IBO SEES $1.1 BILLION CITY BUDGET SURPLUS IN CURRENT YEAR

BUT DIFFICULTIES REMAIN, INCLUDING GROWING DEBT SERVICE BURDEN

A robust national and local economy means that New York can look forward to a $1.1 billion surplus for the current fiscal year ending June 30th, the city's Independent Budget Office (IBO) predicted today in its annual report, New York City's Fiscal Outlook. Assuming the city follows its recent practice of using the surplus to prepay expenses for the next fiscal year, the budget gap for fiscal 2000 would shrink to $540 million, a relatively modest shortfall in a $36 billion budget.

The city's longer-term fiscal outlook has improved as well. If current spending policies and tax laws remain unchanged, with no major new spending initiatives or tax cuts, IBO projects that the city will face budget gaps of $1.9 billion in 2001, roughly one-third smaller than forecast in the city's most recent financial plan, and $1.9 billion in 2002, nearly one-quarter lower than forecast.

Douglas A. Criscitello, IBO Director, said, "The city's fiscal outlook is brighter in many ways, thanks largely to the strength of the local economy. But at the same time, serious fiscal challenges remain because city spending is growing more rapidly than revenues-even without proposed tax cuts or such spending initiatives as new stadiums."

"Of particular concern is the projected increase in the debt service burden. The city clearly needs major investments in its infrastructure, particularly its schools. But unless we find new sources of revenue or use more of the surplus for pay-as-you-go capital, debt service payments alone will exceed $4 billion in fiscal 2002, which is more than we will be spending on police."

Rising debt service is fueling the city's spending growth and will consume an increasing share of tax revenues. Combined general obligation (GO), Municipal Assistance Corporation (MAC), and Transitional Finance Authority (TFA) debt service will rise from 11.0 percent of tax revenues in 1990 to a projected 15.9 percent in 1999 and 18.4 percent in 2002.

For purposes of comparison, spending on police for fiscal 1999 is expected to be about $2.8 billion, while debt service for the same year is projected at about $2.5 billion. By 2002, police spending will have grown to $3.2 billion, while debt service will have gone up much faster to almost $4.2 billion.

Assuming that the national and local economies cool off but continue to expand, IBO projects that city revenues will grow at an average annual rate of 2.4 percent over the next four years, compared with spending growth of 5.1 percent per year. Revenues will increase sluggishly due to slower economic growth, the cumulative impact of already enacted tax cuts, and constraints on growth of the property tax.

Other report highlights include:

• In contrast to the remarkable 98,000 jobs the city gained in calendar year 1998, IBO expects more moderate employment growth of 30,000 to 40,000 jobs per year over the next four years. We forecast that three-quarters of these new jobs will be in the service sector.

• Falling caseloads will cause public assistance costs to decrease over the next year and stabilize through 2001. After 2001, however, we expect the city's (and the state's) share of these costs to rise as recipients begin to reach a five-year limit for federal assistance and transfer to non-federally funded programs.

• Sanitation costs will rise sharply in 2002 with the closure of the Fresh Kills landfill and the need to export more garbage out of state.

• Board of Education spending will grow significantly due to rising labor costs and spending associated with two new state-sponsored initiatives: class size reduction and universal prekindergarten.

The New York City Charter mandates the Independent Budget Office to publish an annual report on the expected level of the city's expenditures and revenues. New York City's Fiscal Outlook is the IBO's reply to this mandate. Copies of the 36-page report are available by calling (212) 442-0632, writing to the Independent Budget Office, 110 William Street, New York, NY 10038, or by accessing IBO's website at www.ibo.nyc.ny.us.

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