To reduce outyear gaps, City Hall and Albany must right-size their finances — accounting honestly and smartly cutting spending
Budget season kicked off with an Albany-New York City doubleheader last week, with brightening skies in both places thanks to proactive efforts to cut costs (especially in the city) and a resilient economy that is bringing in higher-than-projected tax receipts. But city and state governments are not close to out of the woods — both will soon face a fiscal reckoning if they don’t continue to rein in spending wisely.
The dangers are fueled by skyrocketing spending over the past half-decade, spending that is not affordable over time.
Within the State’s $233 billion budget for fiscal year 2025, State Operating Funds spending — the core State programs funded with State resources adjusted for payment timing and shifts — is slated to increase by $33 billion between fiscal years 2020 and 2025, roughly two-and-a-half times the increase of the five years before. COVID funds and strong tax receipts temporarily masked the budget house of cards being built.
In FY 2028, the State gap widens to $9.9 billion on paper, and that is only part of the problem. The ongoing spending base will be supported in that year by nearly $5 billion in temporary tax increases and bills that were prepaid using prior-year surpluses. When accounting for that non-recurring revenue, the structural gap — recurring expenses compared to recurring revenue — is approximately $15 billion.
The City’s ledger is similarly stressed, especially in the near term. Some of that is the result of serving the rapid influx of migrants and asylum seekers. But the core structural program is driven by years of choices by leaders to increase spending without the revenues to support it over the long term, such as FHEPs housing vouchers and child care services.
The City has future budget gaps ranging from $5 billion to $6 billion, which, large as they are, do not represent the full problem.
After the City ran up spending nearly 13% right before the pandemic, City-funded spending between FY 2020 and FY 2025 is slated to increase $11.5 billion, and that’s without the additional $3.6 billion in fiscal year 2025 expenses to serve migrants. And, worth noting, this increase already takes account of Mayor Eric Adams’ multiple rounds of spending reduction.
The City has future budget gaps ranging from $5 billion to $6 billion, which, large as they are, do not represent the full problem. Our analysis of the preliminary budget found that actual gaps are over $3 billion higher due to under- and un-budgeted programs. This practice of underbudgeting ongoing programs, expanding programs with one-time funds like COVID aid and budgeting programs only one year at a time has been growing, and has become a major risk to the City’s fiscal stability and the viability of certain programs because, of course, while the investment is “one-time” from the limited federal grant or temporary tax program, the program and its expenses do not sunset.
The administration made some welcome corrections to this poor practice in its Preliminary Budget, rightly fully accounting for some underbudgeted expenses, such as student transportation and charter school payments. But still, more than $3 billion of ongoing programs and costs — FHEPS housing vouchers (the current, non-expanded rent supplement designed to keep renters at risk of eviction in their homes), wages for shelter security, overtime and much more — are underbudgeted or budgeted for just one more year. Even the City’s FY 2025 Preliminary Budget includes programs that are not fully funded. So CBC estimates the outyear gaps really are closer to $8 billion to $9 billion.
The focus in both Albany and New York City should be on more spending control, and leaders should ignore calls to increase taxes and deplete reserves. With New York being the nation’s highest-tax state and its leader in domestic outmigration, now is not the time, especially after COVID and remote work, to take actions that give people fresh reasons to leave. And draining our reserves now — to patch a structural problem only temporarily — would radically weaken the government’s ability to help New Yorkers in need during the next recession.
Some will point to increased revenue as a reason to avoid the hard choices needed to right-size spending. That would be a mistake. It ignores the simple fact that the City and State spending base have already grown significantly in recent years. New York should be able provide the quality and quantity of services New Yorkers need to thrive within its already substantial existing resources.
The focus in both Albany and New York City should be on more spending control, and leaders should ignore calls to increase taxes and deplete reserves.
Both the City and State must align recurring expenditures for all programs with revenues. As the governor put it, we have to stop spending like there’s no tomorrow.
Smart spending restraint should focus on prioritizing the programs that produce the most significant effects, based on a hard-nosed look at the data, and shrinking or eliminating those that are ineffective or deliver less benefit. It should also focus on increasing efficiency by leveraging technology and streamlining processes. Inefficiencies are marbled throughout government. Leaders, managers and front-line workers should work together to identify and implement the best ways to improve productivity, such as ensuring uniformed employees are deployed effectively and not filling jobs that could be done by civilian employees. Particularly in the City, labor is a key partner; there is real savings potential through work rule changes and job-title flexibility. For example, repairs could be completed more quickly if one employee could complete certain housing fixes, rather than needing to schedule multiple staff, such as a plumber, a plasterer and a painter to repair a leak in the wall.
For the state, the challenging work will be to reduce Medicaid spending growth — which has grown nearly 40% in the last three years and already has the fifth-highest spending per enrollee in the U.S. — while ensuring access to needed high-quality care and a strengthened safety net. No doubt this will require the State to reduce its high and growing costs of long-term care and home and community-based services. School aid, the State’s other major cost, needs to focus on better targeting aid to high-need districts, not increasing aid to wealthy districts that already self-fund a sound basic education, and not holding districts harmless when enrollment declines.
Further spending restraint, prioritization of effective programs and greater efficiency are the best tools to stave off the fiscal reckoning that’s looming. This year’s budget decisions will have a major impact on our quality and affordability of life, and they will affect whether New York becomes a place that attracts and retains residents and business or a place that increasingly gives them reasons to leave.