(Reuters) - New York City expects a total budget gap of $495 million for the current and next fiscal years due to weaker profits on Wall Street than previously forecast, although funds from a legal settlement will largely fill the gap, an administration source said on Wednesday.
The tax revenue forecast for the two budget years was revised downward by $352 million, with taxes paid by the growing tech, film and television, tourism and higher education sectors not enough to offset weakness in the financial sector, the source said.
The lower revenue forecast compresses the surplus the city had expected for fiscal 2012, which ends on June 30.
Revenue is now expected to underperform by $75 million in 2012 and by $277 million in 2013, the source said.
In addition, expenses in fiscal 2012 and 2012 are expected to rise by $143 million, reflecting an increase in spending of $267 million, which will be partially offset by savings by city agencies of $124 million. Increased demand for social services is the main driver of the rising costs, the aide said.
“New York City has the strongest social safety net in the country and those costs continue to rise as many families need help,” said Stu Loeser, a spokesman for Mayor Michael Bloomberg.
Also on Wednesday, another source familiar with New York City’s finances, said the city collected $6.79 billion from personal income taxes in the first 10 months of the fiscal year through April, up about $211 million from the same period in 2011.
The source said he was surprised by the forecast for the $352 million drop in revenue for this fiscal year. He questioned whether the Bloomberg administration might be placing too much emphasis on Wall Street’s difficulties late last year, as banks and brokerages have done better since then.
“The 2012 first quarter does not look anything like that bad,” he said. “Earnings are down compared to the 2011 first quarter but way above the 2011 fourth quarter”.
The funds from a legal settlement that will plug the projected budget gap are from computer contractor SAIC Inc, which in March agreed to pay the city $466 million to resolve its role in a fraudulent scheme that overcharged the city for a payroll time-keeping system.
Reporting by Joan Gralla; Editing by Tiziana Barghini and Leslie Adler