Higher-than-projected revenue and cost-saving initiatives have helped New York City’s fiscal year (FY) 2024 budget generate a projected year-end surplus of $3.9 billion that will be used to prepay expenses for the next fiscal year, helping the city balance its FY 2025 executive budget, according to a report released today by State Comptroller Thomas P. DiNapoli. Still, DiNapoli cautions that budget gaps are likely to be larger-than-anticipated by the city in the coming years, underlining the importance of adding to reserves now while revenues are strong and formalizing a policy for managing reserves in the future.
“New York City has rebounded from the fiscal challenges it faced last year thanks to better-than-projected revenues and the identification of substantial costs savings,” DiNapoli said. “The city should take this opportunity to bolster its reserves to levels that will help it effectively manage future surprises and continue to provide essential services to its residents. Preparation and transparency will be key for the city to navigate financial uncertainty.”
Strong revenue results allowed the city to reduce its initial cost-cutting target of nearly 15% of agency spending through the “Program to Eliminate the Gap” (PEG) and restore some service cuts. As a result, the city has restored $73 million in FY 2024 and an average of more than $200 million annually beginning in FY 2025.
New York City has generated substantial savings from the reinstatement of the PEG, with projected net savings of $2.6 billion in FY 2024, $2.3 billion in FY 2025, and an average of nearly $2.2 billion in the out-years, excluding savings associated with asylum seeker spending. The city has also identified $2.3 billion in asylum seeker savings over FY 2024 and FY 2025, due in part to changes to city shelter policies.
DiNapoli’s report notes the city continues to exclude or underbudget for spending that is likely to require additional funding. Funding for public assistance enrollment growth, the school class size mandate, the expansion of the CityFHEPS rental assistance program, as well as subsidies for the Metropolitan Transportation Authority and overtime, are expected to add $3.1 billion in budget risks in FY 2025, rising to $12.9 billion by FY 2028.
DiNapoli anticipates that the city is facing budget gaps of $2.9 billion in FY 2025, $10.9 billion in FY 2026, $13.4 billion in FY 2027 and $17.4 billion in FY 2028, inclusive of slightly higher revenue projections than the city.
In addition to budget risks, DiNapoli’s report notes there are reasons for the city to be cautious about economic growth. Commercial property market vacancies have reached their highest levels in 30 years and white collar hiring for office jobs has declined in recent months. The city’s revenue projections are also not as conservative as they have been in the past, leaving less room for an economic slowdown.
The city has also resorted to counting on sources of revenue that it had reduced reliance on prior to the pandemic, such as the water board rental payment, which will exceed $300 million annually beginning in FY 2025. This suggests increased difficulty balancing the budget through organic growth in tax revenue alone.
Over the past four fiscal years, the city has generated a total of over $15 billion in better-than-anticipated city fund revenue between budget adoption in July and the release of the Executive Budget in April. However, it has elected to set aside less than 10% of that amount for deposit into its rainy-day fund. Importantly, the city has added no additional deposits to the rainy-day fund in each of the last two fiscal years, inclusive of FY 2024. Adding funds to its reserves now, and formalizing a reserve policy, would provide the city with greater flexibility to avoid impacting services in the future.
Report
Review of the Financial Plan of the City of New York
Fiscal Tracking Tools and Reports
Fiscal Cliffs Dashboard
Asylum Seeker Spending Report
Review of the Financial Plan of the City of New York (February 2024)