Three Things to Know About New York City’s Budget Crisis

Mayor Eric Adams says a “crisis” confronts the city and its budget, and laid out painful cuts that hit libraries, sanitation, education and more. But what does a fiscal crisis mean, and what’s the context behind the numbers?

Here are three important things to know to understand about the financial situation. 

Let’s define the word ‘cuts’

The headlines last week all told the same message as Adams released what is known as the November budget modification, updating the expected spending and revenues for the current fiscal year ending June 30 — and the next three.

“Eric Adams Slashes Budgets for Police, Libraries and Schools,” said The New York Times.

“Eric Adams budget cuts bring migrant crisis to New Yorkers’ doorsteps like never before,” said Crain’s New York Business.

When most people have to “cut their budget” they have to reduce their current spending. But that’s not what happens when governments institute cuts.

“Budget Cuts Hit Preschools, Cops, Libraries as Mayor Blames Migrants,” was THE CITY’s take.

For example, even after “cuts,” the mayor projects New York City will spend $113.7 billion in next year’s budget (covering July 1, 2024 to June 30, 2025), up from the $110.5 billion he expects to spend in this year’s budget.

How does that math work? Cuts are from what the city is expected to spend. It is as if a person sat down and outlined a four-year personal budget, factoring expected increases in their pay and committing to an expensive vacation. Then, when the pay increases were less than expected, the person had to settle for a less expensive vacation.

Admittedly, the city’s position is complicated by the fact it has agreed to substantial pay increases for its workers for the next three years, which can’t be reduced. But part of the cuts will be  accounting for when the city eliminates expected fringe benefits spending — such as for health care costs — for positions it has not filled in the current year, notes Andrew Rein, president of the Citizens Budget Commission.

Is the mayor right to call this a ‘fiscal crisis’?

For more than a year, Mayor Adams has been talking about a fiscal “crisis,” brought on mostly by the costs of caring for asylum seekers, he claims.

And one measure of a fiscal crisis certainly seems daunting: The official projection in the November modification says that city spending is expected to exceed revenues in the next three fiscal years by $20 billion. Since the city is required to balance expenditures and revenues in every fiscal year, that’s a lot of money.

But the better way to look at the size of the deficit is as a percent of revenues.

After the budget modifications, the city is facing budget gaps of 6% of revenues next year, 8% in 2025 and 9% in 2026.

Such gaps are not unprecedented. After the Sept. 11, 2001, terrorist attacks and the 2008 financial crisis, budget gaps exceeded 10% for several years. In 2003, the expected gap for the following year topped 20% of revenues, according to an analysis by George Sweeting, longtime budget watcher at the Independent Budget Office who is now at the Center for New York City Affairs at the New School.

Why not just raise taxes?

One potential solution to the city’s fiscal crisis is to raise taxes. After Adams announced the new budget cuts last week, City Council Speaker Adrienne Adams called for “exploring new revenues.” For more than a year, City Comptroller Brad Lander has been suggesting increased taxes on the richest New Yorkers. 

But state and city tax officials are also issuing warnings about research they say shows a growing connection between higher taxes and rich New Yorkers moving out of state.

When the state instituted a new tax bracket of 10.9% in 2021 for New Yorkers making between $5 million and $25 million a year, the rate of people leaving increased sharply, said Amanda Hiller, the interim state tax commissioner, at Citizens Budget Commission event earlier this month.

In all, about 10% of New York City residents who had been millionaires in 2020 left the city that year, tax data shows.

And those very rich people contribute a big chunk of local revenue.

The importance of the very rich to the city’s tax coffers is illustrated by a few data points. Taxpayers in the city with incomes of $100 million or more paid 13% of the total income tax collected in the five boroughs.

For the state, the number is even more dramatic: Some 200,000 wealthy taxpayers provide 56% of all the income taxes the state collects, or about $29 billion.