NYC Fails to Bolster Reserves in FY 2026 Budget Despite Potential Future Financial Risks

The results of a review of New York City’s Fiscal Year 2026 (FY 2026) budget were released in a mid-August report by the New York State Comptroller’s Office (OSC). Although acknowledging that the FY26 budget “remains balanced, there are significant concerns over ongoing restructuring of the funding relationship between the federal government and states and localities like New York City, and slowing economic growth.” Despite being aware of these issues that could potentially create financial risks, the city “elected not to set aside additional reserves or formalize policies” to safeguard itself financially, but instead, “added new discretionary spending in FY 2026 and funded large mandatory expenses for only one or two years, ignoring the likelihood of this spending recurring.” Since 2022, the city’s Rainy-Day fund (RDF) has remained virtually unchanged at nearly $2 billion, with no “discretionary transfers into the fund in fiscal years 2023, 2024 or 2025. Furthermore, for the past three consecutive years, “the city has steadily recorded more expenditures than it has collected in revenue — a concerning trend.” By offsetting the additional nearly $3.9 billion in added expenditures with the surplus for prepayments and reducing asylum seeker spending by $1.8 billion in FY 2026, the city was able to close its budget gaps. The “city’s stated out-year gaps with contingencies now total $17.1 billion over the three years including FY 2029” — net of all changes; and even though averaging 6.2% of city fund revenues, which is an improvement over the average 6.8% in last year’s budget adoption, its “continued practice of addressing recurring costs one year at a time indicate that the published out-year gaps are understated.”

In contrast to past years, it is unlikely that tax revenue alone would “provide significant upside to close budget gaps” should the city experience even a mild recession; and it is also likely that the more than $26 billion in New York State and federal categorical grants projected in FY 2026 will be altered in the coming years in response to changes in federal fiscal policy. Considering the potential that all of the city’s resources — federal, State and locally-derived — may be impacted, the OSC recommends the city take a proactive approach to prepare for the possible financial impact by “curtailing new discretionary spending unless a funding source is identified and the development of a new savings program that would achieve savings through efficiencies,” thereby enabling the city’s ability to continue to “provide core public services of high quality, while adapting its response to manage the fiscal challenges that may emerge.”

Source:    https://www.osc.ny.gov/files/reports/osdc/pdf/report-9-2026.pdf