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Pressure to Boost Spending Shapes City and State Budgets Despite Revenue Risks

Industry groups and advocates put the heat on Adams and Hochul to tap higher-than-expected tax revenue for housing, homeless shelters, job training and more.

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Mayor Eric Adams and his staff spoke at City Hall about his budget proposal for fiscal year 2024, Jan. 12, 2023.

Ben Fractenberg/THE CITY

Last week, when Mayor Eric Adams presented his $102 billion preliminary budget for the fiscal year that begins July 1, he defended cuts he would impose on city government agencies.

Soaring costs of caring for tens of thousands of migrants coming to the city, future labor contracts and signs of economic weakness all necessitated caution, Adams declared.

At the same time, he revealed that he expected the city’s revenue during this year and next would be $2.5 billion higher than expected because tax collections continue to exceed forecasts.

His push for spending cuts amid projected rising revenue has spurred a wave of protests calling for more spending to meet the needs of New Yorkers.

The same scenario is likely to play out in Albany in a few weeks, when Gov. Kathy Hochul unveils her budget for the state’s fiscal year with state tax revenues almost $8 billion higher than expected — even as a possible economic downturn and retrenchment on Wall Street could spell trouble in the coming months.

While every city and state budget sparks a tug of war between those who want to spend more and those who want to spend less, the gulf in outlooks between the camps is much wider in recent years, with very different views of the financial picture that lies ahead for the state and city and how that should translate into the next budgets.

Sharon Cromwell, deputy director of the progressive New York Working Families Party, immediately called for a spending increase in Adams’ proposal.

“Mayor Adams’s proposed FY24 budget will take our city in the wrong direction,” Cromwell said. “With New Yorkers facing so many competing challenges, from under-resourced schools to unaffordable housing, the mayor continues to push devastating cuts over the objections of the City Council and community leaders.”

Christine Quinn, the former City Council speaker who now runs the nonprofit Win, New York’s largest provider of homeless shelters, acknowledged budget headwinds but focused on the needs of migrants and other people in need of places to live.

“His proposed budget cuts funding for the very agencies and nonprofit organizations that are responding to these crises,” Quinn said in a statement. “The result will be more families living in shelter for longer. New York City cannot cut its way out of this crisis.” 

Interest groups also asked for more money. The New York Housing Conference asked Adams to fully staff housing agencies and commit more capital dollars to real estate subsidies. The New York City Employment and Training Coalition said cuts the mayor already has imposed on employment-related agencies would hurt efforts to get unemployed New Yorkers into jobs.

While the mayor’s plan projected balanced budgets this year and next, he also forecast red ink totaling $14 billion over the following three years. Fiscal experts say the number could be much higher.

While the mayor is focused on the possibility of spending $2 billion to help migrants, the risks to the city budget comprise a longer list.

The city is spending more than $1 billion on ongoing programs like the expansion of pre-K to 3-year-olds in this year’s budget, funded with COVID relief money. Funds for future years have not been budgeted. The city has set aside funds to cover only 1.5% annual raises for city workers, all of whose contracts have expired and who are unlikely to accept such a small increase with inflation topping 6%. 

Dim Outlook

Risks to city revenue loom. Both State Comptroller Thomas DiNapoli and City Comptroller Brad Lander have warned in reports that if office occupancy does not improve from the current 50% average workday level, building values will plummet, making a billion dollar or more annual impact on revenues.

“There is definitely a group calling for increases on spending that in many ways are not sustainable,” said Ana Champeny, research director at the Citizens Budget Commission. “The [$14 billion] in gaps are big and collective bargaining is not an if but a when.”

The CBC and two comptrollers all called for Adams to increase the $8 billion the city has set aside to offset an economic downturn.

The mayor will present an executive budget in May that the City Council, which mostly panned the preliminary offering, will then seek to amend before the final budget which must be balanced and adopted by June 30.

The situation is much the same at the state level, with DiNapoli announcing Wednesday that revenues for the first nine months of the state fiscal year (which begins April 1) exceeded projections by $7.7 billion. The windfall will give progressives a strong talking point to argue the state has the resources to spend.

“If we start with the economic outlook, there are two options: a soft landing or mild recession,” said Nathan Gusdorf, executive director of the Fiscal Policy Institute. “Revenues have been pretty strong this year and we don’t think there will be meaningful economic loss.”

Nevertheless, profits on Wall Street last year are estimated to have fallen by 50% and job cuts are spreading, with Goldman Sachs axing 3,000 workers last week. The securities industry accounts for about 20% of all state tax revenue and the top-earning 1% of New Yorkers pay 40% of the income tax, a figure that plunges when the stock market declines.

Progressive advocacy groups and business trade associations already are staking out positions on tax increases.

Hochul has said she opposes an increase in the income tax. But Gusdorf says the Fiscal Policy Institute is planning to recommend extension of an increase in a business tax that expires this year, which brings in about $800 million. His group also will recommend renewal of a tax on those making more than $2 million that expires in 2027 and generates about $2 billion. Business groups are expected to argue that the tax increases are driving out high-income residents and should expire.

Hochul has not spelled out her position on those temporary tax increases.

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