Last updated August 8, 2024

PDF Version

Recent updates to New York City’s financial plan include one-time funding for some recurring spending initiatives, creating additional risks to published budget gaps. The Office of the State Comptroller (OSC) examined fiscal years FY 2022 to FY 2026 and created this tool to itemize the City programs that exhibit a drop in funding during this period. This drop, referred to as a “fiscal cliff,” means that the current level of service is not supported, either partially or in full, going forward. While cliffs could extend past FY 2026, the tool only focuses on this period as it includes the majority of federal pandemic aid spending.

OSC examined expenditures for the City agencies that comprise nearly 90 percent of the City’s planned expenses. The tool includes both City and federal COVID-19 relief funding and highlights areas of at-risk spending due to declines in future year allocations. Identified cliffs could impact services for residents including expanded educational programs, housing assistance, mental health and health care initiatives, among others.

Read More

As required by the Financial Emergency Act and embedded in the City Charter, the City of New York publishes a four-year financial plan to provide a framework for long-term budget decisions. This requirement gives decision makers a long lead time to identify initiatives for achieving budget balance each year. The initiatives to close the gaps may include new revenues, cost efficiencies, or other forms of savings.

However, the City’s financial plan, including its most recent June 2024 update (the FY 2025 Adopted Budget), assumes that the funding for certain services will not recur beyond a finite period, even though spending on those services is not expected to decline (based on current trends) and, in some cases, are mandatory. As a result, the City’s financial plan lacks transparency about the true recurring costs of some of its services, which may expand budgetary gaps if they are not offset by unanticipated resources or other alternatives.

Spending risks can be identified when there is more funding provided in the current year than in subsequent years (“out-years”) in the plan without a rationale for the decline. The drop in funding, or fiscal cliff, means that the current level of service may not be supported by planned spending projections in the future, and that in order to maintain service levels, the City might have to reallocate or find new sources of funding.

Some of these fiscal cliffs reflect new programs, while others arise from service enhancements or sustained increases in service volume that are not reflected in future years. In addition to possible service declines, this creates uncertainty for service providers who are dependent upon City funding and limits their ability to plan their spending.

The City also created new programs to foster recovery and mitigate the harmful effects of the pandemic, funded with nonrecurring federal pandemic aid. However, a sizable portion of the cost to support these programs is expected to recur after the federal funds are exhausted. (See examples of projected fiscal cliffs in the sidebar.)

OSC reports on the City’s financial plans and the Department of Education’s response to the COVID-19 pandemic highlight the emergence of these fiscal cliffs. While the City has since added baseline funding for some of the cliffs that OSC identified, other cliffs remain, and still others are addressed for a limited period, deferring funding decisions to the out-years of the plan period.

The tool uses the City’s published financial plan and ongoing budget modifications since April 2021 to show out-year funding shortfalls for specific programs and initiatives which could be reduced or eliminated, or will need to be funded through other means. OSC further refined the tool through discussion with the New York City Office of Management and Budget, which helped isolate start-up costs, timing differences, and funding offsets that may be reflected elsewhere in the plan.

Gaps are calculated by comparing out-year funding amounts to the annual funding at the peak service level. City Council discretionary awards are excluded from the analysis, as these are distributed annually. Technical adjustments are also excluded from the analysis. OSC retired cliffs from prior fiscal years that the City did not address as of the end of each fiscal year.

Users can select an agency and/or fiscal year for details on funding gaps within specific agencies or periods of the financial plan. The tool also distinguishes city-funded cliffs from federally funded cliffs, which result from the use of pandemic relief dollars to pay for recurring services. The federal cliffs are of particular concern since the City does not have the means to sustain the current level of elevated spending after the relief funds expire.

As agencies consider ways to generate savings to manage their budgets, they will have to make careful choices over what services they can provide within realistic funding assumptions. The identification of these fiscal cliffs will allow the City and its residents, policymakers and other key stakeholders to consider budgetary policy choices. The decisions made now to begin the process of balancing future spending with available revenue, including targeting additional efficiencies, proposing reallocation of funds, or modifying service levels and the schedule for their delivery, will help to ensure the City minimizes service disruptions for its residents and ensure the City’s fiscal health is not a burden to its business climate and long-term economic profile.