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agencies, as well as by state and federal grants. Exhibit 4 provides a breakdown of Cap-
ital Expenditures for the period 1992 to 1996, as well as long-term projections of capital
outlays required to maintain and improve the City™s infrastructure. These included out-
lays for mass transit facilities, sewers, bridges and tunnels, and investments to improve
the City™s operating productivity. The four-year Capital Commitment Plan for the period
1997 to 2000 projected that in 1997 the City would make commitments for capital
projects of $4.3 billion, and would have capital expenditures of $3.7 billion.
As required by its charter, the City reported on the condition of ¬xed assets, and rec-
ommended maintenance expenditures and capital outlays needed to ensure assets were
in a good state of repair. The report suggested that the City is letting its ¬xed assets de-
teriorate. Actual maintenance outlays in the previous ¬ve years had been only 33 percent
of recommended levels, and the four year Capital Commitment Plan projected a contin-
uance of this pattern for the period 1997 to 2000. In addition, budgeted capital expendi-
tures in the Capital Plan were only 63 percent of those recommended.


Bond Rating Review
As shown in Exhibit 5, at December 31, 1996, the City had $30.3 billion of debt out-
standing. This included debt for the City itself, MAC, and City-guaranteed debt. On a per
capita basis the City™s debt had increased from $2,202 in 1989 to $3,901 in 1995, out-
pacing the growth in pretax personal income of City residents.
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Part 4 Additional Cases




The New York State constitution required that the City™s debt outstanding be less than
10 percent of the average market value of taxable real estate for the last ¬ve years, and
that debt raised to fund low-rent housing, low-income nursing homes, and urban renewal
be less than 2 percent of taxable real estate for the previous ¬ve years. The City™s pro-
jections indicated that by 1998 its debt outstanding would exceed the general debt limit.
As a result, the City was proposing state legislation to create the new Infrastructure Fi-
nance Authority. The Infrastructure Finance Authority would be permitted to issue debt
that would not be subject to the constitutional limit.
Throughout 1996 the City™s $25.9 billion of general obligation bonds had been rated
Baa1 and A“ by Moody™s and Fitch Investors Service, respectively. However, Standard
& Poor™s had downgraded their rating from A“ to BBB+, and Moody™s and Fitch were
also contemplating a downgrade. Additional information on Moody™s ratings as well as




City of New York
the relation between yields and ratings are presented in Exhibit 6. During 1996 the City
issued $5.3 billion of general obligation bonds, using $2.7 billion to re¬nance outstand-
ing bonds. Yields on 30-year City debt peaked in 1995 at 6.65 percent and declined to
6.18 percent by March 1996. The City™s debt traded 53 basis points over the Bond Buyer
20 Bond Index in July 1995, but this spread had declined to 48 basis points by June 1996.
790 Case: The City of New York




60 Part 4 Additional Cases




EXHIBIT 1
The City of New York Condensed Financial Statements”General Fund Revenues
and Expenditures, 1992“1996
Adopted
Budget Actual
(in millions) 1996 1996 1995 1994 1993 1992
..................................................................................................................................................
General Fund Revenues
Taxes (net of refunds):
Real estate $7,274 $7,100 $7,474 $7,773 $7,886 $7,818
Sales and use 3,097 3,111 3,013 2,855 2,739 2,621
City of New York




Income 6,502 6,808 6,015 6,281 5,751 5,389
Other 1,029 1,095 1,184 1,206 1,204 1,221
17,902 18,114 17,686 18,115 17,580 17,049
Federal, State and Other Aid:
Categorical 9,891 10,880 10,733 10,143 9,535 8,880
Unrestricted 549 621 603 667 707 826
10,440 11,501 11,336 10,810 10,242 9,706
Other than Taxes and Aid:
Charges for services 1,253 1,312 1,298 1,277 1,304 1,195
Other revenues 1,578 1,118 1,244 1,127 961 1,039
OTB transfers 30 26 27 24 29 33
2,861 2,456 2,569 2,428 2,294 2,267
Total Revenues 31,203 32,071 31,591 31,353 30,116 29,022
General Fund Expenditures
General government $811 $855 $853 $875 $862 $853
Public safety and judicial 4,226 4,446 4,121 3,846 3,759 3,586
Board of Education 7,286 7,835 7,863 7,561 7,213 6,626
City University 363 348 348 353 571 459
Social services 7,522 7,901 8,112 8,030 7,430 7,108
Environmental protection 1,096 1,138 1,120 1,156 1,094 989
Transportation services 667 732 933 981 1,023 1,044
Parks, recreation, cultural 239 244 240 238 229 202
Housing 399 455 527 590 516 541
Health (including HHC) 1,544 1,829 1,737 1,620 1,452 1,276
Libraries 176 253 168 172 146 129
Pensions 1,555 1,356 1,273 1,274 1,427 1,370
Judgments and claims 279 309 251 271 231 232
Fringe and other bene¬ts 1,227 1,581 1,444 1,552 1,492 1,378
Other 948 210 307 375 267 257
Transfers for debt service 2,865 2,574 2,289 2,454 2,440 2,968
Total Expenditures 31,203 32,066 31,586 31,348 30,152 29,018
Surplus (de¬cit) 0 5 5 5 (36) 4
..................................................................................................................................................
Source: The City of New York, Comprehensive Annual Financial Report of the Comptroller for the Fiscal Year Ended June 30, 1996.
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FOOTNOTES

Statement of General Fund Revenues and Expenditures

(1) The City™s results of operations refer to the City™s General Fund revenues and transfers
reduced by expenditures and transfers. The revenues and assets of Proprietary Funds
included in the City™s audited ¬nancial statements do not constitute revenues and
assets of the City™s General Fund, and, accordingly, the revenues of such funds, other
than net OTB revenues, are not included in the City™s results of operations. Expendi-
tures required to be made by the City with respect to such Proprietary Funds are
included in the City™s results of operations.
(2) In October 1993, the City reported a General Fund operating surplus of $5,079,000
for the 1993 ¬scal year as reported in accordance with then applicable GAAP The .




City of New York
City has been required to restate its ¬scal year 1993 ¬nancial statements because the
City has implemented for the 1994 ¬scal year Governmental Accounting Standards
Board (“GASB”) Statement Number 22, which provides for a change in the method of
recognizing certain tax receipts. For purposes of presenting comparative ¬nancial
statements for the 1994 ¬scal year, the City was required to restate the ¬scal year
1993 statements as if the Statement were adopted in ¬scal year 1993. Accordingly, for
purposes of presenting ¬scal year 1993 ¬nancial statements on a comparative basis,
the opening fund balance of ¬scal year 1993 was restated from $82,974,000 to
$311,435,000 and the surplus for the 1993 ¬scal year was restated from $5,079,000
to $(36,025,000).
(3) Real Estate Tax for the 1992, 1993, 1994, 1995 and 1996 ¬scal years includes $131
million, $128 million, $147.5 million, and $150 million, respectively, of Criminal Jus-
tice fund revenues. Real Estate Tax for ¬scal years 1994, 1995 and 1996 also includes
$201 million and $223 million from the sale of the City™s delinquent tax receivables
outstanding as of May 31, 1994 and April 1, 1995, and $182 million from the sale of
property tax liens, respectively.
(4) Revenues include amounts paid and expected to be paid to the City Municipal Assis-
tance Corp. (MAC) by the State from sales tax receipts, stock transfer tax receipts and
State per capita aid otherwise payable by the State to the City. Pursuant to State stat-
ute, these revenues ¬‚ow directly from the State to MAC, and ¬‚ow to the City only to the
extent not required by MAC for debt service, reserve fund requirements and for oper-
ating expenses. The City includes such revenues as City revenues and reports the
amount retained by MAC from such revenues as “MAC Debt Service Funding,”
although the City has no control over the statutory application of such revenues to the
extent MAC requires them. Estimates of City “Debt Service” include, and estimates of
“MAC Debt Service Funding” are reduced by, payments to the City of debt service on
City obligations held by MAC. Other Taxes include transfers of net OTB revenues.
Other Taxes for the 1992 ¬scal year includes $1.5 million of Criminal Justice Fund
revenues from the City lottery.
(5) The General Fund surplus is the surplus after discretionary transfers and expenditures.
The City had General Fund operating surpluses of $71 million, $72 million, $371
million and $570 million before discretionary transfers and expenditures for the
1995, 1994, 1993, and 1992 ¬scal years, respectively. The Financial Plan projects a
discretionary transfer of $243 million for the 1996 ¬scal year. The expenditures and
discretionary transfers made by the City after the adoption of its ¬scal year 1996 and
¬scal year 1995 budgets follow:
792 Case: The City of New York




62 Part 4 Additional Cases




(in millions) 1996 1995
Transfer to the General Debt Service Fund of real estate
taxes collected in excess of the amount needed to ¬nance
debt service $106 $66
Adv. cash subsidiaries to Transit Authority 44 ”
Adv. cash subsidiaries to Library System 74 ”
Total expenditures and discretionary surplus 224 66
Reported operating surplus 5 5
Total operating surplus $229 $71


Final results for any given ¬scal year may differ greatly from that year™s Adopted Bud-
City of New York




get. The following table shows how actuals for ¬scal year 1996 differ from the Adopted
Budget:

Amount
(in millions)
Additional resources:
Federal categorical aid above budget $524
State categorical aid above budget 148
Unrestricted federal and state aid above budget 72
Higher revenues from tax collections, excluding property tax refunds 387
Interest income above budget 23
Lower pension contributions 199
Lower subsidy payments to the Health & Hospitals Corporation 88
Release by the Municipal Assistance Corp. of sales tax monies above
targets in the Adopted Budget 145
Lower debt service costs due to bond refundings 64
Sale of Mitchell Lama mortgages 265
Higher collection of licenses, permits and privileges revenues 14
Total additional resources $1929
Enabled the City to:
Withstand higher than anticipated refunds of property taxes $174
Withstand reduction of FY95 budgeted surplus to be used to fund FY96
expenditures 129
Provide for future debt service costs 106
Provide for increased overtime costs 81
Provide for increased judgment and claims costs 19
Higher grant costs paid to recipients of the Home Relief program 185
Provide for increased Medicaid expenditures 512
Provide for prepayment of FY97 subsidy to the Library System 74
Provide for prepayment of FY97 subsidy to the Transit Authority 44
Provide for increased subsidy for reduced fares for schoolchildren 45
Withstand lower collection of anticipated federal aid 75
(continued)
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Amount
(in millions)
Withstand lower collection of anticipated state aid 50
Withstand lower collection of revenues from ¬rms and forfeitures 40
Withstand higher provision for disallowances of federal and state aid 25
Withstand lower than anticipated transfers from OTB Corp 5
Withstand postponement of the sale of City assets 32
Withstand lower than anticipated collection and settlement of back rent
from the Port Authority for the Municipal Airports 103
Withstand other overspending and revenue below budget 225
Total 1,924
Reported surplus $5




City of New York

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