Better-than-projected revenues and planned cost savings benefited New York City’s budget outlook for Fiscal Year (FY) 2025, but funding for education and social services remain uncertain in the future, according to State Comptroller Thomas P. DiNapoli’s analysis of the city’s latest financial plan.

“New York City’s finances were boosted by better-than-projected revenues and planned savings, but out-year budget gaps are still large and tough choices remain ahead to fund essential education programs and social services,” DiNapoli said. “The reality is that federal pandemic aid is ending and programs that help support affordability and working families will require additional funds. While additional revenue and savings have helped the city balance its books, it is navigating several fiscal challenges including an unprecedented influx of asylum seekers and needs the federal government to take steps to provide funding and address comprehensive immigration reform.”

The city’s Preliminary FY 2025 budget and January Financial Plan enabled the city to increase current year (FY 2024) spending to $115.8 billion (adjusted for prepayments), close its $7.1 billion FY 2025 budget gap, and reduce its out-year gaps.

The January Financial Plan identified increased revenue from business, personal income, and property taxes. Tax projections rose by $1.3 billion in FY 2024 and grew to $2.2 billion by FY 2027, despite a decrease of about $500 million annually in real estate transaction taxes. Non-tax revenue adjustments also added another $279 million in FY 2024 and $354 million in FY 2025.This largely comes from the re-introduction of the city’s water and sewer rental payments.

The January Financial Plan also included the second round of the Program to Eliminate the Gap (PEG), an initiative which initially called for reductions in agency spending of 5% in each of three financial plan “rounds” in November, January, and April. In addition to these savings, the city also identified 20% savings on asylum seeker spending, totaling $1.7 billion through FY 2025. These efforts are expected to generate total savings of $2.9 billion in FY 2024 and $3.7 billion in FY 2025.

Increased tax revenue and inclusion of proposed state asylum seeker funding, when combined with additional as-yet unbudgeted reductions in asylum seeker spending by 10%, led the city to announce it will be able to avoid a third round of agency PEGs in its executive budget, due in April.

Out-year budget gaps are likely to remain higher than the city’s forecasts and new savings will likely be harder to achieve. This is due to the end of federal pandemic aid for continuing programming, a number of underbudgeted spending items and a lack of federal funding to reimburse asylum seeker costs. The report projects that even with better-than-projected revenue, budget gaps would be $11.3 billion in FY 2026, $13.4 billion in FY 2027 and $15.9 billion in FY 2028, which would be greater than the city’s reserve levels.

In addition, elevated spending on existing and new programs created by the city during the pandemic are at risk. Education, health care, and social services that help working families are likely to cost the city more than budgeted, if they are continued at current levels.

Risks to Education and Child Care

DiNapoli’s report anticipates unfunded Department of Education risks will rise to nearly $1.9 billion by FY 2028. The city does not address how it will support $92 million in funding for its 3-K program, which provides free preschool for 3-year-olds. Funding for this program was previously supported by expiring federal funds.

The January Financial Plan also does not include funding to reduce class size, which the city expects to cost $1.3 billion annually once fully phased in.

Risks to Social Services 

Cash and rental assistance enrollment is likely to remain higher than pre-pandemic levels in the near future. This is the result of current economic conditions and policies implemented during the pandemic, which made it easier to apply for and maintain benefits electronically. DiNapoli estimates a city-funded risk of $405 million annually in FY 2025 and FY 2026 for public assistance and about $678 million for rental assistance in those years.

In addition, the expansion of the City Fighting Homelessness and Eviction Prevention Supplement (CityFHEPS) housing voucher program could result in costs of $11.4 billion cumulatively from FY 2025 to FY 2028.

Staffing and Overtime Challenges 

Despite the short-term improvement to the city’s fiscal outlook and efforts to minimize service impact, the city anticipates that some planned service reductions will still be necessary. These reductions are expected to save $44 million in FY 2024, rising to $293 million in FY 2025 with slightly smaller amounts in subsequent years.

The January Financial Plan added $255 million in FY 2024 to support uniform agency overtime, bringing the amount to $1.67 billion, but DiNapoli’s report projects overtime could total $2 billion.

Outlook Ahead 

The city should continue to seek efficiencies to balance out-year budget gaps, increase transparency around efforts to monitor revenues and manage costs, and focus on balancing fiscal management with operational needs to ensure its recovery remains on track.

Report
Review of the Financial Plan of the City of New York (2024)

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Review of the Financial Plan of the City of New York (2023)
Update on New York City Staffing Trends 
Identifying Fiscal Cliffs in New York City’s Financial Plan