NYC Council Economic Forecast Projects City to Receive $2.6 Billion More in Tax Revenues than Recognized by Mayor’s Office of Management and Budget for Fiscal Years 2025 and 2026

 

Stronger property, personal income and business tax collections drive increased tax revenue projections amidst a resilient national and city economy

The New York City Council released its November 2024 Economic and Tax Revenue Forecast that projects, despite signs of slowing growth, the economy will remain resilient resulting in a slightly improved tax revenue outlook. It estimates $2.6 billion in greater tax revenues for Fiscal Years (FY) 2025 and 2026 than the Mayor’s Office of Management and Budget’s (OMB) update in its November 2024 Financial Plan. The differences in projections are mainly driven by stronger than expected property, personal income, and business tax collection, as well as a more comprehensive reforecast than OMB. The City’s tax revenue growth rate is projected to remain moderate at an average 3.7% annually from FY25 to FY28, compared to the 5.5% average annual tax revenue growth experienced over the decade of FY10 to FY19.

Please see the Council’s full report.

“The Council’s latest economic and tax revenue forecast projects ongoing positive growth and an estimated $2.6 billion more in revenue than OMB’s November Plan over the next two fiscal years,” said Speaker Adrienne Adams and Finance Committee Chair Justin Brannan. “With a resilient national and local economy, the City continues to have the necessary resources to support essential services while investing in parks, mental health solutions, and other key needs. Now, we just need an Administration that is committed to investing in New Yorkers priorities and fulfilling their pledges to working-class New Yorkers. The strength of our city will always be determined by how we support our communities with the services they need to thrive.”

Though the national economy continues to grow and show strength as inflation decreases and interest rates start to come down, rising consumer debt and the lagged effects of higher interest rates are expected to keep economic growth below long-run average. Consumer spending is also anticipated to cool down in response to a softening labor market and still-elevated borrowing costs. Inflation is expected to decline to 2.3% by the end of next year from 3.3%.

While the city’s economy similarly continues to grow, it also shows signs of cooling down as annual payroll growth has slowed. Lower-than-average wage job sectors continue to be the main driver of job growth in the city as higher paying sectors have contracted, leading to slightly weaker city tax collections. In the future, the Council expects higher paying sectors will resume contributing to job growth and in turn raise the average wage as the Federal Reserve continues to lower interest rates

New York City’s real estate market continues to struggle, though it has begun to show signs of stabilization. Commercial office vacancy rates, which have doubled since the beginning of COVID, peaked and are expected to gradually improve. Despite anticipated gradual Federal Reserve rate reductions, it is expected that mortgage rates will take longer decline, keeping the home sales recovery subdued.