Total revenue for New York City’s fiscal year (FY) 2023 budget is expected to fall 9.4% to $101.1 billion as tax revenues are lower and federal aid falls. The city also faces ongoing challenges from a possible recession, federal monetary policy and turmoil in financial markets, according to a report on the city’s fiscal 2023 financial plan released today by state auditor Thomas P. DiNapoli.
“The city’s approved budget reflects both the federal government’s extraordinary efforts to stimulate the economy over the past two years and an economic slowdown, due in part to unforeseen factors,” DiNapoli said. “Higher revenue in fiscal 2022 allowed the city to build reserves and other fiscal cushions, but many of the issues plaguing the city’s economy remain outside of its control. The magnitude of these risks means the city should continue to identify areas for savings, track how its services are being delivered as staffing levels change, and build reserves to protect against these pressures.”
The improvement in the city’s fiscal base in FY2022 was driven by tax revenues that exceeded city forecasts by over $6.2 billion, additional extraordinary federal assistance, a record year for pension payouts in FY2021, and savings from fewer staff than planned . DiNapoli’s report notes that the unexpected resources generated from the combination of these factors are unlikely to recur at the same levels, and some factors have already begun to reverse as the city enters fiscal 2023.
While the city’s published gaps are manageable by historical standards, averaging 5.3% for fiscal years 2024-2026, the city needs to prepare for the potential negative budgetary impact of geopolitical tensions and how they affect supply chain issues, as well as inflation and other response of central banks.
The city expects tax revenue, which accounts for 92% of all city funds, to fall 1.2% in fiscal 2023. While this number is reasonable, it does not reflect the potential impact of a recession. City fund revenue declined 4.2% in fiscal 2002 and 5.9% in fiscal 2009, the first two full fiscal years of the last two recessions, which would equate to between $3.1 billion and $4.4 billion. if there were similar declines in fiscal year 2023. City funds are expected to account for 73% of total sales, or $73.3 billion, in fiscal 2023.
The city also had significant savings from much stronger-than-expected pension investment gains in fiscal 2021, but that didn’t continue into fiscal 2022. DiNapoli’s analysis suggests that the city’s pension contributions will need to increase again to cover a deficit of about 15.6%. in fiscal 2022. The impact would not be felt until fiscal 2024, but could increase to an additional $3 billion by fiscal 2026.
The level of education funding remains uncertain at this time. On August 5, 2022, a Manhattan Superior Court judge found that the city had violated required procedures and ruled that the city must return education spending to fiscal year 2022 levels by the time the fiscal year 2023 education budget is in accordance this procedure is approved again. A few days later, however, the ruling was suspended, allowing the existing fiscal year 2023 budget to remain in place pending the outcome of the city’s appeal.
While adding significant labor reserves over the past year (more than $4.6 billion during the five-year fiscal plan period), the city could also incur collective bargaining costs in excess of the amounts assumed in the June plan, depending on the outcome of ongoing negotiations. If wages increased at the projected rate of inflation without offsetting the savings, costs would increase by an estimated $1.5 billion in fiscal 2023 (including retrospective payments) and to 3.6 beyond the amounts assumed in the June plan Billion dollars increasing in fiscal 2026, with recurring costs approaching $4 billion annually thereafter.
In FY2022, the city created additional spending pressures with new programs that were not funded until FY2023 and created new fiscal cliffs. These come on top of a range of budgetary risks DiNapoli previously identified, including for MTA, education and housing.
Overall, DiNapoli has calculated risks to the city’s budget that could exceed $2 billion annually through fiscal 2024. The risk assessment grows to $5.9 billion in fiscal 2026, which could widen the fiscal gap to nearly $9.9 billion this year, some excluding fiscal cliffs, the potential cost of labor contracts, and the risk of a recession , all of which are fluent.
The city will need to continue to see improvements in its economic recovery and related revenues even as the rest of the country’s growth slows to avoid a series of difficult decisions about increasing revenues, adjusting services and closing its budget gap.
Fiscal 2022 revenue following budget approval exceeded expectations by $900 million, providing the city with an opportunity to continue to build reserves and other viable resources. This could bring those resources to more than $9 billion, which could mitigate the impact of a deterioration in fiscal conditions on service delivery.
These strong year-end revenue results also underscore the importance of fiscal policy, which remains a critical component in systematizing the city’s response and preparing to address future fiscal shortfalls. DiNapoli recommends the city continue to formalize its budget practices, such as its reserve policy, to ensure wise fiscal policies going forward.
report
Review of the City of New York’s financial plan
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New York City Budget Review, April 2022
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Track state and local government spending at Open Book New York. Search millions of state and local government financial records, track state contracts, and find commonly requested data as part of State Comptroller DiNapoli’s open data initiative.
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