Image source: Governing
On Tuesday, the New York State Controller 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.
According to a new report titled “New York City Financial Plan Review,” total revenue is expected to decline by $ 10.5 billion in fiscal year 2023.
Although New York City’s tax position “improved significantly” last year, the report says this is due to several one-off factors, including:
- Extraordinary federal COVID relief aid
- Higher than expected tax revenue
- Record pension returns due to stock market gains
The reviewer 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 to take action
During a press conference on Monday, New York Mayor Eric Adam said the city was bracing 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 officials to cut spending by 3% without cutting services.
Going forward, the Citizens Budget Commission, an impartial watchdog, will continue to cut spending and prioritize key 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, municipal service budgets could also be affected, including:
- The fire department
- The police
- Public transportation
The accounting firm pointed out that the Metropolitan Transport Authority’s “uncertain finances, coupled with rising debt payments”, may require it to meet future budget shortfalls through “service cuts, greater-than-planned fare hikes or delays to critical capital projects.”
The MTA updated its budget plan in July, showing that fare revenue is expected to return at a slower pace than projected in the February plan.
Loss of federal aid
According to the New York City Financial Plan Review, many new federally funded city services are no longer available, including the 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 recession, declining tax revenues, and the potential cost of overtime.
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.
NYC faces a potential fiscal cliff with a nearly $10 billion deficit by 2026