New York City initially warned of severe budget cuts coming in 2024, but has since reversed on the most controversial ones that were coming for police, fire, sanitation, parks and library services. Given the lack of transparency, it was difficult to fully understand how Mayor Eric Adams and his administration were able to reverse these unpopular budget cuts.
The mayor said the reversals came after the city realized “better-than-anticipated tax revenue” and reduced costs for migrant care. Estimated costs for housing and feeding migrants originally were $12 billion over three years, but are about 20% less, or about $9.6 billion.
For greater clarity, City & State asked budget observers for their opinions on the spending plan. Adams and Gov. Kathy Hochul announced their budget proposals on Tuesday. Responses have been edited for length and clarity.
How did the city not see this income coming just a few months ago?
Ana Champeny, vice president for research at the Citizens Budget Commission
The city reversed about $200 million in proposed spending cuts – only about 5.5% of the proposed $3.7 billion in PEG savings over two years. The reality is that the city could reverse those and balance this and next year’s budget because: revenues were stronger; and the city was reining in another $2.9 billion of spending over two years elsewhere, including reducing spending on services to migrants and asylum-seekers and assuming the state would increase its support for migrants.
Revenue projections are routinely updated by budget offices, whose forecasts are typically (and prudently) conservative. The national and local economic outlook has brightened in recent months, with the prospects of recession receding. With an update to the economic forecast to reflect this shift, the city revised its revenue forecasts up by approximately 2%: $1.3 billion this year and $1.6 billion next year.
But we should be very clear, even if the city had recognized these higher revenues in November 2023, all the additional savings being proposed – and more quite frankly – would still be needed to fund existing programs in the current year and close the fiscal year 2025 budget gap.
James Parrott, director of economic and fiscal policies at the center for New York City Affairs at The New School
I think the city’s recent budget reversals can be chalked up to three factors: the inherent difficulty in gauging the macroeconomic and revenue outlook in the midst of significant Federal Reserve actions to slow the economy, the lack of more timely state help in meeting unprecedented asylum-seeker costs and the lack of a more measured budget approach by the mayor in the face of strident calls for austerity from some of the mayor’s business backers. The absence of a partner in the governor in meeting the migrant crisis was unfortunately compounded by last fall’s economic uncertainty. Both the city and the state have ample budget reserves, the point of which is to avert damaging budget cuts. Reserves are meant to be used in an emergency; city budget conditions were close to flashing “emergency” last fall. Instead, the austerity hawks prevailed, and attention-getting budget cuts took center stage. As the prospect of a Fed-induced recession receded by the end of the year, the revenue outlook improved. Restoring unfortunate budget cuts aren’t likely to restore the mayor’s credibility.
Nathan Gusdorf, executive director of the Fiscal Policy Institute
When the mayor’s office initially released its estimated costs for aid to migrants and its low revenue projections, we anticipated that these were too pessimistic by a considerable margin. The city regularly underestimates future revenues, and in this case we thought their projections were inconsistent with current economic indicators and recent revenue trends. We also expected that they were not accounting for operating efficiencies in asylum-seeker costs, such as negotiating better deals with shelter providers.
While it’s important for forecasts to err on the side of caution, this shouldn’t translate into excessive and premature budget cuts. We can’t speculate on why the city managed its fiscal forecasts in this way, but we think this outcome was predictable.
Is the cost of the migrant crisis really to blame for the strains on this year's budget?
While serving the rapid influx of migrants and asylum-seekers has massively strained the city’s finances, this is not the sole cause of the city’s fiscal challenges. Much of the budget strain is caused by additional spending for new and expanded programs, collective bargaining increases that exceeded the budgeted levels and the failure to address the federal and the city’s fiscal cliffs.
These cliffs – recurring programs without ongoing funding support – total billions of dollars annually. In fact, these cliffs, along with chronically under-budgeted areas like uniformed overtime, is why the city had to add $2.5 billion of money to the current year in this last budget update. The City has baked in these cliffs and under-budgeted programs, which will continue to be a major fiscal problem until addressed.
The city will have to make hard choices about whether to end these fiscal cliff programs or reduce spending elsewhere to fund them, which services to prioritize and which to run more efficiently. For example, the FHEPS housing voucher program, without expansion, is projected to cost more than $800 million in fiscal year 2024 but is only funded at approximately $150 million in fiscal year 2025.
No amount of budget obfuscation could hide the fact that the migrant crisis was not the sole cause of last fall’s city budget challenges. There were other factors to be sure, and one that other budget commentators have been silent on is that the Fed kept jacking up interest rates even as inflation was easing, pushing the economy to the brink of recession and weakening tax collections.
Surging migrant flows are clearly a federal responsibility. Yet, given the political stalemate in Washington on immigration, responsibility for addressing New York’s migrant crisis falls mainly to the state, not local, government. The city has indeed responded to the influx of migrants, feeding and caring for them, and providing shelter, health care, and educating their children. Nevertheless, the city of New York is a political creature of the state, and just as New Yorkers look to the state for aid in the event of natural disasters, economic or other emergencies (such as severe weather events or the 9/11 attacks on the World Trade Center), the state needs to assume greater financial and leadership responsibility in dealing with the current asylum-seeker emergency. The state Constitution also tightly circumscribes the tax and spending authority delegated to local governments. The governor’s 2025 executive budget belatedly provides some long-overdue budget relief. It is also a little puzzling why, since most upstate metro areas have labor shortages with 2023 unemployment rates of 3.5% or less, the governor has not done more to work with upstate communities on refugee resettlement.
Where do you see cost savings for the city?
Inefficiencies and lower impact programs are marbled throughout city government. The administration should continue to push its leaders, managers and front-line workers to find savings by improving management and prioritization. City agencies should use data to identify ineffective programs and inefficient operations that can be shrunk or streamlined to reduce costs. Agency leadership should collaborate with their teams to determine how programs and services can be delivered more efficiently. Labor is a key partner; there is real savings potential through work rule changes and job title flexibility. Health and welfare benefit costs for employees and retirees are another pool of potential savings. For example, consolidating the 100-plus welfare benefit funds could save over $100 million without reducing any benefits.
The migrant-related emergency contracts to for-profit companies were scandalous, and hopefully City Comptroller Brad Lander has reigned them in. One would have hoped that former NYPD captain Eric Adams would have known how to curb police overtime, which remains out of control. Given that staffing shortages are jeopardizing service delivery in many areas, further headcount and vacancy reductions are unlikely to solve anything. With Albany’s help, the city should end wasteful tax breaks like the one that Madison Square Garden gets. It’s also time for the city to put a halt to the tax exemption bonanza enjoyed by well-endowed giant universities and private hospital systems – think Columbia, NYU and Mount Sinai. Such institutions account for much of the $28 billion in property tax exemptions annually that benefit “charitable” institutions. At a minimum they should be making PILOT (payment-in-lieu-of-taxes) payments to support the array of city services they thrive on.
Are the state and federal government doing enough for New York in terms of financial support? If not, where are they falling short?
The state, which faces its own fiscal challenges, has stepped up and is providing more financial support for migrant and asylum-seeker costs. Unfortunately, the federal government has largely left the city and state to deal with the costs of providing services to migrants and asylum-seekers – covering less than 2% of the projected costs this year and next. It should shoulder more of the load.
Months ago we had suggested that the state could draw on its reserves to support the city’s asylum-seeker costs, given that it is a temporary fiscal challenge. We were happy to see that the governor’s budget does this, although the state contribution could likely be larger given the current year surplus of over $2 billion. The federal government is contributing very little in the way of support, which is disappointing, but they may also want a more accurate accounting of the city’s real fiscal challenges before making a decision.