Yuan, Me, and the Mayor Makes 3

Categories: The Money Trail
During the 2005 mayoral campaign the BIG ISSUE no candidate talked about was the looming $4.5 billion gap in the budget due next summer. But that big issue keeps getting smaller and smaller. Last month City Hall said increased tax revenues had shrunk the gap to $2.25 billion, and today the Comptroller's office estimated that given improved performance by the city's pension funds, "The FY 2007 gap is estimated to decrease to $1.5 billion . . . and could be as small as $800 million if additional funds from this year are applied to FY 2007 expenses."

What's more, "Despite the constraints of a rising fed funds rate, higher energy prices, and higher trade and budget deficits, the City's economy performed better than expected through the first ten months of 2005, with real gross product, payroll jobs, and unemployment rates for the City and the nation all exceeding 2005 forecasts."

But that's the good news, and comptroller's reports always break some bad news, too, like, "the persistence of outyear gaps combined with the current-year net reduction of the [surplus] demonstrates that the City is still struggling to gain control of its expenditures." Plus, the city may have overestimated tax revenue for the year by $64 million, and low-balled overtime costs by $97 million. And "the federal budget may provide an additional source of concern going forward."

And because of higher energy prices and the large trade and federal budget deficits, "the national and the City's economy are expected to grow more slowly in 2006."

Then there's the Yuan. For years, Washington has been leaning on China to let the market decide how valuable its currency is, instead of Beijing buying dollars to keep the Yuan—and Chinese exports—artificially cheap. Now China is going to peg the Yuan to a basket of currencies rather than just the U.S. greenback, and that means less Chinese money flowing into the American bond market to buy dollars. The reduction in bond buying could, in turn, generate higher interest rates. Higher rates hit New York City's budget two ways: by slowing the economic growth that generates tax revenue, and by raising the cost of borrowing money.

Nor is the Yuan the only risk. There's also "inflated housing markets, a new Federal Reserve Chairman, and continuing negative effects from major hurricanes in August and September."

Now Trending

New York Concert Tickets

From the Vault

 

Loading...