New York City is facing a $2.2 billion budget shortfall in this fiscal year and a projected $10.4 billion gap the following year, according to a new analysis released Friday by new Comptroller Mark Levine, who blamed years of underbudgeting and reliance on one-time fixes.

Levine said the gaps, the largest the city has faced this late in the budget cycle since the Great Recession, are not the result of an economic downturn, but of spending decisions made under the previous mayoral administration of Eric Adams.

“This wasn’t caused by a bad economy — it’s the result of budgeting decisions from the previous administration that we must now deal with,” Levine said.

The analysis expands on financial data released in December and comes as the city enters budget season, with the state budget due next week and Mayor Zohran Mamdani’s preliminary city budget expected in February. Levine said the scale of the projected gaps presents “serious challenges” for the city’s finances.

Despite some signs of potential weakness in the labor market, Levine said the city’s broader economic outlook remains relatively strong. Tourism, Broadway attendance, commercial leasing, and a strong stock market have continued to drive revenue growth, undercutting claims that the looming budget gaps are tied to an economic slowdown.

Instead, Levine pointed to projected spending levels in FY26 that exceed expected revenues and a failure to fully account for known, recurring expenses.

His office identified $3.8 billion in unbudgeted costs in FY26 alone, with even larger gaps projected in subsequent years. Those costs include rental assistance, overtime, homeless shelter expenses, public assistance, special education due process cases at the Department of Education, and contributions to the Metropolitan Transportation Authority.

Comptroller Levine blames years of underbudgeting for the city’s projected budget gaps.Photo by Lloyd Mitchell

At a press conference in Lower Manhattan on Friday, Levine said his office’s projections significantly exceed those published by the city’s Office of Management and Budget just weeks earlier, and he warned against continued reliance on one-time budget solutions.

“We want the city to end the practices that got us into this mess — reliance on one-shots, and particularly this long-running practice of underestimating expenses that we know we’re going to incur,” Levine said.

Levine said that growing the city’s economy is one of the few ways to ease future budget gaps without resorting to cuts or other painful tradeoffs, arguing that increased business investment and job growth would generate additional revenue.

As City Hall and Albany prepare their respective budgets, Mayor Mamdani has proposed raising taxes to fund major policy initiatives and help close future budget gaps. Mamdani has backed increasing the state’s corporate tax rate for large companies to 11.5%, up from 7.25%, matching New Jersey’s top rate, and imposing additional income taxes on New Yorkers earning more than $1 million annually.

Gov. Kathy Hochul has ruled out raising taxes on high-income earners in this year’s budget, though she has previously left open the possibility of changes to corporate income taxes. Hochul did not propose any tax increases in her State of the State address this week.

Following that speech, the Citizens Budget Commission, a fiscally conservative nonprofit watchdog, backed Hochul’s stance, warning that higher taxes could weaken New York’s competitiveness.

“Our future depends on residents and businesses coming, staying, paying taxes, and creating jobs here,” CBC President Andrew S. Rein said in a statement. “This requires the State to focus its money and management on programs that deliver results.” The group also criticized the governor’s proposals for lacking clear cost estimates, saying the financial impact of new initiatives will only become clear once the executive budget is released.

Levine cautioned that policy expansions without sustainable funding could further strain the city’s finances. He cited a potential expansion of a housing voucher program — currently tied up in court — which his office estimates could cost between $6 billion and $20 billion over five years if implemented. Those costs are not reflected in the city’s current financial plan.

Healthcare costs pose another growing risk, Levine said, confirming that the city’s Health Insurance Stabilization Fund is insolvent and carries outstanding obligations that will need to be resolved through negotiations with municipal labor unions. While retirees should not worry about losing benefits, he said the city must begin accounting for rising healthcare costs starting in 2027.

Before leaving office, former Comptroller Brad Lander released an audit finding that the joint health insurance fund was insolvent and mismanaged, with roughly $3.1 billion in unpaid liabilities. The audit recommended dissolving the fund and budgeting for health insurance costs annually.

Photo by Lloyd Mitchell

Despite the bleak projections, Levine said the city does not need to abandon ambitious goals, though he cautioned that major initiatives may need to be phased in over multiple years and grounded in more transparent accounting.

“This does not mean we still cannot act boldly,” Levine said.

Levine framed Friday’s report as an opening step in what will be months of negotiations across city and state government.

“In February, Mayor Mamdani and his administration will have the difficult responsibility of producing a balanced preliminary budget,” Levine said. “I’m committed to working alongside Mayor Mamdani and leadership in Albany to ensure the city can make good on its financial obligations and deliver a balanced budget this year and next.”

Separately, Levine was also asked about decisions made under his predecessor, including the city maintaining pension fund investments in Palantir Technologies, whose software has been used by federal immigration authorities and Israeli weapons manufacturers.

In response, Levine emphasized the comptroller’s role as a fiduciary overseeing one of the largest public pension systems in the world, saying his office favors shareholder engagement over divestment when addressing controversial corporate practices. He noted that the city’s pension portfolios collectively exceed $300 billion and include a wide array of publicly traded stocks, including companies “that I and others find have objectionable practices.”

“We are aggressive shareholders,” Levine said. “We own. We have a vote for the board of directors, and we have the power to engage in shareholder activism.”

Levine said his office is preparing its shareholder activism agenda for 2026 and indicated that concerns about federal immigration enforcement would factor into that work.