Identifying Fiscal Cliffs in New York City’s Financial Plan

Last updated May 28, 2024

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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.

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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 April 2024 update (the FY 2025 Executive 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.)

Recent 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.

Selected Examples of Fiscal Cliffs

  • Funding of $468 million for Cash Assistance payments added in FY 2024 is not included in future years.
  • $531 million in funds at the Department of Homeless Services is needed annually beginning in FY 2025 to maintain current service levels, including $312 million for homeless shelters and $140 million for Emergency Assistance to Families (EAF).
  • The City added $615 million in FY 2025 and $540 million annually thereafter for the CityFHEPS Rental Assistance Program in April 2024, increasing the recurring cost to $615 million and generating residual cliffs of $75 million annually beginning in FY 2026.
  • Funding to support administrative overhead for nonprofits and human service providers (the Indirect Cost Rate Funding Initiative) ends in FY 2026 (from $60.5 million annually). 
  • More than half of total fiscal cliffs by FY 2026 ($3 billion) are from funding shortfalls at the Department of Education ($883 million) and Department of Social Services ($721 million). Total recurring costs funded by one-time federal aid are estimated at $608 million by FY 2026, two-thirds of which are generated by the Department of Education.

New Fiscal Cliffs as of April 2024

  • Department of Education: The City added $134.5 million in FY 2025 only, primarily to maintain existing programs such as arts instruction ($41 million), Learning to Work ($31 million), and special education pre K classes ($25 million), among others.
  • IT Adjustment: The City added $28 million for information technology at the Police Department in FY 2024 only.
  • Food Costs for People in Custody: $5 million was added in FY 2024 only to cover unplanned costs for food as a result of inflation and higher than-projected population in custody.

Baseline Funding Added to Address Fiscal Cliffs Since February 2022

  • New Family Home Visits: The Department of Health and Mental Hygiene originally added $23 million in FY 2022 to provide first-time families who are engaged with child services or in neighborhoods with high risks of health and social burdens with health and mental support. In February 2022, the City added approximately $30 million annually beginning in FY 2023.
  • WTC Zadroga: In February 2022, the City added baseline funding of $51.5 million in FY 2023 for matching City spending related to the World Trade Center Health program, as required by the federal Zadroga 9/11 Health and Compensation Act of 2010, which grows to $111 million by FY 2026.
  • Fair Fares: In February 2022, the City baselined funding of $75 million annually beginning FY 2023, which continues the subsidizing of half-fares on MTA subways, some bus systems and paratransit for certain income-eligible New Yorkers.
  • Street Health Outreach and Wellness (SHOW): In April 2022, the City added $19.3 million in FY 2023 and $13.7 million in the out-years for NYC Health + Hospitals (H+H) mobile units.
  • Article 10 Parental Representation: In April 2022, the City baselined $8.7 million annually beginning in FY 2023 to maintain contract levels for parental representation in child abuse and neglect cases.
  • Mental Health Response Program (B-HEARD): In April 2023, the City baselined $24.5 million annually for the Fire Department’s component of this program; the allocations for the H+H component were already baselined in the April 2022 plan ($18 million).
  • 18-B Assigned Counsel: In June 2023, the City baselined $48 million annually beginning in FY 2024 to fund a court-mandated increase in pay rates for public defenders providing free legal representation. 
  • Work, Learn & Grow (WLG): In June 2023, the City baselined an additional $22.5 million annually beginning in FY 2024 to provide year-round career readiness programming for participants of the Summer Youth Employment Program (SYEP).
  • Home Delivered Meals: In June 2023, the City baselined an additional $4.5 million annually beginning in FY 2024 to provide home delivered meals to older adults.
  • Community Schools Expansion: In April 2024, the City allocated $48 million annually in State funding beginning in FY 2025 to support an expansion of the NYC Community Schools program, originally funded with federal pandemic aid.