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For the week of May 8, 2023, we’re looking into New York City's latest budget proposal, which projects that city revenue will decline slightly in fiscal year 2024, largely due to declining federal aid.

NYC Revenue Expected to Decline Slightly Due to Waning Federal Aid

New York City’s latest budget proposal projects city revenues will decline slightly in fiscal year  2024 from the adopted 2023 budget. The budget proposal will have to be approved by the NYC city council before the start of the fiscal year in July 2023 to become adopted.

Overall city revenues are projected to fall by 0.37% from $107.1 billion to $106.7 billion from fiscal year 2023 to 2024, including intra-city revenues and categorical grant disallowances, which is a reserve fund used to repay grantors in case funding is accidentally used incorrectly. 

The decline in overall city revenue is largely due to a decrease in federal aid, as federal aid in response to the COVID-19 crisis begins to trail off. Federal, state, other grants and aid, as well as capital budget transfers are projected to drop $2.5 billion. Specifically, aid from federal categorical grants are projected to decline from $12.8 billion in fiscal year 2023 to $10.4 billion in fiscal year 2024. 

Tax revenue has not changed much overall. While revenue from personal income tax decreased slightly, it was offset by increases in general property taxes and other taxes, such as sales and unincorporated business taxes.

NYC Spending Cuts Close Short-Term Budget Gaps

In response to widening potential budget shortfalls in future fiscal years, Mayor Adams implemented the Program to Eliminate the Gap (PEG), aimed at closing budget gaps in fiscal years 2023 and 2024 through savings in the city’s expense budget. 

Since the announcement of the PEG program at the beginning of fiscal year 2023, the mayor has announced almost $1.7 billion in savings for fiscal year ‘23 and over $3 billion in fiscal year 2024 without layoffs or cutting city services. Much of the savings achieved with the release of the fiscal year 2024 financial plan were achieved through the citywide Vacancy Reduction Initiative, aimed to reduce vacancies across city agencies by cutting vacant positions and hiring more staff. 

However, there are still significant risks to the NYC budget in future years, which could lead to cuts that would impact city services, possibly including public safety or health. As of the fiscal year 2024 executive budget, gaps of $4.2 billion, $6 billion, and $7 billion still exist in fiscal years 2025, 2026, and 2027.

Unexpected Costs, Fiscal Cliffs & Possible Recession Add Budget Pressure

NYC has also not received the federal and state aid it expected to fund the estimated $4.3 billion cost of assisting migrant asylum seekers in fiscal years 2023 and 2024. Additionally, as of the January 2023 NYC financial plan, the NY state comptroller’s office projects fiscal cliffs to city services of $1.5 billion in FY ‘25 and almost $2 billion in FY ‘26 due to declining federal and state aid. Fiscal cliffs refer to a drop in one-time funding for recurring services that will no longer be supported in the remaining years of the budget. 

Additionally, the budget gaps in future years do not account for the possibility of a recession further reducing city tax revenues. An analysis by the Citizens Budget Commission put potential risks to the city’s budget at $4.3 billion in FY ‘24, $6.6 billion in FY ‘25, and $2.1 billion in FY ‘26 based on the average revenue reductions from the 2008 and 2001 recessions. Although the FY 2024 executive budget reported reserves at nearly a record high of $8 billion, it still wouldn’t be enough to cover the CBC’s projected recession budget gap risk.

According to the CBC, none of the short term revenue gains from near-record 2021 Wall Street profits and federal and state COVID-19 recovery aid in the FY ‘24 executive budget were directed to the city’s now $2 billion rainy-day fund. While the FY ‘23 and ‘24 budgets have been balanced with PEG savings, the risk for future cuts posed by declining federal and state financial aid, migrant asylum costs, and a potential recession are very real.