Comptroller Lander Calls to Bolster NYC Reserves as Trump’s Economic Storm Increases Likelihood of Recession

New York, NY — In a new economic spotlight, New York City Comptroller Brad Lander lays out how President Donald Trump’s fiscal policies—driven by tariffs—cause chaos into the local New York City economy and could lead to the next recession. Given the looming clouds on the economic horizon, the City should make a sizable deposit in its rainy-day funds this year as well as $1 billion in the general reserve. By creating this economic analysis, New York City can better prepare its tax revenue projections as the City approaches the next round of budget negotiations.

“Donald Trump’s chaotic trade policy is brewing up a maelstrom in New York City—and from Wall Street to Main Street, we cannot be caught off guard,” said New York City Comptroller Brad Lander. “The U.S. and New York City are reckoning with the increasingly likely scenario that we enter a recession even with a delay on new tariffs, yet City Hall appears woefully unprepared and increasingly disinterested in fighting for working New Yorkers. City government must brace itself and stand by with a reserve to blunt the tariff, federal cuts, and deportation policy tsunami that’s coming. Without strong leadership, the jobs, education, health care, and services millions of New Yorkers depend on will be swept away.”

On April 2nd, Trump announced “reciprocal” tariffs lifting the average tariff rate from two percent to more than 20 percent and then a 90-day partial “pause” one week later while at the same time raising tariffs on Chinese goods to 145 percent. The sudden policy shifts and subsequent market fluctuations shook consumer and business confidence, while eroding the global standing of U.S. debt and the dollar. The extent of economic damage to New York City will depend on the duration of the new tariff regime, the degree to which foreign trading partners respond with their own trade barriers, and the speed with which financial markets and investment decision-makers regain confidence in U.S. policy stability.

The economic spotlight lays out the implications of three scenarios formulated by Moody’s Analytics in March: no recession, mild recession, and deeper recession.

1. No recession: Negotiations to reduce tariffs start right away and they are gone completely by 2026. In this scenario, New York City job growth and inflation remain elevated in 2025 but slow down afterward. Tax revenues moderately exceed the estimates in the City’s latest January Financial Plan. The Comptroller Office finds this outlook optimistic.

2. Mild recession: Tariffs stay in place until 2026. GDP then declines 1% by the end of 2025 from its peak in the first quarter. The S&P 500 drops by 20% by the end of 2025 from its level at the end of 2024. New York City loses 35,700 jobs by the fourth quarter of 2025 from a year prior (71,200 from peak), but the job market recovers in 2026 and 2027. Inflation falls in 2026 because of the recession. Cumulatively, Fiscal Year (FY) 2026 and FY 2027 revenues are $4.3 billion below the January Financial Plan assumptions. A mild recession appears to be reasonably close to a new baseline.

3. Deeper recession: Tariffs remain in place until 2027 and retaliatory tariffs compound the negative effects on inflation and GDP. In this scenario, GDP drops by 2.6% by the end of 2025 and stock market losses swell to 35%. New York City loses 102,300 jobs by the fourth quarter of 2025 (149,300 from the peak) and the recovery gathers speed only in 2027 and 2028. Inflation falls faster in 2026 due to the depth of the recession. Tax revenues drop below the January Financial Plan assumptions by $5 billion in FY 2026, $5.4 billion in FY 2027, and by smaller amounts in the remainder of the forecast window.

Revenue Impacts

Outside of the property tax, New York City’s largest revenue sources are made up of four types of taxes: (i) personal income (ii) business income; (iii) sales; and (iv) real estate transactions. While the property tax reacts slowly to changes in economic conditions, the negative impacts of a declining New York City economy could result in substantial decrease in these revenue sources.

• Lost jobs and downsized bonus incentive pay result in slow growth or outright declines in total wages and salaries, thereby lowering taxable incomes.
• Declines in the financial sector’s profitability have a disproportionate impact on business income tax collections.
• Tariff-induced price increases may temporarily help sales tax collections but declining consumer spending as a result of reduced employment and wage growth, combined with demand reduction from the higher price levels, could have a stronger impact and reduce sales tax collections.
• Real estate transactions could be delayed or canceled because of high uncertainty and lower incomes.

Recommendations for NYC Reserves

In 2022, the New York City Comptroller’s Office proposed an overall target of 16 percent of tax revenues in rainy-day fund reserves, or approximately $12.7 billion at the end of FY 2025.  Currently, the City has accumulated $2 billion in the Revenue Stabilization Fund (RSF) and $5 billion in the Retiree Health Benefit Trust, which has in the past used as a de facto rainy-day fund.

Under all forecast scenarios, tax revenues in FY 2025 will be higher than expected in the January Financial Plan. The formula for minimum deposits proposed by the Comptroller’s Office indicates that the City should set aside between $966 million and $1.15 billion in the rainy-day fund.

In addition, the City budget should add $1 billion added to the City’s general reserve fund in FY 2026 to help protect New Yorkers from the broader fiscal uncertainties stemming from the Trump administration’s policies, as proposed in our report on the FY26 Preliminary Budget.

Additional Risks

Tourism: International visitors accounted for about 20% of all tourists and directly spent about $23 billion in 2024. International tourism could suffer from negative sentiment toward the U.S., fear that travelers might be detained or denied entry, and increased difficulty in obtaining a visa. A combination of reduced trade and increased isolationism would reduce business travel from abroad. If international travel dropped by 25% in 2025, the associated loss in local spending would be close to $6 billion, with multiplier effects generating an additional $3 billion drop-off in overall economic activity.

Foreign-Born Workforce and Population Declines: Lower net international migration could lead to population losses in New York City. Additionally, 42 percent of the labor force in New York City is foreign born. Mass deportations could constrain labor supply and lead to labor shortages in certain industries, particularly in construction and food services.

Pensions: Despite the recent angst associated with the spike in market volatility and decline in asset prices, the five New York City public pension systems remain well-positioned to weather these temporary market situations given their extended investment horizon reflecting the long-term nature of the pension systems’ obligations. Benefits are guaranteed to members regardless of investment returns.

The portfolios of investments and pension liabilities extend well beyond business and market cycles and will span many political administrations. In addition, the portfolios are designed to be resilient through careful and considered asset class, strategy, manager, and geographic diversification. The pension systems have ample liquidity within their portfolio holdings to meet benefit payment and capital call obligations, and we are not seeing excessive distress among external investment managers caused by recent market volatility.

However, market losses will affect the returns of the City’s pension funds’ investments, if not reversed. Contributions from the City increase if returns fall below the Actuarial Interest Rate (AIR) of 7% in any given year. The change in contribution is phased in over five fiscal years to avoid drastic changes in City contributions due to market conditions. For each percentage point below the 7% return assumption in FY 2025, the City’s pension contributions would increase by approximately $58 million starting in FY 2027 growing to $329 million in FY 2031.

As previously reported, returns have matched the 7% actuarial assumption over-time and New York City pension funds are well-funded—the funded ratio for New York City at the close of last year was 83% compared the U.S. average for public pension plans of 78%.

Read the economic spotlight here.

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