New York City increased its expectations for its surplus in fiscal year (FY) 2025 to $2.34 billion, largely as a result of stronger tax revenue projections and a reduction in the cost of providing services to asylum seekers, which will help balance its $116.9 billion FY 2026 budget, according to a report released today by State Comptroller Thomas P. DiNapoli.

“Improved fiscal conditions have helped New York City shore up its finances and close a budget gap for the coming fiscal year,” DiNapoli said. “However, given recent uncertainty created by federal fiscal and economic policy choices, the city should be preparing for scenarios where all of its resources -- federal, state, and local – may be impacted. One way to mitigate disruptions would be to further build reserve levels and clarify how these resources may be used by developing formal policies around the accumulation and uses of these funds.”

DiNapoli’s report notes the city faces heightened fiscal uncertainty pending the outcome of upcoming federal budget negotiations and the result of the comprehensive federal assistance funding review being conducted by the new administration to identify grant programs which are implicated by the President’s recent executive actions. While federal receipts account for just 6.4% ($7.4 billion) of the city’s FY 2026 operating budget, significantly more federal funding flows through the state to provide services, including more than $30 billion in Medicaid expenditures, or directly to New York City residents, such as Supplemental Nutritional Assistance Program benefits and Pell Grants.

Since budget adoption, the city has updated its FY 2025 projections to include $1.4 billion in higher revenues, $1.5 billion in asylum seeker savings and $400 million in lower-than-expected collective bargaining costs. Including a $1.4 billion drawdown of contingency reserves, these funds offset billions in additional spending needs and allowed the city to create the surplus used for prepayments.

In addition to the $2.34 billion in prepayments for FY 2026, the city added $2 billion in revenue and reduced projected asylum seeker spending by $1.4 billion, which helped close the $5.5 billion gap for FY 2026 that was projected at the beginning of the current year.

Still, continuing the practice of underbudgeting certain spending items creates risks to the city’s financial plan. In FY 2025, the city added $3.7 billion to address fiscal needs that arose since the beginning of the fiscal year, much of which has gone towards nondiscretionary spending, including public assistance, rental assistance, special education services, charter school funding and subsidies for the Metropolitan Transportation Authority.

However, the city has added only $831 million for new agency needs in FY 2026, suggesting it will again have to identify additional resources to fund these expenses next year. The city should be realistic in its projection of spending on these items to improve transparency.

DiNapoli’s report identified nearly $4.8 billion in spending risks in FY 2026 but offsetting these are more than $1 billion in additional tax revenue the city is likely to collect, barring a recession, and $1.1 billion less on spending on asylum seeker services than it currently projects. Overall, DiNapoli anticipates the city will still have to close a $2.6 billion budget gap in FY 2026.

Increased transparency should inform a realistic discussion of the city’s fiscal position and its ability to fund discretionary programs the city is not obligated to provide but which may be popular. These include over $600 million in services which are currently not funded at FY 2025 levels in the coming years, including special education Pre-Kindergarten, arts funding and early childhood education expansions, among others.

DiNapoli’s report notes that as a share of spending, the $2 billion in City’s Rainy Day Fund would equal just 1.7% of total planned spending in FY 2025, slightly down from 1.8% in FY 2023. The city stopped depositing additional money in this fund in FY 2022. DiNapoli has called for the city to formalize its reserve policy to systematize deposits and provide justification for withdrawals from the fund, if needed.

The city’s projected gaps in fiscal years 2027 through 2029 are smaller than in June of last year at budget adoption. However, when including budgetary risks, the gaps projected by DiNapoli’s office in fiscal years 2027 through 2029 rise from $7.6 billion to average more than $10 billion in the out years, substantially larger than those currently projected by the city, even with the expectation that revenues will continue to come in an average of $1.5 billion higher than the city’s current projections.

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

Fiscal Tracking Tools and Reports
Review of the Financial Plan of the City of New York (December 2024)
New York City Agency Services Update (December 2024)