Total revenue is expected to decline by $10.5 billion in fiscal year 2023, according to a new report titled “Review of the Financial Plan of the City of New York.”
The city’s fiscal position “significantly improved” last year, the report added, but that was due to several one-time factors, including higher than expected tax revenue, extraordinary federal COVID relief aid, and record pension returns due to the stock market’s gains. Many of those factors have begun to reverse, the comptroller said.
“While the City’s published gaps are manageable by historical standards…these factors may create risks that worsen the City’s budgetary volatility substantially and could put the City on a path to structural budgetary imbalance if left unaddressed,” the report said.
New York City Mayor Eric Adams said during a press conference on Monday that the city is getting ready to “enter a financial typhoon.”
“If I don’t make the smart decisions now, am I going to wait until we’re at the cliff or prevent the cliff?,” Adams said.
Adams last week asked city agencies to reduce spending by 3%, but to do so without cutting services. However, going forward, further spending reductions while also prioritizing critical programs will be part of balancing the city’s budget, according to Citizens Budget Commission, a non-partisan watchdog organization.
“The magnitude of the potential gaps, and specter of other, more fluid risks, means the City will have to continue to see an improvement in its economic recovery, and associated revenues, even as the rest of the country’s growth slows, to avoid a series of difficult decisions on revenue enhancements, service adjustments and how to close its budget,” the report said.
The report does note a gap could impact the budget of city services, including police, the fire department, sanitation and public transportation.
Particularly, the comptroller’s office said that the Metropolitan Transportation Authority, or MTA’s, “uncertain finances combined with rising debt payments” could force it to close future budget gaps through “service cuts, greater-than-planned fare hikes or delays to critical capital projects.” The MTA also updated its financial plan in July which showed that fare revenue is expected to return slower than forecasted in its February Plan.
The report also said that many new city services, like the expansion of the City’s pre-k program for 3-year-olds, had been funded by federal assistance that is no longer available.
The city’s economic troubles were initially driven by the pandemic but have now been exacerbated by the recent economic downturn along with lower tax revenues and the potential cost of labor contracts beyond the amount budgeted. Its pension funds also fell far short of their assumed rate of return in fiscal year 2022, increasing the burden on the city’s contributions.
At the same time, New York City is facing labor market challenges, noting a slow recovery, threatened further by a possible recession. That is leading to record vacancies in commercial real estate — adding to the budget shortfall — that the city expects will peak in 2023.
– CNN’s Mark Morales contributed to this report