Testimony of New York City Comptroller Brad Lander on NYC’s FY 2024 Executive Budget and FY 2023-27 Financial Plan Before the NYC Council Finance Committee
Good afternoon Speaker Adams, Chair Brannan, members of the Finance Committee and the City Council. Thank you for the opportunity to comment on the FY 2024 Executive Budget. Joining me today are Francesco Brindisi, Executive Deputy Comptroller for Budget and Finance, and Krista Olson, Deputy Comptroller for Budget.
The Executive Budget provides a more candid look at where the City stands financially than the Preliminary Budget, incorporating several large expenses that were previously unaccounted for, including $16 billion for collective bargaining increases, and the cost of providing shelter to asylum seekers (without adequate reimbursement from the federal government) through Fiscal Year 2025. On the positive side, the budget recognizes some of the increased revenues my office had projected.
The result of these adjustments is that OMB’s stated outyear budget gaps increased to $7 billion by FY 2027. We project these gaps will be significantly higher: over $10 billion by 2027, when other risks, underbudgeting, and the drop-off of federal stimulus funds are accounted for.
While these fiscal challenges are meaningful and significant, New York City is on solid economic footing. Year-to-date revenues through April are 5.8% above last year. We project that tax revenues will dip slightly in FY 2024 before regaining growth in each successive year of the plan.
We do need a serious, long-term savings program to address outyear budget gaps; but we do not need to cut essential services like supportive housing, CUNY, public libraries, or meals for home-bound seniors.
At the same time, strengthening New York City’s economic position in the years ahead will require new investments in childcare, affordable housing, mental health care, workforce development, and climate readiness. These critical investments will require new revenues, which should be raised from the wealthiest New Yorkers, so we can confront challenges of affordability, grow the economy, and share its benefits more widely.
Reviewing the City’s Economic Forecast and Financial Plan
The local economy continues to recover. New York City is now at 99.7% of pre-pandemic job levels. The healthcare, technology, and business sectors are above pre-pandemic levels; while hospitality, construction, retail, and entertainment remain lower.
Our projections assume that the economy will slow down but avoid recession. We project modest growth over the Plan period but are mindful of potential risks from federal debt ceiling negotiations, banking sector turmoil, and the Federal Reserve’s interest rate hikes to address inflation. Locally, commercial real estate remains a key concern as hybrid work settles into a “new normal” with much higher vacancy rates.
Although the Executive Budget addresses several major items that were outstanding in the Preliminary Budget, many risks and underfunded expenditures remain, including overtime costs and MTA contributions. Summer Rising, Special Education Pre-K, Universal 3-K, and Community Schools face gaps when federal COVID-19 funds expire. Special education Carter Cases, pupil transportation, and charter schools are chronically underbudgeted. Despite my request to the Mayor and Chancellor, school budgets are not yet available, so it’s too soon to tell enrollment impacts.
The cost of providing shelter to asylum seekers is the largest unknown in the budget planning process. Costs will be high – but impossible to predict with precision with so many unanswered questions and the federal government so far failing utterly to provide necessary support.
If OMB’s current projections of asylum-seeker costs and reimbursements prove accurate, the Comptroller’s Office estimates a FY 2024 gap of $2.14 billion, roughly in balance with the $1.69 billion FY 23 surplus we project. Projected outyear gaps grow each year to $10.38 billion (9.6%) in 2027. If more asylum seekers steadily migrate here, if additional state and federal funding does not materialize, and if daily costs remain high, the gap grows from $3.29 billion in 2024 to $14 billion (12.9%) in FY 2027.
Providing Legal Services for Asylum Seekers is Key to Helping Many Move Out of Shelter
As many new arrivals fast approach the one-year deadline to submit asylum applications, the City must do more to assist them to submit their applications for asylum, and then six months later for work authorization.
So far, over 99% of asylum seeker spending has been for emergency shelter, and far less than 1% on legal and support services. This is shortsighted. While keeping pressure on Washington and Albany, we must scale up the services that get people on their feet, enable them to exit shelter, and contribute to our city.
The City Council should add at least $70 million to the budget and insist that the Administration stand up a comprehensive program for outreach, pro-se clinics, and direct legal representation immediately. This will save hundreds of millions of dollars in shelter costs.
Cutting Essential Services is a Mistake
Despite the uncertainties ahead, the Mayor’s proposals to cut critical services are a strategic misstep.
At a time when 1-in-5 people who need supportive housing can get it, the Executive Budget cuts supportive housing rental assistance by $5.2 million in FY 2024 and $8.2 million in FY 2025. Jordan Neely’s killing calls us to improve our existing systems for housing and care for people struggling with mental illness on the streets, not to cut it. Yet additional cuts to DHS ($29 million) and DSS ($12 million) will reduce funding for human services nonprofits that provide mental health care, substance abuse treatment, childcare, and job training.
The Department of Correction plans to nix trade skills and financial literacy classes, drug relapse prevention, and reentry services for detained people. These cuts are a risk to public safety.
CUNY faces $41 million in additional cuts annually, on top of funding reductions totaling $155 million for this year. CUNY is part of the bedrock of the city’s economy and an engine for upward social mobility. Half of the city’s new nurses and a third of our teachers graduate from CUNY. The Mayor and City Council should instead follow the Governor and State Legislature’s example and invest further in proven programs like ASAP, ACE, and CUNY Reconnect.
While the Administration held public libraries harmless in the recent PEG, the $21 million cuts from prior PEGs and failure to baseline last year’s Council funding means shorter hours and fewer programs for New Yorkers yearning to learn.
The Department for the Aging (DFTA) plans to cut back on meals for home-bound seniors – despite delivering nearly triple the meals in the first four months of FY 2023 than last year.
And the Administration eliminated funding for the highly successful PromiseNYC, created last year by the Council to provide childcare for undocumented children. The program should be continued at the full year cost of $20 million.
The modest sums saved by these cuts pale in comparison to the damage done.
More Strategic and Longer-Term Savings
The Administration gave agencies just ten days to submit PEGs during the April Plan. This last-minute call for savings made the Program to Eliminate the Gap a blunt, short-term slashing. OMB pulled down vacant staffing lines without regard for whether they were essential positions like cybersecurity specialists or social service claims processors.
This blunt approach has apparent limitations: the Administration already rightly reversed 339 cut positions from the Department of Social Services in the January Plan. But staffing declines continue, despite more hiring halls.
What we need – given the fact that next year’s budget is near balance, and the challenge we face is in the out-years – is a more strategic, long-term exercise that encourages wise budgetary planning. Assigning agencies savings targets that build across the years of the financial plan would allow more strategic attrition to identify positions that could be taken down or repositioned.
Another way to achieve strategic savings is to hold agencies accountable for claims settled against them, which totaled $1.5 billion in FY 2022. Since settlements are currently paid out of the General Fund, agencies have no budgetary incentive to reduce claims. If agencies were held fiscally responsible for projected settlement costs, each agency would be incentivized to root out the causes of claims against them. In February, our office published a report on motor vehicle crash claims, which cost the city more than $600 million over the past decade and $130 million in FY 2022 alone. We made recommendations to significantly reduce those claims going forward.
Other savings opportunities include the utilizing technology, leveraging the City’s purchasing power, and identifying federal Inflation Reduction Act funds for sustainability investments.
Finally, I continue to urge the City Council to adopt legislation that would require a formula for deposits into the Rainy Day Fund. Last year’s deposit was the largest ever, but still well short of what is needed when the next recession comes.
Investments in a Thriving Future
As the Council and Mayor focus negotiations on the FY 2024 budget in the coming weeks, this is also an important moment to think about the longer-term future. As we emerge from the pandemic to face new uncertainties, we need strategic investments to ensure that New York City is a place where people can afford to grow families, buy homes, launch new businesses, and create the ideas and culture that make our city the best on the planet. That was the recommendation of the “New New York” panel convened by the Governor and Mayor and chaired by former Deputy Mayors Doctoroff and Buery.
Universal 3-K and Affordable Child Care for Families
To fulfill the promise of 3-K for all kids, we must ensure that every child has a seat available in their neighborhood, conduct outreach fill every seat, pay providers on time, and pay childcare workers a living wage.
Ambitious New Models for Affordable Housing and Cooperative Homeownership
New York City’s families face a housing affordability crisis that severely drags our economy. Albany must step up with an ambitious plan to combat exclusionary zoning, increase housing supply across the state, protect tenants from unfair evictions with good cause protections, and create a large-scale Housing Access Voucher Program.
But New York City must act ambitiously as well. We urgently need a new program to create permanently affordable, multifamily cooperative homeownership for low-income, working-class, and middle-income families. That was essential to building New York City’s middle class through the Mitchell-Lama program in the 1960s. It is no less critical today.
The Neighborhood Pillars program – which enables nonprofits and mission-driven organizations to acquire and rehabilitate rental housing for low- to moderate-income households – should also grow dramatically in the year.
Mental Health Services and Supportive Housing
The crises of mental health and homelessness, revealed painfully in the killing of Jordan Neely, require that we invest significantly more in systems of care and support, including drop-in and respite centers, and mental health screening in our schools, as proposed by the Public Advocate, in supportive housing, and in new “housing first” programs that have proven effective elsewhere.
Building New York City’s thriving and inclusive future will also take long-term investments in workforce and economic development, transportation and the public realm, and of course sustainability and climate resilience.
Raising Revenues Progressively and Effectively to Pay for these Investments
How will we afford these much-needed new investments? With looming outyear budget gaps and the need to maintain essential services, a savings program alone, while necessary, will not enable us to make ambitious and needed new investments. We will require new sources of revenue.
As we outline in a new brief we are releasing today, new revenues can and must be both progressive and effective. They should not put additional burdens on low-income or middle-income New Yorkers already struggling with rising costs, but should instead be borne by the wealthiest households, who have seen their incomes skyrocket in recent years. For example, our recent monthly economic newsletter revealed that the top 0.02% of New Yorkers – fewer than 1,000 households – saw their incomes grow by $62 billion in the first two years of the pandemic.
Yet currently, single filers in New York City making $50 million, or $5 million, or $500,000 face the same marginal city income tax rate as those who earn just $50,001. If we set very modestly higher tax rates for households earning over $500,000 per year, the City could see nearly $1 billion in revenues.
Another 400 million could come from fairer taxation of high value properties, through a luxury pied-a-terre surcharge, partial repeal of the tax abatement for luxury co-ops and condos, and the elimination of the Madison Square Garden tax exemption.
Yes, permission from Albany would be required, and that is not coming this session. That’s okay, because next year’s City budget is close to balanced, as I outlined above. The investments we need are for the longer term; but we need to start the conversation now.
With wise investments in our infrastructure, core services, and public goods, the City of New York can ensure that people can afford to raise their families, buy a home, start a business, and build communities here for generations to come.
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