The Independent Budget Office of the City of New York released a five page report [pdf] yesterday projecting that beginning next year, the City will face a serious fiscal crisis when it runs a deficit of $3.1 billion. By 2011, that budget shortfall could more than double, to $6.3 billion. The projections merely take into account current trends in New York City and don't factor in the possibility of a widespread national recession.
The title of the report summarizes its conclusions succinctly: "Tax Revenues Slip, Labor Costs Rise: City's Fiscal Outlook Dims." The city's revenues are closely tied to the economic fortunes of Wall Street, which generates tax revenues and fuels the real estate market. Real estate tax revenues are generated by mortgage recording taxes and real property transfer taxes -- so when the housing market cools, it hits the city hard in the pocketbook.
City expenditures are expected to continue to increase due to fixed contracts with various public employee unions. In September 2007, Mayor Bloomberg personally wrote a strongly worded letter to the heads of city agencies regarding belt-tightening in anticipation of the New York's vulnerability to a real estate and Wall St. slowdown. That was a little like shutting the barn doors after the horses have run off though, because city spending in the first five years that Bloomberg's been office grew faster than during any other mayor in recent history. Total city spending is up 23% under his City Hall tenure.