New York By The Numbers: Monthly Economic and Fiscal Outlook


** New York by the Numbers
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** Monthly Economic and Fiscal Outlook
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By NYC Comptroller Brad Lander
Francesco Brindisi, Executive Deputy Comptroller for Budget and Finance
Krista Olson, Deputy Comptroller for Budget
Andrew McWilliam, Director of Economic Research

Photo Credit: nitastefanita78/Shutterstock
View in browser ([link removed])


** No. 71 - November 15th, 2022
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** A Message from the Comptroller
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Dear New Yorkers,

Recent data suggests that inflation may be beginning to slow, with the October CPI down to 7.7% from 8.3% in September, and in the NYC metropolitan area down to 6.0% from 6.6% in August. Housing costs in NYC remain near historic highs, but October was the first month this year when median rents did not increase even further. Meanwhile, job growth continues, with New York City now back to about 97% of its pre-pandemic peak.

With the continuing uncertainties of economic recovery from the pandemic and other shifts in the global economy, it is difficult to predict the future with confidence. Still, the ongoing efforts of the Federal Reserve and other central banks, plus the withdrawal of pandemic stimulus, lead the majority of economists to project that a recession is likely in the coming months.

When economic downturns hit, as people lose jobs and business revenues decline, tax revenues fall just as the needs of the most vulnerable increase. That’s why it’s critical for the City of New York to save for a rainy day. Putting money into our rainy day funds is not an act of austerity – it’s a form of social insurance. To that end, earlier this year when revenues were flush, my office advocated for the largest yet deposit into the City’s rainy day funds ([link removed]) .

With a potential downturn on the horizon, this month’s spotlight looks at the conditions under which the City should withdraw from the funds, and how we can ensure resources are used prudently, and aren’t depleted too quickly, if and when a recession arrives.

New Yorkers know too well the pain of watching firehouses close, trash pile up, and social service programs get cut. Preparing in advance can enable us to stave off a downward spiral of slashing services, ensure our City can show up for residents when times are tough, and help keep us on course toward our shared, long-term thriving.

Sincerely,
Brad Lander


** Spotlight:
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** When should the City tap its rainy-day funds?
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This past spring, with City coffers flush from both federal stimulus funds and unanticipated tax revenues, our office – following a long line of comptrollers – pushed for a significant increase to the City’s rainy-day funds (the Retiree Health Benefit Trust, or RHBT, established in 2006, and the Revenue Stabilization Fund, or RSF, established in 2020).

We made recommendations ([link removed])) on the appropriate size of these long-term reserves and on how to implement automatic deposits. We argued that the City needs long-term reserves equal to 16% of City tax revenues to weather the full length of a recession; and that to get there, automatic deposits should be made of at least half the difference between current-year growth of non-property tax revenues and their average growth over the previous 6 years (still leaving half the growth to fund expenses).

Partially in response to our and others’ advocacy, the Mayor and the City Council agreed in June to a large, combined deposit in the rainy-day funds (although they did not take up the recommendation to adopt a standing formula for deposits, which would avoid the annual negotiations that traditionally end up shortchanging reserves). Together, RSF and RHBT now hold $6.538 billion, or 9.4% of the City’s FY 2022 tax revenue. This is still a far cry from the 16.0% needed to weather a full recession, but it is also the largest amount that the City has set aside for a rainy day.

Unfortunately, since June, the likelihood of such a rainy day has increased. Predicting future economy activity is always imperfect, and there is a great deal of uncertainty at the moment, with job growth continuing even after several large interest rate increases. Still, with the Federal Reserve and other central banks continuing to raise interest rates sharply in an effort to control inflation, the likelihood of an economic downturn in the U.S. (and indeed across the globe) in the coming year has increased significantly. Last month, economists participating in the Blue Chip survey lowered their 2023 U.S. GDP growth expectations to just 0.2% from an already weak 1.9%. Also in October, the Wall Street Journal survey of economists assessed the odds of a U.S. recession within 12 months at 63.0%.[1] ([link removed]) In its most recent Fiscal Outlook
([link removed]) , the NYC Council Finance Division forecasts job losses in the City from the first quarter of 2023 through the first quarter of 2024. As the City of New York begins to prepare for the FY 2024 budget process, we will need to be mindful, alas, of recession risk.

So in this month’s spotlight, we complete the analysis on long-term reserves and outline when and how much to withdraw from them in the event of a recession. We propose that withdrawals should start only after two quarterly declines in economic conditions as measured by New York State’s Index of Coincident Economic Indicators (ICEI) or seasonally adjusted total nonfarm payroll. We further recommend that withdrawals in any fiscal year be limited to 5% of pre-recession tax revenues, in order to preserve resources to cover City costs for as long as possible.


** Section S.1 How big are the City's long-term reserves?
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At the start of FY 2023, the City had $1.954 billion in RSF (an annual increase of $1.455 billion) and $4.584 billion in RHBT (an annual increase of $789 million), for a combined total of $6.538 billion, or 9.4% of FY 2022 tax revenues.[2] ([link removed]) Table S.1 reports 10 years of data on long-term reserves, reserves for unforeseen expenditures (the General Reserve and the Capital Stabilization Reserve), as well as expenses covered using previous years’ resources (budget stabilization).


** Table S.1: Reserves and budget stabilization transfers FY 2013 - FY 2023 (start of FY, $m)
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**
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SOURCE: Office of the NYC Comptroller. Additional details are available here:
*Amounts inclusive of interest income on RHBT.
**The FY 2022 Adopted Budget included a planned $500m RSF deposit. This amount is reported as part of long-term reserves at the start of FY 2022 in the table.

It should be noted that the budget stabilization amount is budget surplus used to cover the upcoming year’s budget gap, while the General and Capital Stabilization Reserves are expenses that are funded but not identified in the financial plan. Neither is a source of long-term savings.


** Section S.2 Withdrawal rules
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In this section we explore withdrawal rules across four dimensions: conditions, size, method and replenishment.


** Conditions for Withdrawals
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State law passed in 2020 authorizing the creation of RSF, caps withdrawals from RSF at 50% in any fiscal year, unless the Mayor certifies that there is a “compelling fiscal need.” The latter is loosely defined as a national or regional recession, a projected decline in total revenues from the previous fiscal year (such is the case in the FY 2023 budget due to the projected drop in both federal aid and City tax revenues, though that is hardly the kind of “rainy day” generally envisioned), a natural or other disaster, or a declared state of emergency in the City or State[3] ([link removed]) (recently, for instance, states of emergency related to the COVID-19 pandemic, and the influx of asylum seekers).

In other words, within the confines of the State legislation, the City could withdraw 50% of RSF in any year without any justification, and it could deplete the fund in one year based on just one of several other loose conditions.

Rules for when a withdrawal is appropriate based on economic conditions depend on the availability and timeliness of local economic indicators. For a number of reasons discussed in the appendix to the newsletter, US business cycle dates, national GDP, and county-level GDP (also called Gross City Product – GCP) are not good candidates. Here, we review state and local data sources:

NYC total nonfarm employment. The data are available monthly from the NYS Department of Labor and can be analyzed on a quarterly or rolling basis using seasonally adjusted data. NYS DOL provides the seasonal adjustment for total nonfarm jobs while NYC OMB provides the seasonal adjustment at the industry level, which is aggregated to provide the total nonfarm estimate.[4] ([link removed]) Here, as in the labor market section of this newsletter, we use NYC OMB’s estimates (which are nearly indistinguishable from NYS DOL’s).

Index of coincident indicators. An index of current (“coincident”) economic conditions can be extracted from various data series. Until 2018, the Federal Reserve Bank of New York produced a monthly NYC index.[5] ([link removed]) Two ongoing monthly New York State indexes are produced by The Federal Reserve Bank of Philadelphia and the New York State Department of Labor (NYS DOL).[6] ([link removed]) ,[7] ([link removed]) In our report ([link removed]) on deposit rules, we showed that the NYS DOL’s Index of Coincident Economic Indicators (ICEI) correlates well with the City’s non-property tax collections.

Table S.2 reports peak and trough dates based on quarterly averages of four data sources: ICEI, Philadelphia Fed NYS index, NY Fed NYC index, and seasonally-adjusted total nonfarm employment in New York City. Because the data are very closely correlated, peak and trough dates are comparable across data sources.


** Table S.2: NYS and NYC recessions based on available monthly data
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**
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SOURCE: NYS DOL, Philadelphia Fed, Federal Reserve Bank of NY, NYC OMB, Office of the NYC Comptroller
*Season adjusted by NYC OMB. The same dates would hold using NYS DOL's seasonal adjustment.
**Data are available starting 1990 Q1.

Chart S.1 shows that the NYS DOL’s ICEI captures the behavior of NYC total nonfarm employment well. Relative to the Philadelphia Fed index, ICEI has the advantage of using sales tax collections as a proxy for income rather than wage and salary disbursements, which are affected by the size and timing of bonus payments. Both ICEI and NYC total nonfarm employment show sustained declines after the first quarterly drop and there are only a few cases where the first drop is followed by an increase (1979 Q4 for ICEI, and 1994 Q3 and 2010 Q3 for employment). However, because the series are re-estimated every month and data revisions could introduce noise, it is reasonable to condition withdrawals on two consecutive quarterly declines. A rule based on the earlier of ICEI or total nonfarm employment declining for two consecutive quarters, would have allowed budgeting the start of withdrawals beginning in October 1989 (ICEI), July 2001 (both ICEI and employment), and October 2009 (ICEI).


** Chart S.1: Rent Increases by Borough, and as a Percentage of Median Family Income
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SOURCE: NYS DOL

There should be flexibility to tap into long-term reserves earlier in certain cases, which should be defined with more specificity than in current legislation. The NYS rainy-day fund legislation allows for withdrawals in case of “catastrophic events” such as wars and disasters, including terrorist attacks,[8] ([link removed]) and it is a construct that could be adopted by the City, with the inclusion of provisions for pandemics and other public health conditions with significant economic repercussions. This flexibility would have allowed budgeting for withdrawals during the COVID-19 recession regardless of ICEI and employment data.


** Size of withdrawals
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Our previous research ([link removed]) shows that tax revenues drop by approximately 5% of peak revenues per year in the first three years of a downturn (see table A3 in the appendix of that report for details). Using this measure as the cap on withdrawals, if a recession were to hit in FY 2023, the City could withdraw roughly $3.5 billion per year, based on FY 2021 tax revenues of $69.6 billion. As noted above, long-term reserves currently stand at 9.4% of FY 2022 tax revenues so, at the maximum pace of withdrawals, funds would be exhausted within two years. The flexibility to increase withdrawals beyond 5% of peak revenues should be available for deeper recessions (as supported by a quantitative analysis) or catastrophic events. The limit should apply to the combined balance of RHBT and RSF. The limit would also not conflict with state legislation, which authorizes the withdrawal of any amount from RSF in case of a recession.


** Method of withdrawals
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The City’s budget process already provides an appropriate framework for withdrawals. The Mayor can present a budget modification at any time, but the updates to the financial plan are typically presented in November, January (with the Preliminary Budget), April (with the Executive Budget), and June (at budget adoption). Additionally, the Mayor can update the revenue forecast for the upcoming fiscal year in May and up until budget adoption. (A succinct overview of the budget process is in the appendix to the newsletter.) The timing of data availability and financial plans is reported in Table S.3.


** Table S.3: Economic data availability in the progression of the budget process
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SOURCE: NYS DOL, Philadelphia Fed, Federal Reserve Bank of NY, NYC OMB, Office of the NYC Comptroller

As of the third quarter of 2022 (first quarter of FY 2023), both ICEI and NYC total nonfarm employment are growing. Therefore, economic conditions for withdrawal could be met at the end of April 2023 at the earliest (i.e. if a downturn were to be seen in both calendar 2022 Q4 and 2023 Q1). At that time, the Mayor would have already presented the Executive Budget and could include withdrawals in the revenue estimate for the upcoming year and continue budget negotiations with the additional flexibility of withdrawing funds from long-term reserves.

If the fourth quarter 2022 employment numbers continue to grow, and a recession is seen in the first two quarters of 2023, economic conditions for withdrawal would not be met until the end of July. In that case, the Mayor could negotiate with the Council about using the funds as part of the 2023 November plan and beyond.


** Replenishment
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Poorly drafted replenishment rules can force deposits before the economy starts recovering and limit the use of rainy-day funds when they are most needed. A carefully designed deposit rule can take the place of replenishment rules. In our May 2022 report ([link removed])) , we proposed a minimum deposit equal to half the difference between the growth rate of non-property taxes and their average growth in the previous six years. This rule provides an automatic minimum replenishment when non-property tax revenues (e.g. personal income tax, sales tax, and others), and therefore generally the city’s economy, are growing (although additional deposits may be needed to reach the recommended size of 16.0% of City tax revenues, and additional provisions be incorporated to adjust for tax policy changes).


** Section S.3. Conclusions
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With the likelihood of a recession looming, the City of New York should adopt careful rules to guide withdrawals and deposits into long-term reserves to fund essential services when revenues decline. The Comptroller’s Office proposes limiting withdrawals from the City’s rainy day funds to 5% of peak tax revenues when the NYS DOL’s Index of Coincident Economic Indicators (ICEI) or seasonally adjusted NYC total nonfarm employment show two consecutive quarters of decline, with flexibility for earlier withdrawals in response to catastrophic events. Long-term reserves should be maintained by regular minimum deposits equal to half the difference between the growth rate of non-property taxes and their average growth in the previous six years. These rules will ensure that the City can tap its reserves as needed to stabilize revenues and continue providing services, while guarding against depleting the reserves too quickly when they are most needed.

Author: Francesco Brindisi


** The U.S. Economy
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* Real gross domestic product (GDP) increased by 2.6% in the 3^rd quarter of 2022, after decreasing by 0.6% in the 2^nd quarter and 1.6% in the 1^st.
* U.S. employment grew strongly again in October, with nonfarm payroll employment increasing by 261,000 following an increase of 263,000 jobs in September.
* The U.S. seasonally adjusted unemployment rate inched back up to 3.7% in October, returning to its August level from 3.5% in September.
* Average hourly earnings in September rose 12 cents to $32.58, following a 10 cent rise in September.
* The October Consumer Price Index (CPI) for all items rose 7.7% from the previous year, down from 8.2% in September and 8.3% in August.
* New York metropolitan area inflation fell to an annual rate of 6.0% in October, down from 6.2% in September and 6.6% in August.
* The Federal Reserve increased the targeted federal funds rate by 75 basis points to the range of 3.75-4.00% on November 2^nd, the sixth interest rate increase of the year. The next meeting of the Open Market Committee is in mid-December, when another rate increase is expected.


** NYC Labor Markets
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* Seasonally adjusted employment growth in New York City slowed in September, as the City added just 5,000 private jobs after adding almost 20,000 in August (Table 1).
* Overall employment is now at 3.978 million, or about 97% of the pre-pandemic peak.
* Gains in Professional and Business Services (5,300) and Arts, Entertainment and Recreation (5,200) were offset by losses in Education (8,200), and smaller changes in other industries.


** Table 1: Seasonally adjusted NYC Private employment, by industry ('000s)
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SOURCE: NYS DOL, and NYC Office of the Comptroller. Due to revisions to earlier months, numbers may not match to previous monthly newsletters

* September employment declined in Accommodation and Food Services (down 2,800), and Retail (down 1,400). Employment in these sectors of the economy, which saw the largest COVID era job losses, has stalled well short of pre-pandemic levels. Employment in Accommodation and Food Services is 59,300 below February 2020 (-15.8%), and Retail employment is down 38,600 (-11.2%).


** Chart 1
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SOURCE: NYS DOL, and NYC Office of the Comptroller. Due to revisions to earlier months, numbers may not match to previous monthly newsletters

* New York City’s seasonally adjusted unemployment rate fell a full percentage point to 5.6% in September, from 6.6% in August (Chart 2).
* Unemployment rates for Black (9.4%) and Hispanic (9.2%) New Yorkers remain above the citywide rate, and have converged again, with a rise in Hispanic unemployment. However, small sample sizes for the Current Population Survey make it difficult to interpret short-term unemployment fluctuations for racial and ethnic subgroups.


** Chart 2
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SOURCE: Seasonally adjusted citywide rate from NYS DOL, by race/ethnicity from the Current Population Survey


** Housing Market
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* An October report ([link removed]) by ProPublica contends that the algorithm of Realpage’s Yieldstar software effectively enables landlords who use it to collude when setting rents, driving up rents nationwide. Use of the software is the subject of an antitrust lawsuit in California ([link removed]) .
* An internal memo ([link removed]) of New York State Homes and Community Renewal indicates that the number of rent-stabilized units reported vacant by owners on annual apartment registrations rose to over 61,000 in 2021 — nearly doubling from fewer than 34,000 a year earlier. Tenant advocates claim landlords are warehousing these units, in the hopes of bringing them back on the market at higher rents. Organizations representing owners argue that many of these units require repairs which are not supported by the regulated rent levels.
* Streeteasy data shows median New York City asking rents declined slightly from $3,575 in August to $3,500 in September (Chart 3). It was the first monthly decline since October 2021. Asking rents remain up 20% from pre-pandemic levels, and up 40% from pandemic lows.


** Chart 3
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SOURCE: Streetseasy.com

* Borough level data on rents from Zillow shows September rents declining slightly in Manhattan, and flattening in Brooklyn, but continuing to rise in less expensive areas of the city (Chart 4).


** Chart 4
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SOURCE: Zillow Observed Rental Index, not seasonally adjusted, mean listed rents in the 40^th to 60^th percentile of homes weighted to reflect the rental housing stock

* New York City’s homeless shelter population increased by 3,377 individuals over the month of October, and by 17,207 from June 1st to October 31^st (Chart 5). The Department of Homeless Services recorded an all-time high of 63,755 individuals in shelter on October 24, 2022.
* The City’s average monthly shelter population rose 10.8% in October, 9.9% in September, 6.1% in August and 4.0% in July. Much of this recent increase has been attributed to the arrival of thousands of asylum seekers from South America, who after crossing the U.S. southern border have been bussed to New York City. It has been reported that the number of buses arriving in New York City has slowed appreciably in recent weeks, after a change in U.S. policy.


** Chart 5
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SOURCE: NYC DHS, via NYC Open Data


** Office Market
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* New York City office space available for lease fell to 124 million square feet in the 3^rd quarter of 2022, from 125 million in the 2^nd quarter (Chart 6). Availability of space remains elevated across all segments of the office market, including higher quality Class A office space.


** Chart 6
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SOURCE: CoStar

* New leasing of office space surpassed 10 million square feet in the 3^rd quarter, up from 9.5 million in the 2^nd Square footage of new leases is trending higher, particularly for Class A office space, but remains well below pre-pandemic levels (Chart 7). The greater amenities available in Class A office buildings are perceived as more attractive for companies seeking to get remote and hybrid workers back to the office.


** Chart 7
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SOURCE: CoStar

* Security card data from Kastle show New York City area office occupancy held steady at about 46% of pre-pandemic levels in October, higher than Philadelphia, Washington D.C., and San Jose, about even with Chicago and L.A., and well below the Texas cities of Houston, Dallas and Austin, where rates have plateaued over the past year between 50 and 60% of pre-pandemic levels (Chart 8).


** Chart 8
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SOURCE: Kastle


** Travel and Tourism
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* Hotel room demand in New York City fell slightly to about 3.1 million in October (Chart 9), about 88% of pre-pandemic demand in October 2019.
* Revenue per available room (RevPAR) fell to about $250 in October, following a spike of over $300 in September, an all-time high. October 2022 RevPAR was about 96% of RevPAR in October 2019.


** Chart 9
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SOURCE: STR via CoStar

* September airport passenger volume at New York City area airports was down just 5% from pre-pandemic levels. Overall, the City’s recovering air travel continues to outpace the nation, although the gap narrowed in September. U.S. air travel was down 9% in August, but down just 6% in September.


** Chart 10
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SOURCE: TSA and Port Authority of New York and New Jersey

* International passenger travel at New York City area airports edged down to 4.25 million in August, from 4.28 million in July, a decline of 33,000 passengers (Chart 11).


** Chart 11
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SOURCE: Port Authority of New York and New Jersey, international revenue passengers

* Transit patterns in the New York City metropolitan area held steady in October. One notable pattern that has become evident is the faster recovery of Metro-North and LIRR ridership relative to New York City’s subway. Commuter rail traffic was down 60-70% at the beginning of the year, much more than subway ridership, but is now down by only one-third.


** Chart 12
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SOURCE: MTA


** City Finances
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** The Budget Situation
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* The Mayor will release an update to the City’s financial plan around the time of publication of this newsletter. In this section we provide estimates of additional resources and expenses in FY 2023 and FY 2024 that may be incorporated in the November financial plan update or with the release of the Preliminary Budget in January 2023.
* First, the Mayor will implement a savings program in the November plan, known as a Program to Eliminate the Gap (PEG), worth 3% of City-funded expenses in FY 2023 and 4.75% in FY 2024. The City expects $2.6 billion in savings across the two years, and we assume that amount to be achieved.
* In the January plan, we expect the Mayor to draw down the General and Capital Stabilization Reserve by $1.5 billion. Unrestricted aid revenues and unspent State and Local Fiscal Recovery Funds (SLFRF) could provide resources for up to $2 billion.[9] ([link removed])
* At the end of the first quarter of FY 2023, non-property taxes were above projection by approximately $700 million. Excess tax revenues in the first quarter are typically but not necessarily recognized in the November plan. Customary adjustments to payables and other changes will provide an additional $400 million.
* On the uses side, we add the City’s stated FY 2024 outyear budget gap plus our office’s estimate of fiscal risk in FY 2023 and FY 2024 (as estimated in the report on the Adopted Budget available here ([link removed])) ). Table 2 summarizes the information:


** Table 2: Potential sources and uses for FY 2023 and FY 2024 in the November 2022 and January 2023 financial plans
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SOURCE: Office of the NYC Comptroller

* The table shows potential sources roughly in balance with uses but the estimates do not include additional costs from collective bargaining, from the inflow of asylum seekers, and other risks. For instance, doubling wage increases from 1.25% to 2.5% would cost $2.1 billion in FY 2023 and FY 2024 combined, if not offset by other savings. The cost related to asylum seekers is currently estimated between $500 million and $1 billion and, while the City is seeking to obtain federal reimbursement, its source has not yet been identified. Finally, should the economy fall into a recession, tax revenues will be revised downward, likely prompting the need to tap into long-term reserves as discussed above.


** First Quarter FY 2023 Tax Revenues
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* Total tax revenues for the first quarter of FY23 grew 8.0% from the same quarter last year and were $835 million above the Mayor’s projections.
* Property Tax and Personal Income Tax came in as expected. The two taxes accounted for 77.6% of total tax collections.
* Business taxes grew 2.1% from the previous year and were above projections by $336 million.
* Real property transaction taxes (the Real Property Transfer Tax and the Mortgage Recording Tax) grew 13.9% from the previous year and were $105 million above projections. Collections are expected to slow as higher interest rates affect both transactions and refinancing activity.
* The sales tax grew 17.8% over the previous year and was $213 million above projections, buoyed by higher prices, strong consumption, and rebounding tourism activity.
* Collections were lifted by a PILOT payment received earlier than expected.
* Excluding tax audits and the early PILOT payment, non-property taxes were $713 million above expectations.


** Taxable Sales
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* After falling sharply as a result of the pandemic in FY 2020 and FY 2021, sales tax revenue jumped 30% in FY 2022.[10] ([link removed]) Collections are now above pre-pandemic levels and are closing the gap with the pre-pandemic trend (Chart 13).
* As of the 3rd quarter of 2022, taxable sales are approximately $1.3 billion below trend (-2.4%).[11] ([link removed]) In the 2nd quarter of 2020, taxable sales had fallen to $137.8 billion below trend (-40.0%). The remaining gap is due to a combination of factors including, among others, fewer commuters, population losses, and changes in consumption habits,[12] ([link removed]) which are offset by higher inflation.


** Chart 13
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SOURCE: NY State Department of Taxation[13] ([link removed]) , Pre-Covid trend estimated as a quadratic time trend with quarter-specific dummy variables to account for seasonality.[14] ([link removed])
NOTE: Taxable Sales are affected by legislative and regulatory changes, such as the taxation of sales of businesses without a physical presence in New York State beginning in January 2019, following a 2018 Supreme Court ruling 2018.[15] ([link removed])

* The same exercise performed on surrounding counties in the New York City Metropolitan Statistical Area[16] ([link removed]) reveals suburban taxable sales were $1.8 billion above the pre-pandemic trend (+5.0%) in the 3rd quarter of 2022 (not shown), likely as result of individuals working from home making more of their daily purchases near where they live.


** Cash Balances
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* The City’s central treasury balance (funds available for expenditure) stood at $6.5 billion as of Thursday, November 10^th compared to $5.4 billion at the same time last year.
* Typically, the City’s lowest cash balance in the fiscal year occurs the first week in December. Last year the lowest cash balance measured $1.3 billion on December 1^st. We anticipate that this year’s lowest cash balance will exceed last year’s figure.
* The Comptroller’s Office’s review of the City’s cash position during the fourth quarter of FY 2022 and projections for cash balances through December 30th, 2022, are available here ([link removed]) .


** Spotlight Appendices
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** SA1. Economic indicators not suitable for withdrawal rules
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US business cycle dates. The dates are determined by the National Bureau of Economic Research’s (NBER) Business Cycle Dating Committee. The Committee examines a wide range of data on the labor market, consumption, wholesale and retail trade, and production. The monthly data points receiving the most attention are real personal income less transfers and nonfarm payroll employment. GDP and Gross Domestic Income (GDI) are also weighed heavily in the process of determining the turning points of economic cycles.[17] ([link removed]) Regardless of how the Committee arrives at its determinations, they are taken with a lag of up to 12 months in the case of recessions.[18] ([link removed]) As such, more timely benchmarks are needed to trigger withdrawals.

GDP and Gross City Product (GCP). An often-used rule of thumb to identify US recessions is a two-quarter decline in the headline seasonally adjusted annual growth rate of quarterly real GDP. This can be a false indicator: it dropped for only one quarter during the recession of 2001 but shrank twice this year despite the economy not being in a recession. GCP is only available at an annual frequency (2021 estimates will be published in December by the Bureau of Economic Analysis). Any quarterly GCP measure is therefore a model-based estimate or a forecast typically based on lagged information on wage and salary disbursements.


** SA2. The City’s “long-term” reserves
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Revenue Stabilization Fund. RSF is a committed fund balance and, as such, it is constrained for a specific purpose.[19] ([link removed]) While the City Council can, by resolution, establish, modify or rescind fund balance commitments, the RSF legislation provides that deposits into and withdrawals from RSF are part of the expense budget process.[20] ([link removed])

State legislation defines withdrawals as revenues in the year they take place. While there hasn’t yet been a withdrawal from RSF, it stands to reason that a withdrawal will be part of the Mayor’s revenue estimates.

Retiree Health Benefit Trust. RHBT is a conduit for paying the cost of retirees’ health benefits (Other Post-Employment Benefits or OPEB). The City accumulates reserves to the extent that its contributions exceed benefits payments and vice versa. Therefore, the amount of OPEB costs (net of prepayments included in budget stabilization) caps yearly drawdowns (loosely speaking, “withdrawals”).[21] ([link removed]) The RHBT balance has been, in practice, used as a rainy-day fund, as the City was not permitted by State law to hold general long-term savings until passage of 2020 state legislation.


** SA3. Overview of the City’s budget process
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The Mayor is responsible for preparing a four-year annual financial plan, which includes certain entities that receive funds from the City. The plan is revised on a quarterly basis and includes capital, revenue and expense projections. The budget process gives the Mayor ample flexibility to withdraw funds from RSF and to lower contributions to RHBT.

The City’s fiscal year starts on July 1^st with a budget adopted by June 30 of the previous fiscal year. While the Mayor can update the financial plan at any time (N.Y. Charter § 258(d)), below are the main steps of the budget process:
1. The “November plan” (N.Y. City Charter § 258.c.(2)(c)) is an update to the adopted financial plan to be issued during the second quarter of the fiscal year (typically in November), covering the current year and the three ensuing ones. The upcoming fiscal year needs not be balanced.
2. The Preliminary Budget and associated financial plan: unless otherwise authorized by the City Council, the Mayor presents the Preliminary Budget for the upcoming fiscal year by January 16 (N.Y. City Charter § 236). The Mayor is also required to present a financial plan for the current and four ensuing fiscal years. The current and upcoming fiscal year budgets need to be balanced (N.Y. City Charter § 225(a)). The City Council then invites public comment and conducts hearings at which agency heads, the City Comptroller, the Independent Budget Office, and others testify (N.Y. City Charter § 237(a)).
3. The Executive Budget and associated financial plan: unless otherwise authorized by the City Council, the Mayor presents the Executive Budget for the upcoming fiscal year by April 26 (N.Y. City Charter § 249). The Mayor is also required to present a financial plan for the current and four ensuing fiscal years. The current and upcoming fiscal year budgets need to be balanced. The Charter directs the Council to hold hearings on the Executive Budget between May 6 and May 25 (N.Y. City Charter § 253).
4. Revenue re-estimate (N.Y. City Charter § 1515): after the presentation of the Executive Budget but before May 25, the Mayor can submit to the City Council an updated estimate of all sources of revenues for the upcoming fiscal year. Upon a written determination of fiscal necessity to be submitted to the City Council, the Mayor can update the revenue estimate for the upcoming fiscal year until budget adoption.
5. The Adopted Budget: the Charter calls for the budget to be adopted by June 5 (N.Y. City Charter § 254(d), (e)), though in practice the Budget is adopted by June 30. In case the Budget is not adopted by June 5, the current fiscal year adopted expense budget and property tax rate (as modified through the fiscal year) are extended to the new fiscal year until a new expense budget is adopted. The Council can amend the Mayor’s executive budget (N.Y. City Charter § 254(a)) and the Mayor may veto any items of appropriation that the Council has added to the Executive Budget (subject to possible Council override), but may not veto appropriations that were already in the Executive Budget (N.Y. City Charter §§ 254(c), 255).


** Endnotes
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[1] ([link removed]) [link removed]

[2] ([link removed]) See NYC Annual Comprehensive Financial Report for FY 2022 [link removed].

[3] ([link removed]) [link removed]

[4] ([link removed]) Monthly payroll employment is part of the Current Employment Statistics program. NYC OMB methodology and data are available here: [link removed]. The seasonally adjusted estimates are usually posted the day after release by NYS DOL. The schedule of releases is available here: [link removed].
The data are benchmarked annually to the Quarterly Census of Employment and Wages. In New York, this means that January employment data (as well as historical revisions) are released in early March instead of February. The Federal Reserve Bank of New York provides tracking estimates of post-benchmark data here: [link removed].

[5] ([link removed]) The index was based on total nonfarm payroll employment, average weekly hours of manufacturing workers, and real earnings. Data are here: [link removed].

[6] ([link removed]) Both indexes are based on payroll employment (total nonfarm for the Philadelphia Fed index and private sector for NYS DOL), the unemployment rate, and average weekly hours of manufacturing workers. The Philadelphia Fed adds wage and salary disbursement as a fourth variable, while NYS DOL relies on sales tax collections (in both cases deflated using the Consumer Price Index). The indexes are published toward the end of each month. Data and methodologies are available at [link removed] and [link removed]

[7] ([link removed]) It should be noted that 5 consecutive monthly declines in the NYS DOL’s index are the basis for withdrawals from the State rainy-day fund. See [link removed].

[8] ([link removed]) See [link removed].

[9] ([link removed]) As of the end of FY 2022, approximately $820 million in SLFRF remained uncommitted. The November 2021 and February 2022 plans added $1.044 billion in unrestricted aid revenues to FY 2022. The aid was related to expenses incurred in FY 2020 and FY 2021 (FEMA-reimbursable expenses that could not be recognized according to GASB statement 33 ([link removed]) or “unapplied” American Rescue Plan funding). By the end of the fiscal year, $252 million of the unrestricted aid had been moved to FY 2023 and $294 million remained unrealized. We expect that the $294 million will be added to FY 2023 or FY 2024. We expect an additional $1 billion in unrestricted aid to become available over the course of the fiscal year, based on the size of excess tax
revenues at the close of FY 2022 ($1.030 billion). There may be some overlap between uncommitted FY 2022 SLFRF and unrestricted aid.

[10] ([link removed]) See page 400 of the FY 2022 ACFR, which, like the entire report, is downloadable in excel format at [link removed].

[11] ([link removed]) Taxable sales data are preliminary and subject to revision. The data published in October revised NYC sales upward in the second quarter of 2022 by $622 million and in previous quarters by $404 million.

[12] ([link removed]) See [link removed]

[13] ([link removed]) [link removed].

[14] ([link removed]) In the data, quarters are December-February (which we define as the first quarter of the calendar year), March-May (second quarter), June-August (third quarter), and September-November (fourth quarter). Therefore, 2020 Q1 ends right before the lockdown in March 2020.

[15] ([link removed]) The legislative history of the sales tax is available here: [link removed]. We don’t try to factor out such changes nor do we perform a standard seasonal adjustment, as the sample is too short and the impact of COVID-19 introduced too much noise.

[16] ([link removed]) Nassau, Suffolk, Westchester, Putnam, Rockland, Orange, Sullivan, Ulster, and Dutchess counties

[17] ([link removed]) See [link removed]. GDI is a measure of economic activity based on income earned and costs incurred in the production of GDP. See [link removed].

[18] ([link removed]) See [link removed].

[19] ([link removed]) See NYC Annual Comprehensive Financial Report for FY 2022 [link removed], pages 95 and 96 for more details on the City’s fund balance.

[20] ([link removed]) NY State Senate Bill S8400 (nysenate.gov ([link removed]) )

[21] ([link removed]) For instance, in FY 2022 the City paid $3.431 billion in OPEB benefits, with $425 million funded using the FY 2021 surplus. Therefore, City could have used at most $3.006 billion of the nearly $3.796 in RHBT at the beginning of FY 2022.


** Contributors
------------------------------------------------------------

The Comptroller thanks the following members of the Bureau of Budget for their contributions to this newsletter: Andrew McWilliam, Director of Economic Research; Steve Corson, Senior Research Analyst; Irina Livshits, Chief, Fiscal Analysis Division; Marcia Murphy, Senior Economist; Krista Olson, Deputy Comptroller for Budget; and Francesco Brindisi, Executive Deputy Comptroller.

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