive budget includes $2.7 million each year for IBO.

New Yorkers with questions about the budget now under consideration by the City Council can call IBO's Budget Hotline at (212) 442-8619 or join a Budget Cyber Town Hall Meeting, cosponsored with, through IBO's website at Copies of the full 38 page report are also available by accessing IBO's website, by calling (212) 442-0632, or by writing to the Independent Budget Office, 110 William Street, New York, NY 10038.

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