Opinion: Is NYC in as bad fiscal shape as the mayor says?

Mayor Eric Adams says New York City is facing extraordinary budget challenges. As a result, he’s proposed hundreds of millions of dollars in cuts to city services such as schools, parks, libraries, police and sanitation. And he says more cuts are to come. 

But there’s a fundamental question that needs to be asked: is the city’s fiscal condition that dire? While the city clearly faces budget challenges in the years ahead, the numbers don’t look as calamitous as the mayor’s actions portend.

Crafting the city’s budget, or any budget for that matter, begins with projecting how much money you believe you’ll have. Think of the city budget as a pie. Whether it’s a six-, eight- or 10-inch pie you’ll have to slice into servings of programs and services depends on how much in tax and other revenues you think the city will take in. As the year progresses, expectations of revenues and expenses change, such as the unanticipated cost of sheltering asylum-seekers that the mayor frequently points to. Based on the projections of the Mayor’s Office of Management and Budget, city revenue hasn’t been sufficient to keep up with the growth in expenses this year and comes up $7.1 billion short of expected revenues and expenses next fiscal year, which begins July 1. That means, says the mayor, big spending cuts are needed now.

Mayors have a natural tendency to be very cautious with their revenue estimates. They’d much rather be looking at the end of the fiscal year with a surplus than a shortfall, especially since the city is required to keep the current year’s budget in balance and the city must adopt a balanced budget for its upcoming year.

Projecting city revenues, especially tax revenue, is more craft than science. Comptroller Brad Lander recently reported that in the years since the COVID-19 outbreak actual city tax revenue has substantially exceeded the amount projected when that year’s budget was adopted: $7.2 billion more in 2022 and $5.7 billion in 2023. Granted, the local economy has faced some unusual circumstances in the wake of the pandemic shutdown, but as Lander notes, these variances in the levels of unexpected tax revenue far exceed prior years. 

The mayor’s November budget plan increased tax revenue estimates by relatively modest amounts compared with what OMB estimated in June when the budget for this year was adopted by the City Council, nearly $560 million for this year and $420 million next year. Looking just at next fiscal year, the Adams administration now expects the city will collect $73.3 billion in tax revenue. When the city’s Independent Budget Office did its most recent projection in May, it anticipated city tax revenue would total $74.4 billion in 2025--$1.1 billion more than the mayor’s current estimate. 

Turning to the other side of the ledger, the city’s budget includes reserve funds of nearly $1.5 billion for each of the next years. That’s money that shows up in the budget as expenditures but is not attached to any specific expense. It’s there as “insurance” in case of any unexpected expenses or shortfalls in revenue that need to be covered. Typically, though, the reserve is all or largely unused and becomes part of an end-of-year surplus that’s used to prepay some upcoming future year expenses.

Given that under the mayor’s November plan the budget for the current fiscal year is in balance – without using any of the reserve funds to help defray asylum-seeker costs – it seems reasonable to assume that the reserve funds held for this year will wind up going to prepay some of next year’s expenses. That assumption reduces next year’s budget gap by nearly $1.5 billion. Then add the additional $1.1 billion in tax revenue projected by IBO – the only other agency required by the city charter to make revenue estimates and with an institutional interest to be as right as possible rather than, like a mayor, tamp down expectations – and the 2025 budget gap falls to roughly $4.5 billion. Then there’s the reserve funds still in the financial plan for 2025 – $1.5 billion that adds to the projected budget gap but are attached to no actual expenditure. Take those dollars out of the equation and the “real” budget shortfall for 2025 is roughly $3 billion.

No doubt $3 billion is a sizable sum. But in the scope of the city’s budget, it is hardly unprecedented. 

Budget gaps are best measured as a share of city-generated revenue (such as taxes, fees and fines).  A budget gap of $3 billion is less than 4% of the mayor’s estimate for city revenues in 2025. A gap of $4.5 billion is less than 6% of those revenues. Both are well within the range prior mayoral administrations have handled. As recently noted by The City, a review by Center for New York City Affairs Senior Fellow George Sweeting found that following Sept. 11 and the 2008 financial crisis, projected budget gaps for the upcoming year exceeded 10% of expected city revenues in several years, and when the budget for 2003 passed, 20% for 2004.

This doesn’t mean the mayor and City Council don’t have fiscal hurdles ahead. In fact, the financial plan presented by the mayor doesn’t overtly address some other near-term budget challenges, what the Citizens Budget Commission often refers to as a fiscal cliff. The city reaches a $750 million precipice next fiscal year, when federal Covid funding used to expand 3-K and run other school programs expires. The mayor and council members will face the tough political choice of scaling back these programs or using city funds to replace the expired federal aid. In 2026 an even deeper precipice emerges, when the city is required to cut back class sizes in schools under an unfunded state mandate. The eventual price tag for this is estimated to be well over $1 billion a year.

So far, most of the public conversation on how to meet the city’s budget shortfall has focused on cutting city spending and leveraging federal aid to help cover the costs the city faces in aiding the tens of thousands of migrants arriving here, which is a major, but not the only, factor in the budget shortfall. Any consideration of raising taxes seems to have been short-circuited by Gov. Kathy Hochul’s no new taxes decree – the city needs Albany’s approval for most any tax increases (or decreases).

Mayor Adams isn’t wrong: the migrant issue is a national responsibility and Washington should be assisting New York and other cities and towns in meeting the needs of these newcomers. But the mayor has engaged in a dangerous gambit to put pressure on the president and Congressional leaders, accentuating the city’s budget problems and engaging in deep spending cuts to remedy the over-hyped shortfall. The cuts are citywide, but the effects are likely to be harshest in the communities the mayor says he cares about most. Or as Cardi B put it: “What’s going to happen to my nieces, what’s going to happen to my nephews, what’s going to happen to my cousins, my friends that’s living in the hood?”