For Mayor Eric Adams, the city’s budget reflects the resolute actions he has taken in his first six months on the job: to boost financial reserves in case of an economic downtown, add money for pay raises and make conservative forecasts for future tax collections.
He told a meeting of the Financial Control Board on Tuesday that the deficits the city faces in future years are “manageable.”
But the message from both the city and state comptrollers and other budget experts is clear cut: While the $101 billion city budget for this fiscal year ending next June 30 is in good shape, the future looks much worse than it did even two months ago.
“The city starts the fiscal year in a strong position but faces budget gaps and significant risks that could widen those gaps by billions of dollars,” said Ana Champeny, research director of the nonpartisan Citizens Budget Commission (CBC).
In the past, the meetings of the Financial Control Board, created after the fiscal crisis of the 1970s, were crucial, since the independent panel had the power to order cuts in the city’s spending plan. Until 2008, it also had the ability to put the city back under state control.
Today, the meeting serves only as an assessment of where the city stands and what its outlook is since any change in the board’s power would take new legislation from Albany.
For now, all seems well with the budget adopted by Adams and the City Council in June. New York City is likely to end the fiscal year with a surplus boosted by increased revenues and remaining federal aid from the pandemic relief programs. The city has increased its reserves to $6.55 billion and set aside more money to cover pay increases due its workers, whose contracts have expired, or will soon.
But budget watchdogs say the good news may not last because of national economic and market trends, the way the city is using the federal aid and how the sharp uptick in inflation will affect labor negotiations.
Pension Pressures
Already, the decline this year in the stock market has added $6 billion since the budget was enacted to the amount the city forecasts it will spend on pension contributions in the next three years.
A recession caused by the Federal Reserve Board’s decision last year to increase interest rates over this year and maybe into next year, would sharply reduce tax revenue, said Tom DiNapoli, the state comptroller. Even a relatively mild downturn like the one New York experienced in 2008-2009 could decrease revenues by $4 billion in the year it occurred.
The city will also have to find $1 billion by 2026 to continue programs like expanding pre-K to all 3 year olds, currently funded with federal pandemic relief money, according to the Citizens Budget Commission. The city has also begun new programs, especially expanded housing vouchers, that it only funded for this year. The cost of doing so is also about $1 billion.
But the big unknown is what kind of pay increases City Hall will agree to at a time when inflation has reached 9% nationally and a little over 6% in New York. While the city has increased the amount of money it has set aside, the funds available would finance pay raises of only 1.25% a year. The CBC estimates a 3% raise would cost an additional $1 billion in the first year and $2 billion in 2026. At 4%, the city would have to find $1.3 billion more the first year and $3.4 billion in the third year.
The outlook is so worrisome that the risks to the city budget “could grow to $5.9 billion in fiscal 2026, raising the budget gap that year to nearly $9.9 billion” said DiNapoli. That would be almost 10% of the city budget.