OSC Report: Review of NYC’s Financial Plan 2023
According to the review by the New York State Comptroller’s Office (OSC), the “release of New York City’s Fiscal Year 2023 adopted budget and accompanying Financial Plan (the “June Plan”) cemented significant improvement of the city’s fiscal position since June 2021. The prepayment of $6.1 billion in FY 2023 expenses; the elimination of $1 billion in recurring unidentified labor savings; the addition of funding for wage increases on 1.25 percent for its municipal workforce; as well as the putting away of $1.45 billion (an increase of $950 million) into its Rainy Day Fund and $750 million into its Retiree Health Benefits Trust were enabled by the city’s estimated FY 2022 operating budget results.
Primarily contributing to the city’s improved fiscal position occurring in FY 2022 were four factors in tandem: Tax revenue collections which exceeded June 2021 projections by over $6.2 billion; additional extraordinary federal aid; a record year for pension returns in FY 2021 creating savings beginning in FY 2023; and savings from lower-than-planned staffing levels including the elimination of vacant positions. The OSC’s review further indicates that “while the city’s published gaps are manageable by historical standards, averaging 5.3 percent from fiscal years 2024 through 2026 (3.3 percent excluding contingency line items), these factors may create risks that worsen the city’s budget volatility substantially,” and potentially lead to a structural budgetary imbalance if left unaddressed.
In FY 2023 total revenues are expected to decline by 9.4 percent from the record high of $111.6 billion in FY 2022 to $101.1 billion due to lower tax revenues and federal aid for COVID-19 relief. While the city’s projected decrease in tax revenues of 1.2 percent in FY 2023 is reasonable, it does not take into account a recession. During the first two full fiscal years of the last two recessions, city fund revenues declined by 4.2 percent in FY 2002 and 5.9 percent in FY 2009. Furthermore, the Federal Reserve’s monetary easing policy during the pandemic has shifted its focus on monetary tightening to tame inflation, which has already begun to create pressure on asset prices and firm profitability. The OSC suggests that in preparation for another local economic slowdown, the city will need to actively manage its budget and should put a renewed focus on performance to both identify areas of efficiency and ensure scarcer funds are being spent in a manner consistence with their stated purpose.