On Tuesday, the New York State Comptroller said many of the city’s tax challenges could lead to a $10 billion budget deficit by 2026.
The gap could have a significant impact on essential services in the future.
The report
According to a new report titled “Review of the Financial Plan of the City of New York,” total revenue is expected to fall by $10.5 billion in fiscal year 2023.
While New York City’s tax position “improved significantly” last year, the report says this was due to several one-off factors, including:
- Extraordinary federal COVID relief aid
- Higher than expected tax revenue
- Due to stock market gains, pension returns have reached new highs
The comptroller explained that the factors were starting to reverse.
“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 wrote.
New York takes action
Speaking at a press conference on Monday, New York City Mayor Eric Adam said the city was preparing for 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?” he said.
Last week, Adams asked city agencies to cut spending by 3% without cutting services.
Moving forward, the Citizens Budget Commission, an impartial oversight organization, will continue to cut spending and prioritize critical programs to balance the city’s budget.
The report also said:
“The magnitude of the potential gaps, and the specter of other, more fluid risks, means the City will have to continue to see an improvement in its 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.”
According to the report, city service budgets could also take a hit, including:
- The fire department
- The police
- Public transportation
- Sanitation
The audit firm pointed out that the Metropolitan Transport Authority’s “uncertain finances combined with rising debt payments” could force it to close future budget deficits through “service cuts, greater-than-planned fare hikes or delays to critical capital projects.”
The MTA updated its financial plan in July, showing that tariff revenue is expected to return more slowly than previously forecast in February’s plan.
Loss of federal aid
According to the New York City Financial Plan Review, many new federally funded city services are no longer available.
It includes expansion of the pre-K program in New York for three-year-olds.
The city’s economic woes were initially caused by the pandemic, but have since been exacerbated by the recent economic downturn, declining tax revenues, and the potential cost of over-employment.
New York City pension funds also fell short of their assumed returns in fiscal year 2022, creating even more problems with city contributions.
Meanwhile, the city faces challenges in the labor market, with the slow recovery threatened by a potential recession.
Reference:
NYC faces a potential fiscal cliff with a nearly $10 billion deficit by 2026
