New York City ranked worst financial condition in new study

In our latest review of the financial conditions of the 20 largest cities in the United States, New York City ranked 20th among the 20 cities. Last.

This ranking is based on Truth in Accounting’s bottom-line “Taxpayer Burden” measure, which represents each taxpayer’s share of unfunded debt. New York City has accumulated over $150 billion in bills above and beyond assets available on the balance sheet, leading to a $61,000 bill facing city taxpayers, on average.

Our "Taxpayer Burden” represents the long-term impact of debt accumulation in government retirement programs, as well effects from more current annual spending compared to tax, fee, and grant revenue.

Back in 1975, New York City’s finances had deteriorated so markedly that the city was skirting with default, and nearly entered bankruptcy proceedings. That year, the state of New York passed the Financial Emergency Act. This law imposed new financial controls on the city, and included provisions calling for a “balanced budget.” After a few extensions, many of the important provisions of this law were incorporated in the city charter in 2005.

Last year, New York City Comptroller highlighted and praised these reforms, and noted that “while all governments in the country practice GAAP accounting, New York City is the only major government in the country to practice GAAP budgeting. … The discipline instilled by the FEA is evidenced by New York City passing a balanced budget each year, by no longer borrowing from the operating budget, and by maintaining access to the capital markets.”

How then, have New York City’s finances fared since 2005?

• A balanced budget theoretically keeps expenses in line with tax revenues and other income sources. New York City’s reported expenses exceeded income in eight of the 11 years ended in 2015, and by a cumulative total of $94 billion.
• A balanced budget theoretically constrains debt accumulation, but New York City’s total reported liabilities rose from $110 billion in 2005 to $326 billion in 2015.
• Part of this extraordinary increase has been the long-delayed recognition of pension and health care benefit liabilities on the city’s balance sheet. From 2005 to 2015, however, New York City’s bonds and notes payable more than doubled.
• Another bottom-line measure of city financial health is the “unrestricted net position,” which represents the share of net position that is not restricted for future uses. By 2005, thirty years after the Financial Emergency Law, New York City had accumulated $20 billion in negative unrestricted net position. Ten years after those reforms were included in the city charter, the unrestricted net position had “soared” to a negative $181 billion.

While New York City currently ranks last in our ranking of the 20 largest cities on our “Taxpayer Burden,” we note significant improvement in the city’s ability to recover expenses with tax, fee, and grant revenue in recent years. New York City has coupled significantly higher tax revenue with expense reduction in the last two years, and its interest expense has been stable in the last five years.

This lies in contrast to recent trends in the city ranked second-to-last on our Taxpayer Burden. The City of Chicago has continued to run expenses sharply higher than revenue, and Chicago’s interest expense has been mushrooming.

Who knows, maybe the Second City could become the Big Apple in a couple years, at least in terms of its (poor) financial position.