The New York State Comptroller said Tuesday that several of New York City’s fiscal challenges could result in a nearly $10 billion budget shortfall through 2026 — potentially affecting essential services in the future.
Total revenue is expected to fall by $10.5 billion in fiscal 2023, according to a new report titled “Review of the Financial Plan of the City of New York.”
The city’s tax position has “improved significantly” over the past year, the report added, but that’s due to several one-off factors, including higher-than-expected tax receipts, extraordinary federal COVID relief assistance, and record bond yields on stock market gains. Many of those factors have started to reverse, the Comptroller said.
“While the city’s published gaps are manageable by historical standards … these factors can create risks that significantly worsen the city’s fiscal volatility and, if not addressed, put the city on a path to structural fiscal imbalances,” the report states .
New York City Mayor Eric Adams said during a news conference Monday that the city is preparing to “get caught in a financial typhoon.”
“If I don’t make wise decisions now, am I going to wait until we get to the cliff or avoid the cliff?” Adams said.
Adams last week urged city officials to cut spending by 3% but not cut services. Going forward, however, further spending cuts while prioritizing critical programs will be part of the city’s budget balancing, according to the Citizens Budget Commission, a nonpartisan watchdog organization.
“The magnitude of the potential gaps and the specter of other, more liquid risks means the city must continue to see improvement in its economic recovery and associated revenues even as the rest of the country slows in growth to make a series of difficult decisions to increase revenue, service adjustments and finalizing the budget,” the report reads.
The report notes that a gap could impact budgets for city services, including police, fire, sanitation and public transport.
Specifically, the Audit Office said that “uncertain finances combined with mounting debt payments” could force the Metropolitan Transportation Authority or MTAs to address future budget gaps through “service cuts, larger-than-planned fare increases or delays in critical capital projects.” The MTA updated in July also its financial plan, which showed fare receipts are likely to return at a slower pace than its February plan forecast.
The report also said many new city services, such as expanding the city’s Pre-K program for 3-year-olds, were funded by government support that is no longer available.
The city’s economic problems were initially caused by the pandemic but have now been exacerbated by the recent economic downturn along with lower tax revenues and the potential cost of employment contracts in excess of the budgeted amount. Their pension funds also fell far short of their assumed returns in the 2022 financial year, which increases the city’s contribution burden.
At the same time, New York City faces labor market challenges and is experiencing a slow recovery, further threatened by a possible recession. This is driving record commercial vacancies — contributing to the budget deficit — which the city expects to peak in 2023.
– CNN’s Mark Morales contributed to this report