New York City’s finances continue to benefit from better-than-projected revenues and savings generated through initiatives launched in response to its financial challenges, but the continued influx of asylum seekers, elevated demand for city programs and a declining surplus demand preparation to navigate future uncertainty, according to a report on the city’s Financial Plan released today by State Comptroller Thomas P. DiNapoli.
“The city’s budget gaps are expected to grow due to a number of financial challenges ahead,” DiNapoli said. “Consistent underbudgeting for known spending risks such as educational programming, social services and the MTA could amount to over $2 billion next year, and the city continues to bear the majority of the burden for the significant cost of helping asylum seekers. The city needs to increase budget and operational transparency to provide the public and elected officials with a clear understanding of the issues it faces and continue to identify cost savings to ensure it’s prepared for any economic uncertainties.”
In June, New York City adopted a balanced budget for fiscal year (FY) 2025, totaling $116.8 billion including expense prepayments from last fiscal year. The fiscal trajectory of FY 2024 followed recent trends – stronger-than-projected revenues and newly-created savings measures allowed the city to fund substantial unanticipated spending generated during the fiscal year. However, the city faces a number of fiscal pressures entering FY 2025, which threaten the budget balance in the coming years.
The city’s surplus, which was $6.1 billion entering FY 2023, is estimated at $4.4 billion entering FY 2025. FY 2024 was the second year the city expended more than it realized in revenue generated in that year. Despite the substantially higher-than-anticipated revenue in FY 2024, the city chose not to make any discretionary deposits into its rainy-day fund, leaving it at just under $2 billion and a smaller share of projected FY 2025 expenses than in the prior two years.
City-fund revenue in FY 2024 is estimated to be $80.4 billion, which is $3.4 billion, or 4.5% higher, than anticipated at budget adoption last year. Better-than-projected revenue collections were partly due to relatively conservative budgetary projections.
At adoption last year, the city expected city-fund revenue to decline in FY 2024 by nearly 3%, but business and personal income tax came in higher than projected. The city now expects city-fund revenues to rise by 3.5% in FY 2025, with anticipated rebounds in personal income taxes and real estate transaction taxes. The growth rate, while reasonable, leaves a smaller margin for revenue upside, particularly if pressured by unforeseen economic events, including a recession.
Unanticipated revenue has been critical in recent years to allow the city to keep pace with unanticipated and underbudgeted spending, which continues to grow. For example, the city announced in August 2023 that nearly $10 billion in additional spending was needed to manage the asylum seeker influx through FY 2027, part of which has been managed with stronger-than-expected revenue. The city also funded two underbudgeted items DiNapoli’s office has highlighted in recent years as risks, charter school costs and funding for rental assistance vouchers.
The city also initiated what would have been the largest Program to Eliminate the Gap (PEG) on record in September 2023, three separate rounds of agency savings of 5% in response to the updated cost projections for managing the asylum seeker influx. The city implemented the first round but tapered the January round and canceled the April round, owing to better-than-projected revenues and savings initiatives that leveraged new policies specifically targeting the costs of managing the asylum seeker influx.
Excluding restorations, the city identified savings of over $15 billion through FY 2028 from the PEG, with about one-third coming from efficiencies and two-fifths from expense recalculations. Nearly 10% was initially planned to come from service reductions, however about half of the initially planned savings associated with service cuts were restored, illustrating their popularity with residents.
The city’s stated out-year gaps now total $17.6 billion from FY 2026 to FY 2028, $2.25 billion less than the three-year gap total reported as of the FY 2024 Adopted Plan. Existing contingencies (totaling $1.45 billion in each fiscal year) could be used to narrow these gaps.
DiNapoli’s report notes the city must balance fiscal management with its operational needs to ensure it can continue to encourage employment and business growth and enhance its economic and tax revenue base. A key challenge the city has had to contend with is a significant staffing decline during the pandemic that affected some services. Staffing is expected to grow as a result of New York City’s improved fiscal outlook but will still take time to be fully remedied.
It is also necessary for the federal government to take concrete steps to alleviate spending pressures from the influx of asylum seekers, including a long-term strategy to manage the population, DiNapoli said.
Budgetary risks which remain from unbudgeted or underbudgeted items, in addition to smaller spending risks, are expected to add nearly $2.2 billion in budget risks in FY 2025, rising to nearly $7.1 billion by FY 2028, according to DiNapoli’s report.
Accounting for these additional risks, DiNapoli projects that the city may face budget gaps of nearly $2.3 billion in FY 2025, $8.5 billion in FY 2026, nearly $10 billion in FY 2027 and $12.8 billion in FY 2028.
Report
Review of the Financial Plan of the City of New York
Fiscal Tracking Tools and Reports
New York City Contract Spending Trends
Fiscal Cliffs Dashboard
Asylum Seeker Spending Report
Review of the Financial Plan of the City of New York (May 2024)