Identifying Fiscal Cliffs in New York City’s Financial Plan

Last updated August 16, 2022

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New York City’s published financial plan includes one-time funding for some recurring spending initiatives, creating additional risks to previously disclosed budget gaps. The Office of the State Comptroller created this tool to itemize the City programs that exhibit a drop in funding during the remaining years of the City’s financial plan (through FY 2026). 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.

For our analysis, we examined expenditures for the City agencies that comprised over 90 percent of the City’s planned expenses in FY 2022. The tool includes both City and federal COVID-19 relief funding and highlights areas of at-risk spending due to the exhaustion of these funds. Identified cliffs could impact services for residents including expanded educational programs, housing assistance, mental health and healthcare 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 June 2022 modification, 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 new 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 OSC tool identifies newly funded programs and services that face planned funding declines beginning in FY 2023 through the rest of the financial plan period as of the City’s latest (June 2022) financial plan.

The tool uses the City’s published financial plan and ongoing budget modifications beginning in 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.

The tool focuses primarily on the agencies that account for 90 percent of City spending each year. 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.

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 federal 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 was added for the expansion of the Summer Youth Employment Program (SYEP) through FY 2026, but MetroCards for program participants are funded for FY 2023 only ($11 million).
  • The City added $9.7 million in FY 2023 only to expand the Work, Learn, Grow Year-Round Employment initiative.
  • Expanded services at the Department of Sanitation, including additional litter basket collection, lot cleaning, Staten Island E-Waste collection, and the Precision Cleaning Initiative ($35.7 million combined) are funded for FY 2023 only.
  • The Fire Department is provided with $37 million to respond to non-violent 911 mental health emergencies in FY 2023 only.
  • Recurring costs funded by one-time federal aid will exceed $1 billion by FY 2026, with the largest share at the Department of Education.
  • Funding to support administrative overhead for nonprofits and human service providers (the Indirect Cost Rate Funding Initiative) drops in FY 2026.

Changes Since the April 2022 Plan

  • Total fiscal cliffs declined by a net of $292.2 million in FY 2023, but increased by a net of $166.6 million in FY 2024, $225 million in FY 2025, and $227.5 million in FY 2026.
  • While fiscal cliffs declined in FY 2023, addressing these drops in funding were predominantly made for one year only, and did not include out-year cliffs.
  • The June Plan also added one-time funds for expansions or new initiatives which created more cliffs in the out-years. The large majority of the new or expanded cliffs are in the social services area (more than 90 percent in FY 2024, and approximately two-thirds in fiscal years 2025 and 2026).

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 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 mobile units.
  • Article 10 Parental Representation: In April 2022, the City baselined $8.7 million beginning in FY 2023 to maintain contract levels for parental representation in child abuse and neglect cases.
  • Programming for People in Custody: Funding of $3.4 million was added in June 2022 through the end of the financial plan period, reducing the associated fiscal cliff to $3.2 million annually beginning in FY 2023.