New York City’s budget gaps may reach as high as $10 billion in FY 2027 and grow to $13.6 billion by FY 2029, based on risks including slowing economic growth, rising costs and the restructuring of the funding relationship between the federal government, states and their localities, according to a report released today by State Comptroller Thomas P. DiNapoli on the updated financial plan released by the city in November (November Plan).
“In recent years, New York City has used better-than-projected revenues to balance its budgets, but this revenue trend may be coming to a close,” DiNapoli said. “If the city faces even a mild recession, it is unlikely tax revenues alone would be able to close budget gaps. The city should look to identify new efficiencies to generate additional savings if the need arises, as well as prepare for potential federal funding cuts down the road.”
Uncertainty from Washington
New York City modified its FY 2026 budget to $118.2 billion, $2.3 billion higher than at adoption. However, this total excludes $3.8 billion of FY 2026 expenses that were prepaid in FY 2025. After adjusting for all surplus transfers and prepayments, the November Plan assumes the city will spend $122 billion in FY 2025. While the plan shows that FY 2026 remains balanced, the city did not take significant steps to prepare for or provide clarity on the fiscal challenges it faces nearing the middle of the fiscal year – electing not to set aside additional reserves.
While personal income tax (PIT) revenues remain robust, business tax collections – which had well exceeded expectations in recent years and saw projections increased last year – are now expected to be $378 million lower than the city’s projections at budget adoption. Preliminary employment figures also suggest the city may have lost jobs entering this fiscal year, an issue that impacts the collection of tax revenues and can cause increased demand for social services.
DiNapoli’s report notes that total projected revenues for the city in FY 2026 include more than $28 billion in state and federal categorical grants, largely for education and social services. While these sources of funding may not be significantly impacted in the current fiscal year, they are at risk of being altered in the coming years based on recent choices made in Washington.
The November Plan largely adjusted spending in the current year only, adding some funding for under-budgeted items and state and federally supported social services programs. The city did add funding in the out-years for additional police officers. In tandem with slightly better short-term revenue projections, out-year gaps were left little changed.
Underestimated Budget Gaps
The city’s stated out-year gaps now total a combined $17.3 billion from FY 2027 to FY 2029. Measured as a share of revenues the city collects on its own, the out-year gaps average 6.3%. Existing budget contingency items to manage cost overruns totaling $1.45 billion in each fiscal year could be used to narrow the gaps to an average of 4.7% of revenues, if they are not necessary to fund other unanticipated spending.
However, DiNapoli’s office anticipates the published out-year gaps are understated because the city assumes an unlikely decline in costs for social services, education, Metropolitan Transportation Authority (MTA) subsidies, and overtime costs. Trends in the provision of social services, such as public and rental assistance, as well as overtime, suggest these costs will continue to rise. In addition, the city’s expense projections for MTA subsidies do not align with the authority’s projections. Facing widening gaps, the city should be transparent about how it will control costs or align its budget with historical trends in recurring program areas to more accurately forecast actual costs going forward.
In addition to federal risks that could directly impact the city’s budget, payments to individuals, households and other entities reliant on federal grants and contracts, including the city’s semi-autonomous agencies (New York City Health + Hospitals, the New York City Housing Authority and the City University of New York) may impact demand and revenue sources for city services. Federal policy on tariffs and immigration could also hurt local economic activities, given the city’s role as a center for global commerce and a magnet for international talent.
To prepare for possible impacts to federal, state and locally derived revenues, DiNapoli recommends that the city identify funding sources for new discretionary spending. New cost saving actions would also help make resources available for changes to the city’s spending priorities. In recent years, where more substantial savings programs were necessary to balance the city’s budget, staffing reductions from changes to hiring policies and continued attrition have adversely impacted some city services. Adoption of these approaches may help reduce the impact of staffing or service cuts.
Report
Review of the Financial Plan of the City of New York
Related Reports
Federal Funds to New York City: A Review of Categorical Grants
Review of the Financial Plan of the City of New York (August 2025)
Agency Services Monitoring Tool
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