NYC exits recession faster than expected

NEW YORK (Reuters) - New York City is putting the recession in the rear view mirror faster and stronger than expected, but its finances still face substantial risks, including the possible loss of state and federal funds, according to a report released on Thursday.

For example, the city might have to issue more short-term debt than planned if the recession-stricken state, which is dealing with its own cash crunch, delays paying billions of dollars of school aid, State Comptroller Thomas DiNapoli's report said.

New York City did not have to borrow short-term notes from fiscal 2005 to 2009. But the current budget ends on June 30, and independent Mayor Michael Bloomberg penciled in a $2.4 billion offering in next year's $63 billion budget plan.

New York state missed its April 1 budget deadline. And consequently Governor David Paterson, a Democrat, has delayed paying counties, cities and towns, schools and nonprofits -- for the third time since December.

"There's no new money," the mayor told reporters at a news conference. "The overwhelming part of our budget is personnel services, salaries and pension benefits," Bloomberg added, noting that city agencies are undergoing their eighth round of budget cuts.

The city lost 186,900 jobs in the previous fiscal year and tax revenues sank 7.1 percent, which was the biggest drop in 30 years, according to DiNapoli, the Democratic comptroller.

But "there are some signs of recovery: The city is beginning to add jobs," he said.

Employers have hired 53,000 workers between the December 29 low point, in terms of the numbers of people with jobs in New York City, and April 2010, he said.

MEDICAID ROLLS SWELL

Signs of strain linger, however. The number of people whose health care is covered by Medicaid, the federal-state plan for the elderly, impoverished and disabled, rose to 2.832 million in March 2010. This was an 11 percent increase from two years ago though extra federal aid cut the city's bill.

The number of homeless families living in shelters hit a 20-year high of 10,022 in March, the report said.

The welfare rolls rose only 2.5 percent to a total of 347,465 people from July 2008 to April 2010. Though the state and federal government pay for most of the program, the city's cost rose 18 percent to $546 million this year because it expanded rent subsidy programs.

Though the city's main economic engine is Wall Street -- whose profitability could be crimped if Congress enacts harsh reforms -- another risk is Europe's debt crisis, as a declining euro might dent tourism, the comptroller said.

DiNapoli predicted future budget gaps could top the mayor's forecasts if city workers negotiate more costly contracts.

Just one day ago, Bloomberg froze salaries for teachers in order to avoid laying off 4,400 of them.

Another problem is the end of federal stimulus aid -- in the next fiscal year, the city will lose $1 billion of education dollars, the report said. Bloomberg has predicted a $3.8 billion deficit in fiscal 2012, a $4.6 billion gap in 2013 and a $5.4 billion hole in fiscal 2014, DiNapoli said.

(Reporting by Joan Gralla; Editing by Jan Paschal)