New York City faces spending risks that could increase its budget gaps for Fiscal Years (FY) 2025 through 2027 to an average of $12.6 billion annually, fueled by spending choices made during the pandemic, underbudgeting for recurring spending, and significant costs associated with the influx of asylum seekers into the five boroughs, according to a report released today by State Comptroller Thomas P. DiNapoli.

“New York City has weathered fiscal difficulties over the past few years and must continue to show fiscal discipline going forward,” DiNapoli said. “Given many of the fiscal challenges facing the city are not under its direct control, preparation and transparency about choices and decision-making are crucial to navigate the uncertainty ahead.”

The city’s November update to its financial plan projects gaps to decline slightly in the coming years ($6.5 billion in FY 2026 and $6.4 billion in FY 2027) mostly due to savings actions the city plans to take.

Spending risks to the city budget, including the costs for asylum seekers and an expanded rental assistance program, could average nearly $7.3 billion per fiscal year beginning in FY 2025, according to DiNapoli’s analysis, and could push budget gaps to $8.7 billion in FY 2025, $13.7 billion in FY 2026 and $15.5 billion in FY 2027.

The city announced its FY 2024 program to eliminate the gap (PEG) in September, which could become the largest annual gap-closing program since at least FY 2008. The city expects the first round of the PEG, released in November, to generate nearly $3.7 billion through FY 2025 and more than $1.9 billion annually in each subsequent year. It would also reduce planned staffing by 2,873 positions by the end of FY 2025.

The city increased the forecast for total tax collections by $592 million for FY 2024 due to stronger-than-expected non-property tax collections. Through the first four months of FY 2024, non-property tax collections were $365 million higher than June’s forecast. Even with the increase in the forecast, the city still expects total tax collections to decline by 2.3% from the prior year to $71.7 billion in FY 2024.

DiNapoli’s report notes that revenue may exceed the city’s projections by an average of nearly $1.3 billion annually through the end of the financial period and that the city should monitor this closely. If revenues were to remain flat from FY 2023, the city would receive nearly $2.3 billion more than currently anticipated. While not enough on its own to close budget gaps, higher revenue could allow the city to temper savings that rely on service cuts and provide more time for the city to identify and implement operational and procurement savings.

Similar monitoring of expenses is also needed to ensure underbudgeted items do not offset the savings generated by the PEG. The Comptroller’s office projects underbudgeting for items that regularly exceed planned spending, including funding for the Metropolitan Transportation Authority (MTA) and a variety of social service supports, are likely to require over $1.5 billion in recurring spending that is not yet budgeted for.

Planned spending for asylum seekers is projected at $4.7 billion in FY 2024 and $6.1 billion in FY 2025. The financial plan also adds out-year amounts of $2 billion in FY 2026 and $1 billion in FY 2027, bringing total estimated spending to $15.3 billion from FY 2023 through FY 2027. The city has targeted a 20% reduction in asylum seeker costs to be included as part of the second round of the FY 2024 PEG in January, separate from the second 5% PEG for agencies. The targeted savings for asylum seeker costs could ease pressure on agency savings in the future.

It is also necessary for the federal government to take concrete steps to alleviate spending pressure from assisting asylum seekers, including a matching share of funding and a comprehensive policy strategy to manage the population. Federal aid, at $145 million, amounts to less than 7% of associated spending to date and less than 1% of budgeted spending.

In addition to greater transparency on revenue and expenditure trends, which may allow for restoring or reducing the impact of planned service and vacancy reductions, DiNapoli urged the city to provide greater guidance on how it intends to navigate new legislative requirements to estimate costs, including class size maximums for schools and the expansion of the city’s Fighting Homelessness Eviction and Prevention Supplement program. These costs, which are not included in the budget, could exceed over $4 billion by FY 2027 and there is still little detail on if and how the city will implement these policies or pay for them.

DiNapoli’s report also found:

• Total citywide expenditures are projected to reach nearly $115.4 billion in FY 2024, after adjusting for surplus transfers. The portion of citywide spending funded with locally generated revenue is estimated at nearly $82.6 billion. The portion funded with other sources, mostly federal and state grants, is $32.8 billion.
• The city plans to allocate $39.3 billion to the Department of Education in FY 2024, including centrally administered costs for pensions and other post-employment benefits. This would amount to 35.5% of the city’s total budget and be $1.3 billion more than actual spending in FY 2023.
• The city’s full-time workforce declined for the third consecutive year through FY 2023, to 281,917 employees. While it has increased slightly since then, to 284,104 employees as of September, the city’s full-time staffing remains among the lowest levels since January 2016.

Report
Review of the Financial Plan of the City of New York

Fiscal Tracking Tools and Reports
Fiscal Cliffs Dashboard
Industry Tracker
Asylum Seeker Spending Report
Agency Services Monitoring Tool
Review of the Financial Plan of the City of New York (August 2023)