New York City’s $104.8 billion preliminary fiscal year (FY) 2024 budget has benefitted from better-than-projected revenue collections, the reallocation of unused federal pandemic relief funds and savings initiatives, according to a report released today by State Comptroller Thomas P. DiNapoli. DiNapoli’s office assumes that a number of the fiscal risks the city currently faces will continue, increasing the planned budget gap to about $8.9 billion in FY 2025 and $13.9 billion in FY 2027 (18% of city-fund revenues), even when adjusting for stronger revenue collections.
“The city’s steps to close future budget gaps recognize the need to achieve long-term budgetary balance,” DiNapoli said. “It also recognized higher-than-expected revenue from tax collections and the remainder of federal pandemic relief aid. The city should continue to identify efficiencies, build up reserves and monitor its delivery of services amid staffing challenges. Significant risks remain in the city’s financial plan, although its recent agreement with its largest labor union has helped clarify the risk over collective bargaining costs. The city should be more transparent on its strategies to address future issues and inform taxpayers on budgetary decisions.”
Since adoption in June, the FY 2023 budget has added few new costs, while reducing spending by nearly $2 billion through its FY 2023 Program to Eliminate the Gap. The city’s budget surplus for FY 2023, which will be used to prepay a portion of the city’s debt service in FY 2024, has reached nearly $2.2 billion.
The city continues to face uncertainty over the national economy and its impact on financial markets, its own lagging recovery and the costs associated with asylum seekers. These fiscal risks remain difficult to quantify because they are not fully reflected in current budget figures and are likely to increase the city’s budget gaps in the future.
The city’s recent contract settlement with the District Council 37 union gives clarity to collective bargaining costs, which had been an area of budgetary risk in its initial financial plan. If it is ratified and sets a pattern for other labor agreements, total labor costs would increase by $4.7 billion in FY 2027 and will likely be higher thereafter when fully annualized.
The FY 2024 budget would continue to phase out federal pandemic aid, which is projected to decline from its peak of about $10 billion in FY 2022 to $2.4 billion in FY 2024. The city will likely have to provide its own funding for new or expanded pandemic-era services such as mental health programming, enhanced rental- and food-related income supports and access to legal counsel, if it intends on continuing those services. The mayor and City Council have also suggested new programs since the release of the January financial plan that could create new fiscal cliffs and require additional funding.
The city assumes budget gaps will reach $3.2 billion in FY 2025 and grow to nearly $6.5 billion in FY 2027. As a share of city fund revenues, the remaining out-year gaps projected by the city would average 6.3%, the highest level at this point in the budget cycle since FY 2012.
Other risks, in addition to the influx of asylum seekers and collective bargaining costs, include higher-than-projected costs for social services, education and operating subsidies to the Metropolitan Transportation Authority. These fiscal concerns do not include the impact of the proposed state budget.
DiNapoli’s report notes growth forecasts for the nation’s economy, which are linked to the performance of the city’s financial sector, remain troublesome and numerous markers suggest a continued economic slowdown is likely nationally. The city gained jobs at a greater rate in 2022 than the country, but its unemployment rate still lags the nation (5.8% vs. 3.5% as of December).
City tax revenues have remained resilient as federal relief for households and businesses boosted personal and business income taxes while tourism and commuters boosted sales and hotel taxes. Property values showed better-than-projected improvement, which should allow the city to make an upward adjustment for FY 2024 property tax revenues. DiNapoli’s office anticipates this improvement will continue, leading to better-than projected revenues over the financial plan barring a severe recession.
If tax revenues do not exceed projections and other sources of funding are not made available to fund existing needs, the city may have to build on its recent cost-savings efforts. Much of the savings in FY 2024 and on a recurring basis are associated with reducing head count. While these savings have helped the city’s fiscal picture, questions over the delivery of services have emerged. The city must take care to balance any additional savings made through staffing changes with the risk of deteriorating core services and providing timely aid to those in need.
In contrast to last year, when the city deposited $500 million into its rainy-day fund, the city has not yet set aside money for reserves in the current year. DiNapoli’s office has recommended a more systematic approach for depositing funds into reserves, which would enhance the city’s fiscal discipline and best prepare it for the uncertainties that lay ahead.
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