Back in January, New York City faced a projected budget gap of roughly $12 billion across Fiscal Years 2026 and 2027. Six months later on June 30th, we adopted a $125.8 billion budget – without cuts to vital programs and services or raising property taxes.
So, what happened?
The short answer is: There wasn’t one solution. It took stronger-than-expected tax revenues, additional aid from New York State, difficult negotiations, policy changes, and some creative budgeting to close the gap.
The good news is that New Yorkers avoided painful cuts this year.
The less encouraging news? We are not yet out of the proverbial fiscal woods.
First, a Quick Primer
Unlike the federal government, New York City is legally required to balance its operating budget. We can’t simply borrow money to cover day-to-day expenses.
About three quarters of the budget’s revenue comes from taxes – on real property, personal income, business income, sales, real estate transactions, hotels, and others – and miscellaneous revenue, like fees and fines; the remainder comes from State and Federal aid.
Budget balance means that when expenses begin growing faster than revenues, the City has to make difficult choices.
That is exactly where we found ourselves at the beginning of the year.
As a side note: There is also a separate capital budget for New York City’s longer-lasting infrastructure projects like housing and water systems, but this is funded on a longer timeline by municipal bonds (whose debt service is an expense in the operating budget).
Back to it – here’s how the FY26 and FY27 gaps were closed.
January: The Reality Sets In
In January, our Office warned that New York City was facing a budget gap of roughly $12 billion.
The $12 billion gap was made up of a ~$10 billion gap for FY27 (the one which began a few weeks back on July 1st), and a ~$2 billion gap for FY26 (which ended June 30th).
Much of that shortfall stemmed from years of chronic underbudgeting for expenses the City knew were coming.
Rather than fully funding recurring costs, previous budgets relied on temporary fixes that pushed problems into future years.
Mayor Mamdani publicly agreed with our assessment that the City’s fiscal challenge was significantly larger than official projections previously suggested.
February: The Gap Begins To Shrink
Several developments improved the picture.
The economy, and particularly Wall Street, produced stronger-than-expected tax revenues.
The Administration set citywide savings targets and directed agencies to identify efficiencies.
Governor Hochul also committed approximately $1.5 billion in State assistance.
By the time the Mayor was legally required to submit a balanced preliminary budget, the projected gap had fallen substantially.
To close the remaining shortfall, however, the proposal relied on two ideas our Office opposed:
Raising property taxes across the board
Drawing down of the Rainy Day Fund, meant for emergencies like an economic recession
Spring: A Different Approach
Throughout the spring, our Office argued that New York could balance the budget without relying on either a property tax increase or tapping its emergency reserves.
And ultimately, the Administration abandoned both proposals.
The executive budget proposal, totaling $124.7 billion, did not include a property tax increase proposal or drawing down of the Rainy Day Fund; instead, it included additional State support and savings, updated revenue projections, and relied on a pied-à-terre tax proposal, projected to bring in $500 million annually.
June: A Balanced Budget
On June 30, the City adopted a $125.8 billion budget. The final agreement included several significant investments, including:
$175 million for a new rental voucher eligibility expansion program. Unlike CityFHEPs, which has grown dramatically in recent years, this new program expands eligibility but allows for a funding cap.
$53 million for KidsRISE, providing every New York City public school kindergartener with a $1,000 savings account.
An additional $54 million for Fair Fares, expanding eligibility for discounted subway and bus rides.
In addition, the budget reversed a planned increase in New York City Police Department headcount while maintaining approximately 35,000 officers.
The Bigger Story
Balancing this year’s budget was an important accomplishment. That long, winding road is how the gap was closed. It wasn’t easy, and doing it without cutting vital programs, draining the Rainy Day Fund or increasing property taxes is something to celebrate. So, too, is this Administration’s more transparent and honest assessment of the City’s actual program needs as compared to the prior administration.
But it did not solve New York City’s long-term fiscal problem.
The budget continued to rely heavily on one-time and temporary measures, to the tune of $6.1 billion. These included:
Delayed implementation of class-size reductions for NYC Public Schools
Reduced subsidies paid by the City to the MTA (which is a State-run agency)
Re-amortization of the pension liability (essentially, putting the City on a payment plan to fully fund retirees’ pensions, so the due date for full funding is pushed back. Retirees are guaranteed their full paychecks either way, but it will potentially cost more for the City on the back end)
Other accounting adjustments
While these measures helped close the immediate budget gap, they will not provide the same level of fiscal relief in future years.
Our Office continues to project an approximately $8 billion budget gap for FY28, while the Mayor’s office projects about $6 billion. We’re updating our forecast, but regardless of the final number, the larger issue remains the same: we’re in a multibillion-dollar hole caused by structural imbalances in the budget.
And the gap is also projected to widen over the next few fiscal years beyond FY28.
The problem remains the same: The City continues to spend more than it takes in on a recurring basis. Temporary revenue windfalls and one-time solutions can buy time, but they don’t fix structural imbalances.
Where Do We Go from Here?
Closing the future budget gaps will require more than good economic luck.
We need to continue finding efficiencies across City government – which the Mayor has prioritized by already directing City agencies to cut costs by 2.5% starting in FY28 – while investing in long-term economic growth, supporting new industries, strengthening workforce development, and expanding the City’s tax base. And, we need to continue rebalancing the City’s relationship to the State so it is fairer to the City, without relying on one-time or non-guaranteed State funding.
At the same time, we need stronger safeguards for our Rainy Day Fund so that emergency reserves are built consistently during good years and preserved for genuine crises. The good news there? New Yorkers will have the opportunity to vote in November to strengthen the City’s Rainy Day Fund (but that’s a story for another explainer).
Balancing one year’s budget is only part of the job. The bigger challenge is making sure today’s solutions don’t become tomorrow’s fiscal crisis.
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