Stronger than anticipated revenues and lower costs for asylum seekers will help New York City balance its $118 billion fiscal year (FY) 2026 budget, according to a report released today by State Comptroller Thomas P. DiNapoli. However, potential fiscal challenges are emerging, including continued uncertainty regarding federal policy and economic conditions, and fiscal risks from anticipated federal budget cuts. These challenges could limit the city’s potential revenue upside and make it harder to continue to fund recent spending additions for discretionary programs and maintain services.
“New York City’s fiscal outlook has improved since January as revenues have surpassed the city’s expectations, supported by the financial industry’s strong performance,” DiNapoli said. “But the economic conditions that drove higher revenues may be softening and local fiscal pressures could be exacerbated by decisions made at the federal and state levels. Boosting budget contingencies and setting money aside in its Rainy Day Fund would help the city manage fiscal challenges that may arise and help mitigate the impact to public services.”
Since June 2024, over $3.4 billion in city-generated revenue has been added to FY 2025 and another $3.1 billion is forecast for FY 2026. The city’s revenue estimates align with collection trends in the current fiscal year, and updates to the outyears of the plan are reasonable based on current conditions. However, this strategy represents a shift away from the city’s more conservative budgeting of revenues in recent years.
DiNapoli’s report anticipates $1.3 billion in additional tax revenue throughout the financial plan period, less than projected in previous years, due to slower economic growth. However, if the city were to experience even a mild recession, non-property revenue projections may be optimistic, and tax revenues would be unlikely to close budget gaps as they have in the recent past.
One key source of savings that increased in May is spending on asylum seekers. Projections for city-funded spending on these services peaked in June 2024 and are now $4.2 billion (over three years through FY 2027) less than anticipated at that time.
The asylum seeker population declined substantially at the beginning of 2025, but this has slowed in recent months and projected spending remains at more than $1.2 billion annually through FY 2027. While a substantial rise in these costs is not anticipated during the plan period, it is also unlikely that the city will be able to generate significantly greater savings in this area in the next few years to help close budget gaps.
DiNapoli’s report notes that funding for recurring underbudgeted expenses, including costs the city does not have unilateral control over – such as public assistance, rental assistance, health insurance, and subsidies for the Metropolitan Transportation Authority – are necessary to provide a full accounting of the budget challenges facing the city.
The city funded $6.2 billion in new needs in FY 2025, $5.2 billion of which were for these recurring underbudgeted expenses, which were once again left unfunded in future years. The city separately funded nearly $2.7 billion in other new needs in FY 2026, much of which went towards discretionary spending choices.
The city anticipates a balanced budget in FY 2026 and gaps of $4.6 billion in FY 2027, $5.8 billion in FY 2028 and $5.7 billion in FY 2029, figures that are manageable by historical standards and may be reduced by $1.45 billion in contingencies in each of those years. However, DiNapoli’s office finds that underbudgeted items leave the city with potential budget gaps of $10.6 billion in FY 2027, $13 billion in FY 2028 and $12.9 billion in FY 2029.
DiNapoli’s report notes that choices made at the federal and state levels could also adversely affect city finances. For example, certain social service programs are heavily reliant on federal support and may require the city to make difficult choices about these services in the coming years. In addition, the state may need to revise its budget in the wake of federal actions, which could create substantial challenges for state aid that goes toward education, health care, and social services.
The city can better prepare for this volatility by increasing its budgetary flexibility through contingencies and reserves. While the city has generated substantially more revenue than anticipated in recent years, it has not put additional money aside in over three years. DiNapoli has suggested that the city consider adopting a formal reserve policy which requires a portion of funds be set aside in years when operating results are stronger than anticipated.
Given the recent unpredictability of 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.
Report
Review of the Financial Plan of the City of New York
Related Reports
Review of the Financial Plan of the City of New York (February 2025)
Federal Funds to New York City: A Review of Categorical Grants