Mayor Eric Adams and the New York City Council are negotiating the adoption of the City budget, Fiscal Year 2024, that begins July 1, 2023. Despite the arrival of tens of thousands of migrants from the U.S. southern border and the expenses of sheltering them, a report by State Comptroller Thomas DiNapoli says the City budget is precariously balanced in the short term for the fiscal year that starts in the coming days.
Although the Mayor’s budget contains cuts to City services, both the Comptroller’s report and the City Council’s Finance Division forecast higher revenue for FY’23 and ’24 of about $2 billion over the two year period, enough to keep FY’24 in balance and possibly restore cuts and/or add to reserves.
The Comptroller’s analysis, however, calmly reports that the impact of so many different forces beyond just the asylum seekers, appears poised to drive the City’s budget’s balance far beyond the multi-billion dollar deficits forecast by the administration in the years ahead — close to doubling them.
The City’s deficit figures for FY’25-’27 show deficits of $4 billion, $ 6 billion, and $ 7 billion. The Comptroller’s figures show $8 billion, nearly $11 billion, and then over $12 billion by FY’27. Although the City’s budget is nearly $107 billion, about one-third of the funds are State and Federal categorical aid, and the City must address a deficit from its own locally generated revenue (92% of which is taxes) of about $77 billion in the coming year.
If the Comptroller’s projections are correct, the FY’25 deficit will be 10% of the City’s locally generated revenue, and will rise to $ 12 billion in FY’27, or 15% of locally-generated City revenue. Both the City’s expense forecasts, and those of the Comptroller, don’t account for the new costs associated with well-intentioned legislation passed by the City Council that increases eligibility for rent assistance vouchers, which Mayor Adams vetoed on June 23rd, 2023. The bills passed the City Council in late May with veto-proof majorities and members have threatened to override the veto.
Underestimates of asylum seeker expenses are far from the only serious concerns. In the past two budgets the State government has imposed several new mandates on the City government. This year the State budget, adopted after the Mayor had submitted his budget, included new requirements that the City absorb some of the costs of declining Federal support for the Medicaid program, as well as the MTA bailout. Those new expenses will rise to over $500 million next year. The State provided $ 1 billion to the City to help with sheltering the migrants, and the Legislature actually reduced the obligations the Hochul budget plan imposed on the City for Medicaid and the MTA, but the mandate remains.
In 2022, the State forced the City to undertake a school class size reduction program, anticipated to cost $860 million a year by FY’27, but the State provided no additional aid. Here’s a table of the risks to the City budget from page 6 of the State Comptroller’s report:
The Adams administration’s budgeted costs for asylum seekers in coming years seem extremely unrealistic. The Comptroller report shows the City running out of money for the asylum seekers, whose number may reach 70,000 in the shelter system in 2024, by the middle of 2024, leaving a shortfall of about $1.9 billion. The City is assuming $300 million in NY State assistance for the asylum seekers in FY’25, but the State has projected its own $9 billion deficit next year and a lot more State help might not be forthcoming. The Federal government’s support so far has been minimal, and there will be no sympathy from Kevin McCarthy and his caucus.
SPENDING UNDERESTIMATES BY THE CITY ARE PERVASIVE
As one can see in the table, the list of potential spending underestimates is extensive, including traditional ones like overtime (over $400 million), to social services (the public assistance budget and current spending for rent assistance, over $900 million), and other subsidies to the MTA (over $400 million by FY’26), related to the loss of Federal COVID funding for the bus system.
The Comptroller has shown a cost estimate made by the City Council for its new rent voucher legislation on the final line in the table above, CityFHEPS Local Cost Mandate. A footnote in the Comptroller’s report on this program (p.6) indicates the Council recognized the expenses the shelter system would avoid due to the new vouchers in its cost estimate for the program. The rising expenses result from the expanded income eligibility for the vouchers, going from $28,000 a year for a family of three up to $60,000 a year for a family of three, and expanding eligibility to households who have received final demands for rent from their landlords, but don’t yet have a case in housing court. The estimate for spending from the expansion of the vouchers adds $2.4 billion to the City budget in FY’27 on top of the $12.3 billion deficit forecast by the Comptroller as the risk.
The City Council’s final revenue estimate for the City budget for FY’27 is about $2 billion more than the Comptroller’s estimate, but that would still leave the City deficit at $12.6 billion if the Comptroller’s spending estimates were correct. The Comptroller also cited other risks to City spending due to the expiration of Federal COVID funds that are being used to cover Board of Education summer school programs and other services, indicating the City would have to fund these services on its own in the years ahead. These programs, if continued, could add up to $500 million more to the City budget. This risk is not shown in the table above.
I may be unduly alarmist about the City budget in this column; revenues frequently improve, and maybe the Comptroller’s spending projections are wrong. Maybe the City administration can manage its budget more effectively and avoid the many fiscal cliffs that appear impending, or maybe the Biden administration and the Congress can provide more help for migrants. But there is a downside, too — an economic downturn that seemed probable some months ago but which has not happened yet. That would throw out the rosy revenue projections. But the budget-busting asylum seeker expenses, other gross underestimates of spending, new mandates from the State, and new mandates from the City Council, may be creating an unmanageable situation for the City budget.
Jim, thanks for your insights and analysis. I may have missed it, but I don’t recall any mention in your article about the negative impact on revenue associated with the crisis in office building vacancies.
Marvin