DiNapoli: NYC Budget Increases Transparency, Reveals Structural Gaps

New York City's $127 billion fiscal year (FY) 2027 preliminary budget (February Plan) provides more transparency for spending, addressing years of chronic underbudgeting and exposing an emerging structural budget gap that may require choices that threaten the city's fiscal stability, competitiveness and affordability, according to a report released today by State Comptroller Thomas P. DiNapoli.

"New York City's financial plan update more fully reflects increasing costs, but paying for it will require tough choices," DiNapoli said. "Continued improvement in communicating to the public what is at stake, the fiscal challenges the city faces and how it plans to balance the budget will be critical, particularly if the economic outlook weakens or if spending cannot be curbed without service cuts. The city should take steps to balance its budget without depleting reserves during a projected period of economic growth, which would signal fiscal stress and leave it less prepared for when a rainy day arrives."

The February Plan addressed large, recurring risks raised by DiNapoli and other independent fiscal monitors in recent years. This includes:

• For FY 2027, about $5.2 billion was added to fund combined planned expenditures at the Department of Social Services - with nearly $2.4 billion for rental assistance and cash assistance - and the Department of Education for the class size mandate, special education cases, early childhood education and other programs.
• Over $2 billion added funding for non-asylum seeker shelter costs, overtime, health insurance, and subsidies to the Metropolitan Transportation Authority (MTA).

The city's stated out-year gaps now total a combined $20.5 billion from FY 2028 to FY 2030 ($20.4 billion, adjusted for state tax program changes that have not yet been enacted). DiNapoli's office projects gaps averaging approximately $8.5 billion from FY 2028 to FY 2030, rising to an average of more than $12 billion annually if as-yet unapproved or unidentified actions within the city's control do not come to fruition.

In past years, spending for cost overruns were added in the year they were incurred, but the financial plan did not include them in the following years, obscuring total projected spending and masking spending growth for these items. For example, updated rental assistance spending by FY 2030 is now expected to rise to $3.5 billion, about $2.6 billion more than projected in November. This improved transparency reveals to the public the structural budget gap that has emerged and the actions the city intends to take to close the gap in FY 2027.

The city initiated a savings program, which is equivalent to a little more than $1 billion in savings in FY 2027 and similar savings thereafter. While meaningful, this amount is smaller than the $1.35 billion reduction in contingencies (general and capital stabilization reserve) the city used to balance the FY 2027 budget. These line items, which are a buffer for cost overruns, have been reduced to $100 million, the statutory minimum for the city's general reserve.

This leaves most of the budget gap to be filled with additional revenue. The city increased its tax revenue forecast for FY 2027 by $4.2 billion, a historically large addition attributed to ongoing and projected growth in the securities sector. While many of the tax line-item revisions are consistent with these trends, they mark a departure from the city's recent history of more conservative projections, leaving little room for an economic slowdown and no room for a recession or substantial slowdown in Wall Street profitability. Recent geopolitical events serve as a reminder that cautious revenue budgeting is not only prudent but necessary, as inputs to the economy and factors driving Wall Street revenues are subject to continued volatility.

The second largest gap closing revenue source is from a 9.5% increase in the property tax rate to raise $3.7 billion in FY 2027. An increase of this size will impact the city's affordability and would affect not only home and land owners, but also businesses and individuals who pay rent. However, opposition to this revenue increase may also be difficult to overcome, as the City Council has suggested it does not support raising the property tax rate.

The administration has alternatively suggested raising the personal income tax rate on those who earn $1 million or more and increase corporate tax surcharges for certain firms. However, revenues raised from such an approach may be insufficient to fully address the budget gap and would require approval from the State Legislature and the Governor. While the Legislature included some tax increases for the city in its budget proposals, they are unlikely to raise enough to close the gap. There are also risks in further concentrating tax revenues being raised from a small share of the city's taxpayer base, including the finance industry, which may increase revenue volatility. The city's finance sector has provided an outsized share of wage growth in recent years.

Even if the city were to raise $3.7 billion from these proposals, as it has suggested, the city still anticipates needing a drawdown of accumulated funds to balance its budget, including $980 million held in the Rainy-Day Fund in FY 2026, and $229 million from the Retiree Health Benefits Trust in FY 2027. This goes against their intended use, a concern raised repeatedly by DiNapoli and other independent fiscal monitors in calling for the formalization of the city's reserve policy.

The size of the budget gap suggests that closing the shortfall through savings may lead to a reduction in some services, an outcome the city is looking to avoid. DiNapoli notes the use of reserves to close budget gaps would not solve the fundamental spending issues and could lead to future service cuts if left unaddressed. Instead, the city should expand its savings program to, at a minimum, eliminate the use of reserves to balance the budget. Additional savings identified could reduce the size of any tax rate increase.

Finally, the structural budget gap has been masked in the past by the city's practice of setting aside surpluses to fund prepayments in future years. As of the release of the February Plan, the city will see the fourth straight year of disbursements exceeding collected revenue, leading prepayments to decline from $6.1 billion entering FY 2023 to $238 million as of February. The buildup in prepayments may have allowed the city to increase spending for certain programs without identifying recurring resources for a few years, ultimately using up over $5.8 billion in surplus resources.

The city can gain credibility with the public and signal to investors that it is addressing these root causes of its fiscal issues by building on its recent efforts at enhancing transparency and explaining its budget choices. DiNapoli recommended the city:

• Eliminate the use of reserves to balance the budget when it projects economic growth to continue and Wall Street profitability to remain strong.
• Adopt a formal reserve policy that dictates use and funding of its reserves to avoid their use for unintended purposes.
• Review the role of prepayments in hiding the structural budgetary imbalance that has emerged and explain to the public its planned use of such prepayments to avoid this outcome in the future.

These steps, and continued vigilance in tracking revenues and expenditures, would lend credence to the city's efforts to enhance transparency and provide confidence about the trajectory of the city's finances.

Report
Review of the Financial Plan of the City of New York

Related Reports
Review of the Financial Plan of the City of New York (December 2025)
Strengthening New York City's Rainy-Day Fund
New York City Government Services: Older Adult Case Management and Home Care
New York City Government Services: Services for the Unsheltered
New York City Government Services: Child Care Services for Children Under Five