What Happened?

The Adopted Budget for Fiscal Year 2018, adjusted for prepayments and reserves, is $87.3 billion. Spending will grow 3.4 percent over the fiscal year 2017 projected budget of $84.5 billion.¹ Compared to the Executive Budget, the Adopted Budget reflects about $400 million less in spending in fiscal year 2017 and $600 million more in spending in fiscal year 2018. The budgets of both years are balanced and a number of revenue and expenditure changes were enacted.

Additional spending in fiscal year 2018 is funded by a $442 million increase in the surplus roll, $340 million in additional revenue, and $103 million in Citywide Savings.

The City expects to end fiscal year 2017 with a $4.2 billion surplus to be used to prepay fiscal year 2018 expenses. The surplus has grown $442 million since April – while revenues were revised down by $164 million, expenses were decreased by $606 million. Fiscal year 2017 forecasts for business taxes and STAR reimbursement were reduced, while property, personal income, and real estate transfer tax forecasts were increased.² Expense reductions of $706 million were composed of debt service savings of $223 million, use of the general reserve of $280 million, and other savings of $203 million. These savings were then used to deposit $100 million into the Retiree Health Benefit Trust (RHBT), bringing the RHBT to its highest balance. 

Additional tax revenue is expected in fiscal year 2018. A $183 million increase in the property tax revenue forecast, following the release of the final assessment roll, is offset by $87 million in expanded tax exemptions for veterans and low-income senior citizens.³

The Adopted Budget also reflects $103 million in savings in fiscal year 2018 from a one-year hiring freeze.  Thirty-seven agencies are expected to generate savings of $75 million (with the remaining $28 million of savings from associated fringe benefits). Five agencies are projected to generate nearly two-thirds of the savings in salaries and wages: Department of Education, New York Police Department, Department of Information Technology and Telecommunications, Department of Health and Mental Hygiene, and Department of Finance.

The $685 million in new spending in fiscal year 2018 is for City Council initiatives, agency expenses needs, and reserves. Council initiatives total $381 million, in addition to $304 million for agency spending. Council initiatives include funding for youth, seniors, and immigrants, and new agency needs include funding for nonprofit social service providers, youth, seniors, education, cultural institutions, and emergency food assistance. Reserves are now at $1.45 billion in fiscal year 2018, up $200 million from the Executive Budget.

CBC Take

The City is increasing both the RHBT and the General Reserve. Regular deposits to the RHBT should be considered, and efforts to grow the fund should be guided by standards for deposits and withdrawals. Revenue forecasts are cautious, reflecting the uncertainty in the economy.  The City continues to demonstrate fiscal prudence in this regard.

However, CBC continues to have concerns about the growth of headcount and costs of compensation.

The partial hiring freeze, in reality, is not an actual freeze and may or may not generate projected savings. The City outlined three courses of action regarding administrative and managerial positions: newly proposed hires will be evaluated by the Office of Management and Budget (OMB); vacant lines may be shut down; hiring in certain positions will be delayed. In other words, the city intends to increase the level of scrutiny around certain hires, which is expected to lead to some unfilled positions. The actual savings to be realized depend, in large part, on the authority granted to OMB. Furthermore, the freeze is not a new initiative as the City has routinely taken vacancy savings as part of the Citywide Savings Programs.

Despite the hiring freeze, headcount is expected to reach 329,055 in fiscal year 2018.  The Adopted Budget adds about 570 new positions, on top of 31,000 added since Mayor de Blasio took office. The most recent round includes large increases at parks and for civilian employees at the police and fire departments.

Moreover, as employment is expected to increase, average compensation per employee is projected to reach nearly $160,000 by fiscal year 2021, up from $140,000 this year. When Mayor de Blasio took office, all of the labor contracts were expired.  His administration settled most of those contracts. However, some of the retroactive payments were deferred and will come due in the next few years. Another round of negotiations looms; major collective bargaining agreements, such as those with District Council 37, the Uniformed Firefighters Association and the Patrolmen’s Benevolent Association, expire in July. The City budget has put aside funds for raises of 1 percent each year.  Any additional raises should be paid for with productivity gains, which also necessitate settling the contracts promptly, as those gains can only be prospective.

Health insurance costs are projected to grow dramatically.⁴ The next round of labor negotiations should build on the savings generated from the City’s partnership with the Municipal Labor Committee.⁵ Health insurance contributions from employees and retirees should be on the table during negotiations. The city pays 100 percent of the health insurance premium for most workers.  In contrast, New York State pays about 86 percent of premiums for individuals and 71 percent for families.⁶ Average employer shares are lower in the private sector.

Given uncertainty in Washington, D.C. and in the local economy, the City should limit new spending and achieve more savings, tax reductions, and reserves. Agencies need to step up efforts to make their operations more cost-effective by implementing efficiencies. Such efforts could result in more savings that could be used to enable a reduction in the Commercial Rent Tax to benefit small businesses and/or a reduction in the transit fare for low-income workers, both supported by Council Members.