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How the Pandemic Changed New York City's Budget Priorities, Per State Comptroller Report

Mayor Adams and top aides at City Hall (photo: Michael Appleton/Mayoral Photography Office)

New York City is expected to spend more money on education, public health, social services, and public safety in the next fiscal year than what was predicted three years ago, before the COVID-19 pandemic devastated the city and shifted its budget priorities, according to a new report from State Comptroller Thomas DiNapoli. But the new spending, including on recurring expenses, is possible in part because the city’s budget has been bolstered by federal pandemic relief, which will run out in the 2026 fiscal year, leading to fiscal cliffs and forcing tough decisions by the city.

Last month, Mayor Eric Adams released a $102.7 billion preliminary budget proposal for the 2024 fiscal year, which begins July 1, reflecting a $1.7 billion increase over the budget that was adopted by the City Council last June. But planned spending is closer to $104.8 billion (since the mayor is proposing to use surplus funds from the current fiscal year to pay down costs in the next fiscal year), a slight increase from the $104.5 billion in spending that former Mayor Bill de Blasio’s administration projected for fiscal year 2024 in its January 2020 preliminary budget proposal, just two months before the city went into lockdown.

The intervening three years have seen the city’s economy devastated, hanging on life support in the form of $27 billion in desperately needed federal aid to be spent through the 2026 fiscal year. The economy got onto a path to recovery, and though revenues did bounce back better than expected, they are projected to be $2.4 billion lower next fiscal year (FY2024) than January 2020 projections.

As the comptroller’s report notes, since January 2020, the city has implemented savings programs that will reach a total of $5.6 billion for fiscal year 2024, largely through cutting agency spending. But the availability of federal aid has also given the city some flexibility to spend an additional $3.24 billion in city funds on new needs, which could be imperiled once that aid runs out.

“The mayor’s preliminary FY 2024 budget reflects the changes to city budget priorities that emerged during the pandemic,” DiNapoli said in a statement accompanying the report. “Funding for education, public health and social services have risen to counter the effects of the pandemic, but the loss of federal relief aid will require the city to reassess its priorities once again the coming year to ensure that the programs it deems essential to its recovery can continue beyond Fiscal Year 2024.”

Per the report, the largest increase in so-called new needs was for social services at about $817 million, including $303 million in additional spending on street homeless programs and shelters, $101 million on the Summer Rising academic enrichment program, $75 million for the Fair Fares discounted MetroCard program, and $57 million to expand the Summer Youth Employment Program.

The second largest allocation of new needs, about $524 million, is going to uniformed agencies and judicial programs including an expansion of the city’s Crisis Management System to combat gun violence through community interventions, Precision Employment Initiative, and re-entry and Alternative to Incarceration programs.

The Department of Education will receive about $1 billion more in funding, including $442 million in city funds – because of growing costs for charter schools ($216 million) and student transportation ($184 million) – and the Department of Sanitation will receive about $94 million more for quality-of-life initiatives.

The comptroller’s report does note that the city’s budget is also increasing because of non-discretionary spending over which the city has less control such as fringe benefits, debt service, and Medicaid and public assistance costs, which account for about 41% of the fiscal year 2024 preliminary budget. Those costs could also increase and are major risk factors for the city – municipal labor contracts are currently being negotiated and could add billions in spending to the budget; pension obligations could also increase if the city’s pension fund returns are inadequate due to stock market losses, as was the case in 2022.

There also remains the uncertainty of costs associated with the influx of migrant asylum seekers, as the mayor and other elected officials are still demanding additional state and federal aid for that purpose. The cost of public assistance and other government benefits could also increase, the state comptroller speculated, as pandemic-era benefits expire.

There are other risks that the budget hasn’t accounted for, including, as DiNapoli’s report pointed out, ongoing educational programs funded with federal aid, uniformed agency overtime that is consistently over-budget, and MTA operating subsidies (Governor Kathy Hochul proposed an additional $500 million annual contribution from the city for the MTA in her executive budget released last week).

The report concludes that despite a projected drop in revenue, the city has continued to invest in basic services and has budgeted responsibly, while federal aid has helped in initiatives aimed at the city’s economic recovery.

“Without the additional federal aid, the City may not have been able to provide the additional services given its many needs and limited resources,” the report notes. But, it also includes a word of caution. “Some of these initiatives may remain popular and could continue to be in demand after the pandemic aid is depleted by FY 2026, creating possible fiscal cliffs,” it reads. “The City still has time to identify alternative sources of funding should support for such programs be extended.”

The mayor’s office did not respond to a request for comment.

The report echoes the concerns of fiscal watchdogs, who have urged the administration to find greater recurring savings, particularly through agency efficiencies, and to place more funds in reserves as a broadly predicted recession looms. 

“Nearly 3 years after receiving billions of federal dollars to aid in COVID-19 recovery, New York continues to struggle to spend the remaining strategically or address future outyear budget gaps," said New York City Comptroller Brad Lander, in a statement. "Comptroller DiNapoli and I share funding concerns regarding key areas, including fulfilling universal 3K and filling mission critical vacancies in the City workforce. New York City must play its part in upcoming budgets to close these budget gaps, so we can recover from the inequity facing New York that only worsened with the pandemic.” 

Ana Champeny, vice president of research at Citizens Budget Commission, said budget priorities evolve over time, particularly with a change of leadership at City Hall. “I think it's both pandemic as well as policy changes,” she said, noting for instance that de Blasio planned a major expansion of free kindergarten for three-year-olds, which Adams has put the brakes on.

She said the fiscal cliffs from depleting federal aid remain a major challenge for the administration, as revenues are predicted to slow. “Absent that unprecedented level of federal assistance, I think the city’s fiscal condition and then recovery would be a very different story,” she said. “But, as we know, that is temporary. It’s starting to be spent down.”

As that federal aid runs out, Champeny said the administration will have to decide either to find more savings for new initiatives or to roll them back. “I think there are going to be some difficult choices to make about whether all of these initiatives can be maintained going forward,” she added.

by Samar Khurshid, senior reporter, Gotham Gazette

Read more by this writer.

Note - this article has been updated with a statement from New York City Comptroller Brad Lander.

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