FOR IMMEDIATE RELEASE: Friday, December 19, 2014 FOR FURTHER INFORMATION CALL: Jeffrey L. Sommer (212) 417-5066 PRESS RELEASE The November modification to the city’s financial plan shows that with strong local and improving national economies the city was able to ensure a balanced budget for FY 2015 and lowered the projected outyear budget gaps. The continued improvement in FY 2015 has allowed the city to raise its tax collection forecast by $766 million in FY 2015, and an average of about $260 million in each of the outyears of the plan. In FY 2015, the increase is comprised primarily of higher personal income tax collections, a reduction in reserves for property tax delinquencies, and higher tax audits. The improving economy has also facilitated a reduction in its projected pension contributions. In FY 2014, the city’s pension systems had investment earnings of almost 17.5 percent, much higher than the assumed seven percent. The phase-in of higher earnings has permitted the city to reduce its expected pension contributions by $8 million in FY 2015, $205 million in FY 2016, $410 million in FY 2017, and $617 million in FY 2018. In addition, the low interest rate environment has allowed the city to reduce its debt service costs, largely through refundings, by $95 million in FY 2015, $405 million in FY 2016 and about $300 million in each of FYs 2017-18. These increased resources allowed the city to change its schedule for the sale of taxi medallions, shifting some sales into FY 2019. This action reduces expected revenues in FY 2015 by $506 million. It also helped fund $282 million in agency new needs. Most of the needs are to fund new initiatives already announced by the Mayor, including increases for homeless shelters for adults and families, funding for a plan to ensure buildings lower greenhouse gas emissions, and increased training in the Police Department. After all of these actions, the city now projects a surplus in FY 2015 of $105 million and outyear gaps of $1.8 billion in FY 2016, $1.2 billion in FY 2017, and almost $1.8 billion in FY 2018. This was accomplished while leaving the general reserve at an historic high of $750 million in each of the four years of the plan. Our review concludes that the FY 2015 surplus is likely to be higher. Given continued strong job growth and wages finally starting to rise slowly, we believe that revenues could be higher by $675 million. The personal income tax is the largest component of this likely increase. Given current tax collections and growth projections, we expect this tax to be higher by $400 million in FY 2015. The other areas with smaller increases are the sales tax, real estate transfer taxes and miscellaneous revenues. In addition, we expect debt service savings to grow by at least $200 million in FY 2015 resulting from the currently low interest climate. Even though rates could rise after January, we believe there will be substantial savings in variable rate interest costs. These savings will be partially offset by overtime costs and additional costs due to collective bargaining. Our estimate currently is that the surplus in FY 2015 could be $777 million with the gaps in the outyears now being a reduced $1.5 billion in FY 2016, $1.1 billion in FY 2017, and $1.8 billion in FY 2018. Underlying all of these assumptions is the progress that the city is making in collective bargaining. The financial plan has provided funding based on the nine-year contract initially agreed to by the United Federation of Teachers. Since the announcement of that agreement, the city has reached contracts with 71 percent of its unionized employees. Just recently the city announced two new settlements. The first was with the Council of School Supervisors and Administrators. This contract follows the teachers’ pattern but there will be an additional cost attributable to covering teachers who were promoted to principal during the contract period. The city estimates its cost to be about $72 million over the four-year plan. The city also announced the first settlement with uniformed service employees. The agreement was reached with the Uniformed Superior Officers Coalition, which represents almost 12,000 high-ranking officers in multiple agencies. The agreement created a new pattern for the uniform services of 11 percent over seven years. This basically adds one percent to the first year of the contract. If funding is provided for all uniformed service employees based on this pattern, the cost would be an additional $609 million over the four-year plan, with $240 million needed in FY 2015. The city is expected to add funding for these contracts and the new pattern in the February modification to the financial plan. In addition, the costs of the labor settlements are offset by an agreement with the Municipal Labor Committee (MLC) to reduce health care costs. The financial plan assumes savings of $400 million in FY 2015, $700 million in FY 2016, $1 billion in FY 2017 and $1.3 billion in FY 2018. The administration and the MLC have agreed to a process and have met numerous times to discuss options to achieve these savings. The city has hired a new Deputy Commissioner for Health Care Cost Management in the Office of Labor Relations to develop plans and lead the discussion with labor counterparts. The city is confident that the savings in FY 2015 are achievable due to the recognition of managed care changes in the last quarter of the fiscal year, positive results of Dependent Eligibility Verification Audit, premium minimization, and senior care rate and Blue Cross reductions. They have also developed plans that would achieve additional savings in the outyears. We will continue to monitor the progress in this area. There will continue to be, however, pressures on the city’s budget. Semi-autonomous agencies such as the Housing Authority and Health and Hospitals Corporation continue to experience fiscal stress. The city has already agreed to fund the recent labor settlements for the Health and Hospitals Corporation and further requests for subsidies could follow. Other new budgetary needs and initiatives will occur. With that in mind, we agree with the Budget Director’s decision to instruct agencies to begin identifying departmental efficiencies and other expenditure savings in preparation of the FY 2016 Preliminary and Executive Budgets. The Director has stressed that these recommendations should not include any service reductions but identify other methods of cost savings or increased revenues. Any savings achieved could be used to offset new needs or reduce projected budget gaps. These actions together with high levels of reserves will give the city a sufficient planning window to minimize service disruptions in case of an economic downturn. # # # 2