Projections remain consistent in outpacing OMB revenue estimates and continued forecast of moderate tax and job growth, providing opportunity to restore cuts to save essential services
The New York City Council released its May 2024 Economic and Tax Revenue Forecast with consistent revenue projections that continue to outpace those of the Mayor’s Office of Management and Budget (OMB) by $1.1 billion for Fiscal Years 2024 and 2025. This difference remains even after OMB adjusted its revenues by $2.3 billion for FY24 and FY25 in April’s Executive Budget. The $1.1 billion more in expected revenue is in addition to any other available funds for the city budget, like the $2.25 billion in potential underspending over the current and next fiscal year that the Council identified in its Preliminary Budget Response. The updated forecast is overall virtually unchanged from the Council’s previous version and provides clarity that the City can restore cuts to protect essential services and invest in the needs of New Yorkers. Its release follows weeks of Council hearings on the Executive Budget that conclude on Wednesday, May 22.
The Council’s full report is available here.
“The Council’s tax and revenue projections remain consistent, and despite OMB’s adjustment in the Executive Plan, we’re still expecting an estimated $1.1 billion more in revenue that can be used to restore cuts and invest in New Yorkers,” said Speaker Adrienne Adams and Finance Committee Chair Justin Brannan. “Our city economy is resilient, and we have the resources to protect essential services that support working families and keep New Yorkers safe and healthy. New Yorkers are counting on us to get this right. Early childhood education, our public-school students, and CUNY must be priorities for us to build a stronger city. Cultural institutions, libraries, and parks are the foundation of our neighborhoods. And housing, mental health care, and programs that reduce recidivism and advance community safety are how we make New York City healthier and safer. As the budget process continues, we remain focused on securing investments in these areas as priorities for our city in the budget and look forward to working with the Administration to achieve the right outcomes.”
Similar to the beginning of the year, the national economy remains resilient despite headwinds from above-target inflation and elevated interest rates, which are exerting pressure on economic growth. Business activity, consumer sentiment, and labor markets all remain strong, but are showing signs of deceleration. Despite recent stubborn inflation, the Council projects that the Consumer Price Index (CPI) will still gradually return to a declining path, allowing the Federal Reserve to begin lowering policy rates by the end of the year. The recently released April CPI report supports this forecast, reflecting a slight moderation from Q1 inflation readings.
The City’s economy is following a similar pattern, remaining robust with signs of cooling down due to softening of total employment growth. Strong job growth in certain sectors but weakness in others has resulted in an uneven recovery and slowing average wage growth, with year-over-year job creation as of March concentrated in the health care and social services sectors. Job growth in other sectors is expected to return in 2025 as inflation expectations and interest rates are anticipated to be lowered.
New York City’s real estate market continues to face challenges, with slightly higher office vacancies compared to the Council’s February estimate. Also, home sales are expected to be slightly stronger than the previous forecast but remain below pre-COVID levels.
The Council’s average projected annual tax revenue growth rate through the plan years is 3.4 percent, which remains above OMB’s projections. However, it still represents a slowdown in collections compared to the 5.5 percent growth experienced by the City from FY10 through FY19.
The three main changes in the Council tax forecast, compared to its February projections, are revisions in personal income tax, business taxes and transfer taxes. The Council revised its personal income tax projections to account for uncertainty around collections. The City saw greater-than-anticipated refunds in April, which is explained partly by the State’s faster processing of refunds. Additionally, irregular collection patterns for the City’s relatively new pass-through entity tax (PTET) have made it more difficult to account for non-wage income collected. While the forecast accounts for this uncertainty, it also means there is a positive risk that collections can come in stronger than projected. Meanwhile, business tax revenues have outperformed expectations, though they are still expected to grow at a slower pace than the long run average throughout the forecast. Despite an anticipated drop in transfer taxes due to high mortgage rates, recent upward revisions in quarterly home sales indicate that the market is still weathering current conditions better than the Council expected.
The release of the Council’s forecast follows the projections of a city budget watchdog. The Independent Budget Office recently released its own analysis, projecting increased surpluses for Fiscal Years 2024 and 2025 and reduced fiscal pressures from diminished outyear gaps.
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