Revenue projections are raised by improvements in economic prospects – provide opportunity to make different budget decisions, even as expected lower growth and questions of unbudgeted expenses remain
Today, the New York City Council released its February 2024 Economic and Tax Revenue Forecast, ahead of its hearings on the Mayor’s Fiscal Year (FY) 2025 Preliminary Budget, that estimates the City will receive $3.3 billion more in tax revenues for FYs 2024 and 2025 than projected by the Mayor’s Office of Budget and Management (OMB). The new estimates anticipate over $13.6 billion higher tax revenues than OMB throughout the Financial Plan years, averaging $3.4 billion in each of the outyears of FYs 2026-2028 ($2.73B in FY26, $3.02B in FY27, and $4.56B in FY28). The higher projections are driven by improvements in the national and city economic outlook, even as overall growth is expected to be historically slower than the past decade.
The Council Forecast projects this would lead the City to have a budget surplus of $1.32 billion in FY24 and $3.53 billion in FY25, and smaller, manageable outyear gaps of an average $550 million per year ($970 million in FY26, $646 million in FY27, and $35 million in FY28), with the $1.45 billion of in-year reserves currently budgeted for each fiscal year that must be expended within the same year incorporated.
The Council’s full report is available here.
“New York City’s economy has endured, and we now expect an estimated $3.3 billion more in revenue than the Mayor’s budget office for fiscal years 2024 and 2025, and even more in the outyears. This means we can and should be making some different budget decisions, protecting the priorities of New Yorkers,” said Speaker Adrienne Adams and Finance Chair Justin Brannan. “From 3K to CUNY, libraries, and our cultural sector, stronger than expected tax revenues allow us to restore the blunt cuts that weren’t necessary in the first place. Economic uncertainty, uneven employment growth, and a durable but slow burning recovery makes it critical to adequately prepare our city for potential challenges. It’s vital that we continue prioritizing essential and targeted investments that promote health, safety, and opportunity for all New Yorkers. As we head into preliminary hearings, we look forward to a productive dialogue with the Administration and other stakeholders as we work towards a budget that delivers for all New Yorkers.”
The Council’s average projected annual tax revenue growth rate for the coming fiscal years is 3.3 percent, which is far closer to the Independent Budget Office (IBO)’s projected growth rate (3.1%) compared to OMB’s (2.2%). However, this still represents a significant slowdown in collections compared to the 5.5% growth experienced by the City from FY10 through FY19.
Despite a national economy that has outperformed expectations, the Council expects slower growth for future years, due to the lingering impact of high interest rates and a labor market with rising unemployment peaking at 4.4 percent in 2025. Inflation is expected to gradually decelerate, leading the Federal Reserve to begin cutting the federal funds rate that lowers interest rates.
The City economy is expected to continue steadily growing, but the City’s labor market continues to cool and job gains have been uneven. Total employment growth slowed to 1.8 percent year-over-year in the final quarter of 2023, following 3 percent growth in the previous quarter. Health care and education sectors primarily drove city employment increases, while job levels in the retail, leisure and hospitality, and construction sectors remain below pre-pandemic levels. Low-wage jobs comprise an increasing share of employment, which is expected to moderate average wage growth. The Council forecast also revealed a slow real estate market expected to persist, without worsening, due to an elevated office vacancy rate projected to remain above 20 percent through 2028 and high mortgage rates depressing one-to-three family home sales.
Multiple budget watchdogs, including the city’s Independent Budget Office, have anticipated hundreds of millions of dollars in unbudgeted expenses left out of the Mayor’s Preliminary Budget for FY25 for a range of city programs. These include spending on CityFHEPS housing assistance vouchers based on FY24 spending levels, several Department of Education programs, and personnel costs in the uniformed agencies. The Council has raised concerns about these types of expenses being omitted in previous budgets, which will need to be addressed.
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