New York City’s fiscal year (FY) 2023 budget is projected to rise to $109.4 billion (adjusted from $104 billion after surplus transfers), reflecting continued improvement in the city’s fiscal position since June, but city finances could come under pressure amid a slowing economic recovery and an increase in demand for city services, according to State Comptroller Thomas P. DiNapoli’s analysis of the city’s November financial plan update.
“Amid a number of setbacks, New York City’s economy continues to show resilience, supporting a slow but gradual recovery,” DiNapoli said. “However, the city faces potential declines in real estate and income-related revenue collections as well as an increase in demand for services needed to support the local economy and help those who remain in need. Identifying further efficiencies, tracking service delivery amid changing staffing trends, and building up reserves should enable the city to better insulate itself from the financial pressures it’s facing.”
The city’s November Plan shows higher revenue of $2.5 billion since June due to unanticipated federal grant funds. The plan also does not yet include more than $1.4 billion in already collected personal income, sales, business and hotel taxes exceeding projections through October, and $1.1 billion in unallocated federal relief aid, both of which will provide additional revenue upside in FY 2023.
Some items not reflected in the city’s projected budget gaps are also notable. For example, the city assumes $1 billion in not yet approved revenue from the federal government for expenses related to the recent influx of asylum seekers when there is a risk it may not receive the full amount.
DiNapoli’s report notes the city also took steps to manage expenses in the current fiscal year, adding just $205 million in new needs and implementing a Program to Eliminate the Gap (PEG) initiative to save a net of $859 million in FY 2023. The city now anticipates setting aside a surplus of $705 million this year to use for prepayments of liabilities in FY 2024.
The PEG is also expected to generate recurring net savings of $1.1 billion by the end of the plan period (FY 2026), but this will not be enough to counter an increase in pension contributions, as anticipated by DiNapoli’s office in August. These costs will build over time, contributing to larger budget gaps in FY 2025 ($4.6 billion) and FY 2026 ($5.9 billion) than estimated in June.
Certain PEG savings are also expected from anticipated staff turnover, vacancy reductions and other factors such as hiring and program implementation delays. These expected savings come at a time when the city is experiencing difficulties in hiring amid increased demand for some services. Going forward, the city should incorporate agency performance indicators to inform its staffing choices.
DiNapoli’s office has calculated known risks to the city’s budget that exceed $3.3 billion annually in FY 2024, and reach nearly $5 billion in FY 2026, raising the potential budget gap in that year to over $10.8 billion.
In addition to these risks, the city faces significant fiscal uncertainty associated with collective bargaining agreements. If wages were to rise at the projected inflation rate without offsetting savings, costs would increase by an estimated $1.7 billion in FY 2023 (including retroactive pay) and grow to $4.6 billion in FY 2026, with recurring costs of nearly $5.1 billion annually thereafter. Additional difficult to quantify budget risks could come should a potentially severe recession occur, leading to further revisions of city revenues. Programs funded by federal pandemic aid will also require new revenue to continue after those funds are exhausted.
For the upcoming FY 2024 preliminary budget, DiNapoli urges the city to provide a realistic and transparent view of the city’s revenue and expenses and take actions to close out-year gaps while maintaining critical services.
Review of the Financial Plan of the City of New York
Related Reports and Analysis
Update on New York City Staffing Trends
Identifying Fiscal Cliffs in New York City’s Financial Plan
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