Analysis shows $5.2 billion more in revenues than OMB’s FY ‘23 and ‘24 estimates, as labor contract costs are expected to absorb significant resources
City Hall, NY – Today, the New York City Council unveiled its Fiscal Year (FY) 2024 Preliminary Budget Tax and Economic Forecast, with key findings on the national and local economies, as well as tax revenue projections. The Council forecasts a brief and mild downturn, with income continuing to grow but a modest decrease in private sector employment in the second half of 2023. Yet, tax revenue growth will still exceed New York City Office of Management and Budget’s (OMB) projections by $5.2 billion in FY 2023 and FY 2024. Despite the significantly higher revenue estimates than OMB, the Council recognizes major demands on resources to cover outstanding labor contract settlements and other costs. Yet, the Council estimates these fiscal years will conclude with budget surpluses that allow commitments to thoughtfully targeted investments in support of essential services, while addressing expected outyear gaps.
“The Council’s economic and budget forecast shows that the City can weather economic challenges and unrecognized budget costs without neglecting investments in essential services for New Yorkers,” said Speaker Adrienne Adams. “Our economists have consistently provided realistic forecasts that allow us to approach the difficult act of balancing fiscal responsibility with smart investments in services for New Yorkers with clear eyes to foster the City’s economic success. Their guidance previously led us to advocate that OMB bolster reserves while protecting essential services, resulting in the City’s recent bond rating upgrade. The budgetary analysis of the various financial forecasters discloses a similar story as those of the Council’s economists, indicating stronger revenue growth than OMB’s projections.”
“For all the ‘doom-and-gloom’ fiscal projections by OMB, our economists paint a different picture with the same numbers,” said Council Member Justin Brannan, Chair of the Committee on Finance. “The Council’s economic experts have been proven more accurate many times over the years, and as was true last year, OMB seems to again be underestimating the durability of our city’s economy as measured in tax revenue and wage growth. We know the best way to worsen a financial crisis is to unnecessarily cut programs and leave our New Yorkers in free fall. Given that economists expect moderately positive outcomes, now is not the time for extreme budget decisions that indiscriminately cut services. While there are economic challenges, and tax revenue growth will be modest, our city must prioritize our resources to actively support New Yorkers building their lives and generating economic activity. There is a need for responsible budgeting and the resources exist to protect essential programs and services for New Yorkers. Now is exactly the time to reject unnecessary contraction, embracing meaningful investments in the people of our city to generate positive economic outcomes. When we focus on equity and efficiency, we build a New York City that works for everyone.”
The Council identifies the City and national economies as showing strength in a post-pandemic recovery with people continuing to spend and total wage growth remaining positive. The Federal Reserve continues to raise interest rates to fight inflation, with an expected peak at 5 – 5.25 percent in the summer of 2023. Council economists forecast that New York City job losses will bottom-out at a decrease of 61,000 jobs, but they expect those jobs to be recovered within a year of the low. Economic recovery is anticipated to speed up once interest rates begin to decline. However, the pace will remain slow (less than 2% per year), in part due to slow growth of labor supply with retirements in the baby boom generation.
Even with historically slow revenue growth, the Council’s forecast is still substantially stronger than OMB estimates. The Council’s tax forecast expects mild growth in revenues through the Fiscal Year 2024 Financial Plan, averaging 2.2% through the FY 2023 – 2027 forecast period compared to the 5.1% rate of the past ten years. However, the Council projects substantially more revenues than OMB – $2.4 billion in the current FY 2023 and $2.8 billion in FY 2024, with similar amounts expected in the outyears.
Though Council economists foresee higher revenue projections and budget surpluses, cautionary spending is advised to cover outstanding labor settlements and other currently unrecognized costs. These include potential state budget impacts and additional resources to help asylum seekers. Despite this and recognizing FY 2023 General & Capital Stabilization Reserves most likely will be unnecessary, the Council projects FY 2023 and FY 2024 will end with surpluses. These surpluses are expected to be sufficient to cover investments that support the provision of critical City services for New Yorkers and help address outyear gaps.
The Council’s complete report is available here.