New York City &New York StateBudget Briefing

June 23, 2015

Budget Calendars

Economic Indicators

New York State

New York City

Overview

Fiscal year begins April 1

Key budget milestones January – Executive

Budget

March – Adopted Budget

July – First Quarterly Update

October – Mid-year Update

City and State Budget Calendars

New York State New York City

3

Fiscal year begins July 1

Key budget milestones January – Preliminary

Budget

May – Executive Budget

June – Adopted Budget

November – Quarterly Modification

Strong Jobs Recovery in NYC,Rest of NYS Lagging

4

Non-farm Employment Growth Since 2007

2007 2008 2009 2010 2011 2012 2013 2014

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

NYC Rest of NYS U.S.

High Growth in Low-Paid Jobs

5

Change in NY Jobs from 2007 to 2013(2013 Average Annual Wage on Top of Bars)

(100)

(50)

-

50

100

150

Th

ou

sa

nd

s o

f Jo

bs

$27,847$46,835

$82,969

$51,408 $31,453

$162,653$57,128

2015 2016 2017 2018

1.8

%

1.3

%

1.3

%

1.1

%

1.6

%

1.5

%

1.3

%

1.2

%

2015 2016 2017 20183.7

% 4.4

% 5.1

%

5.0

%

2.8

% 3.7

% 4.5

%

4.2

%

New York State Division of Budget

Optimistic Economic Forecasts

6

Annual Employment Growth

Annual Personal Income Growth

New York City Office of Management and Budget

New York State Budget

7

Personal Income

Tax, $47.1B (31%)

Sales and Use Taxes,

$15.8B (10%)

Business Taxes,

$8.1B (5%)

Other Taxes,

$3.5B (2%)

Misc. Re-

ceipts, $25.4B (17%)

Federal Receipts, $51.4B (34%)

Composition of NYS ReceiptsFiscal Year 2016

8

$151B

Composition of NYS SpendingFiscal Year 2016

9

$152B

School Aid,$26.0B (17%)

Medicaid,$52.0B (34%)

Wages and Fringe Benefits, $20.1B (13%)

Other Education Aid, $9.6B (6%)

Other Health, Social Welfare Aid,

$13.4B (9%)

Other Local Aid,$10.9B (7%)

Other Agency Expenses, $7.8B (5%)

Debt Service, $5.1B (3%)Capital Projects, $7.2B (5%)

CBC “Big Three”65% of State

Spending

High Medicaid, Education Spending with Average Outcomes

10

(Commonwealth Fund State Health System Performance, 2014)

19Ranking out of the 50 states plus D.C.

High Medicaid Spender(spending per enrollee, FFY2011)

NYS US

$8,901

$5,790

Average Health Outcomes

NYS US

$19,818

$10,700

High Education Spender(public preK-12 spending per pupil, SY2013)

Average Education Outcomes(Education Week Achievement Score, 2014)

C-

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18$0

$10

$20

$30

$40

$50

$60

State Medicaid Costs Contained over Short-term, Federal Funds to Rise

11

State share of Medicaid below ~4% growth cap since FY 2012

Influx of federal funds - $6 billion from Affordable Care Act in FY 2016 budget, $8 billion federal waiver to be allocated over five years based on performance

NYS Department of Health Medicaid(dollars in billions)

Medicaid Redesign Team begins in 2012

State Enhanced FMAP Federal

High Growth in School Aid Despite “Cap”

12

School aid cap linked to personal income growth adopted in 2011 has been broken for 3 consecutive years

$2 billion Smart Schools Bond Act funding to be allocated

Focus on education reforms

Percent Change in School Aid, School Years 2005 to 2018

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

5.1%6.5%

8.5%10.9%

8.8%

1.0%

-3.5%

-6.6%

3.6% 4.3% 4.9%6.1%

4.0% 4.6% 5.3%

Actual/Projected Growth Cap

Projected

13FY 2010 FY 2016

Agency wages, salaries to be up 0.7% since FY 2010, and all other agency costs up 13.1%.

But fringes up 48%.

Fringe Benefits

All Other Agency Costs (OTPS)

Agency Wages, Salaries

$26.0M

Tight Control of Agency Budgets

Wage freeze in FYs 2012 through 2014; 2% raises in 2015 and 2016

Increased employee health insurance contributions (12-16% for single, 27-31% for family), new pension tier adopted for FY 2012

FY 2010 FY 2016

131,741

119,349

Executive-controlled work-force down 9.4% since FY

2010

$23.2M

14

Deferred Pension Contribution Amortization scheme authorized during recession $713M deferral in FY 2015 and $395M planned in FY 2016 Projected to continue through FY 2020

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029$0

$100$200$300$400$500$600$700$800$900

$1,000

Amortized Pension Contributions and Projected Repayment Schedule, FY 2011 to FY 2029

(dollars in millions)

Amount Amortized Repayment

FY 2017 FY 2018 FY 2019

$279

$1,702 $1,606

($2,054)($2,647)

($4,215)

Unspecified Savings Generate Future Surpluses

15

Financial plan shows surpluses growing to $1.6 billion in FY 19

But “surpluses” depend on unspecified savings from maintaining 2% state spending growth

$1.6 billion “surplus” in FY 19 is truly a $4.2 billion gap

Out-year “surpluses” used to justify tax cuts last year

“Surplus” vs. True Gaps(dollars in millions)

16

Questionable Priorities for $5.4B Settlements Windfall

Unresolved issues with broader plans $1.3B for Thruway Authority $250M for MTA Penn Station Access $400M for upstate hospitals

Broadly-defined and undefined uses $1.5B Upstate Revitalization Fund $500M for broadband $165M for upstate infrastructure $150M for shared services, government consolidation $150M Long Island “Transformative” Fund $150M for emergency response

One-time uses, but many unclear investments

$850M reserve for Medicaid dispute with federal government

2010 2015$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Continued Growth in Tax Breaks for Economic Development

17

Tax Breaks for Economic Development (dollars in millions)

BrownfieldsBrownfields

FilmFilm

EmpireZonesEmpire

Zones

Investment Tax Credit

Investment Tax Credit

Excelsior

START-UP NY

$1,190

$946

18

Large Increase in Capital Spending

Total Planned Capital Spending by Function(dollars in millions)

FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000Other

Bank Settlements

Public Protection

Parks and Environment

Mental Hygiene, Health, Social Welfare

Economic Development

Education and Higher Ed

Transportation

$11.4B

$4.5B settlement funds, plus $750M for MTA, $1B for hospitals, $400M for NYC and Long Island “Transformative Investments,” $200M clean water fund

Design-build extended for 2 years, study required

$8.3B

$11.2B$11.1B $11.3B $11.4B

CBC’s Concerns

19

Long-term impact of new federal funding for Medicaid through $8B waiver and ACA

Large increases in school aid without reforms to funding formulas

Deferral of pension payments despite economic recovery and large bank settlements

Misleading presentation of “surplus” and desire to spend it

Dubious approved and future uses of large financial settlements

Growth in economic development capital, business tax incentives despite lack of documented success

Composition of NYC RevenuesFiscal Year 2016

20

Total Taxes, $52.0B(63%)

Misc. Revenues, $7.1B (8%)

Surplus Roll, $3.0B (4%)

Other Grants & Aid,

$0.8B (1%)

Federal, $7.1B (8%)

State, $13.0B (16%)

$83.1B

Composition of NYC ExpendituresFiscal Year 2016

21

Personal Service:

52%Medical Assis-

tance, $6.4B (8%)

Public Assis-tance,

$1.5B (2%)

Debt Service, $6.5B (8%)

Reserves, $1.5B (2%)

Other OTPS, $24.0B(29%)

Salaries & Wages,

$25.2B(30%)

Pensions, $8.8B(11%)

Health Insurance,

$5.7B (7%)Other Fringe,

$3.6B (4%)

$83.1B

Large Growth in FY 2015 & FY 2016

New Initiatives Implemented & Contracts Settled

22

2010-2014 2014 2015 2016 2017 2018 2019 2015-2019Avg.

AnnualActual Planned Avg.

Annual

4.0%

1.6%

6.8%

3.8%

0.6%

2.9%

3.9%

2.4%

Year-to-Year Expenditure Growth

Fiscal Year

Note: Adjusted for surplus roll and RHBT drawdowns/funding.

Health Insurance and Debt Service Drive Growth

FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019

-10%

0%

10%

20%

30%

40%

50%

60%

Total Spending

Salaries and Wages

HI, no savings

HI, with savings

Debt Service

Pe

rce

nt

Gro

wth

sin

ce F

Y 2

014

23

54% of Healthcare Savings are from Baseline Cost Projections

2015 2016 2017 2018$0

$400

$800

$1,200

$1,600

$84 $132 $140

$261 $115 $118

$55$377 $414 $455

$251

$400

$800

"Savings" from Poten-tial Future Rate Re-ductions

"Savings" from Base-line Projections

Unspecified Initiatives

One-shots

Recurring Savings

$ in m

illio

ns

$400

$1,300

$1,000

$700

24

Savings Targets

The Citywide Savings Program

(dollars in millions) 2015 2016 2017 2018 2019 TOTAL

Total Savings ($589) ($466) ($641) ($627) ($584) ($2,906)

Debt Service ($241) ($159) ($393) ($365) ($345) ($1,502)

Agency Savings ($348) ($306) ($248) ($262) ($240) ($1,404)

Federal/State Adjustments 44% 11% 2% 2% 2% ($199)

Adjustments/Re-estimates 26% 25% 20% 16% 18% ($303)

Revenues 19% 12% 11% 10% 10% ($181)

Efficiencies/In-sourcing 11% 35% 45% 51% 47% ($500)

Procurement 0% 18% 22% 21% 23% ($222)

25

FY16 Headcount 14,400> than FY14Stays at that level for the length of the plan

26

4,5453,461

2,0821,445

0

2,986

Increases in FY 2016 Projected Headcount over FY 2014 Actual

3.9% 12.4% 8.4% 5.5% 4.3%

Ten-Year Capital Strategy Totals $83.8 Billion

Edu-cation$23.0,27%

Water &

Sewer Sys-tem,

$14.7, 18%

Hous-ing, $7.5,9%

All Oth-ers,

$20.6, 25%

Transportation, $12.6 15%

Buildings & Equip, $5.4,6%

$ in billions

27Investment Type

Replacement,$16.5,

20%

Expansion,$19.6,

23%

State of Good Repair,

$47.6,57%

Significant Increase to Accommodate New Priorities

28

AGENCYIncrease Over 2014 Strategy ($ in billions)

NOTE

Housing Pres. & Dev. $4.6 Mayor’s Housing Plan

Transportation $4.4 Bridge investments; Road repair acceleration

Education $3.4 Increase in repair and rehabilitation work

Citywide Equipment $3.1 ONENYC energy efficiency; building retrofits

Economic Development $3.0 $2 billion Neighborhood Revitalization Fund

Environmental Protection $2.3 Green Infrastructure Program; Sewer expansion

Health & Hospitals Corp. $1.5 Federal funds for Sandy-related reconstruction

Parks and Recreation $1.5 Doubling investment for repair/reconstruction

Courts $1.1 Mandated program

NYCHA, MTA, Libraries $2.1 Response to agency requests

ALL AGENCIES $30.1

Affordability is a Concern: Debt Burden Is High

According to Metrics Used by Rating AgenciesDebt Outstanding, FY2016

As a Share of Real Property Value

As a Share of Personal Income

5.0%6.0%

8.5%

13.4%Benchmark for "High" Burden

New York City

Debt Service, FY2016

As a Share of City-Fun...

12.0% 12.5%

"Above Average" Burden

New York City

29Note: Does not include debt of the New York City Municipal Water Finance Authority.

Additional Risks: HHC & NYCHA

HHC HHC’s operating deficits

grow from $618m in FY 2016 to $1.5b in FY 2019 (cash basis)

Corrective actions to reduce deficit by $475m in FY 2016 are questionable

City’s plan for HHC to assume health service provision for correctional facilities could further strain resources

NYCHA NYCHA’s operating gap

grows from $150m in 2016 to $194m in FY 2019

$17b in capital needs Mayor providing over

$100m in annual operating support

NYCHA & City released 10-year strategic plan; includes CBC’s recommendations

30

CBC’s Concerns

Operating Budget Additional expenditures will likely be added Savings Program is too small, not sufficiently focused

on efficiencies that produce recurring savings to boost reserves

Majority of healthcare savings counted toward MLC & City targets are artificial

HHC & NYCHA’s financial challenges persistCapital and Debt Capital plan is very large, debt service is growing No use of pay-as-you-go capital to limit debt increases Reporting on capital spending is inadequate

31

Questions/Comments?

32