In remarks accompanying his annual city budget report, Comptroller (and mayoral candidate) Bill Thompson said that the city’s tax revenues have “evaporated.”
After a 37 percent decline in personal-income tax revenues over two years, these revenues won’t return to 2008 levels for five years, the comptroller’s staff projects.
Has NYC started to cut spending in line with diminished expectations? If you’re in a hurry, the answer is no, but some details are below.
In January 2008, before Bear Stearns, Lehman Brothers, and AIG collapsed — all very shockingly, of course! — New York City expected to reap $37.3 billion in tax revenue for fiscal year 2010 (the current year, which started four weeks ago), including $1.2 billion from a property-tax hike that Mayor Bloomberg had already proposed.
Today, New York expects to take in $35.3 billion for the year. But this figure includes $879 million from a new sales-tax hike.
Without the higher sales tax, New York would have a shortfall of nearly 7.8 percent between reality and previous expectations.
City spending, however, is down only 4.3 percent from previous expectations, according to calculations I’ve made from the data in Thompson’s report.
And Mayor Bloomberg has made scant progress with the structural problems that drive the city’s deficits, which range between 11 and 12 percent of city-funded spending over the next three years.
In fact, some of the budget cuts the mayor has made to make room for higher spending elsewhere — including cuts to the police force — may be unsustainable.
Over the next three years, the budget’s structural problem will worsen. City-funded tax revenues (as opposed to federal and state grants) should go up by 15.3 percent.
But spending will go up 20.5 percent, driven by pensions (up 14.5 percent), healthcare (up 17.7 percent) and debt service (up 21.6 percent).
As Thompson notes:
[S]ince [fiscal year] 1987, when measured as a percent of revenues, the ensuing fiscal year’s budget gap at the time of budget adoption has been higher than the projected gap for [next year] in only two instances: at the FY 2003 Adopted Budget and the FY 2006 Adopted Budget. In 2003, the gap was closed with an aggressive program … which included substantial tax increases and significant spending reductions. In FY 2006, tax revenues resurged unexpectedly to help eliminate the gap. Since this resurgence was a byproduct of the ‘bubble economy’ …, the Comptroller believes that a similar performance is unlikely to be repeated in the near future.
But a short-term “resurgence” is a risk.
Thompson expects a personal-income tax drop of 12.1 percent for this year, for example. But the year just started, and Wall Street firms, led by Goldman Sachs, are hiking bonuses.
As noted before, a spike in personal-income tax revenues would cause more political complacency when it comes to cutbacks in future pensions, healthcare costs, and the like.
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