Comments on New York City’s Fiscal Year 2027 Adopted Budget

August 12, 2026

The New York City Adopted Budget for Fiscal Year (FY) 2027 relies on the continued strength of a Wall Street-powered economy but leaves unresolved a structural gap that the City will be forced to address in the years ahead.

In many ways New York City begins FY 2027 with a much more transparent budget than those adopted in recent years. Over the course of its first budget cycle, the Mamdani administration recognized billions in well-known costs that had been blatantly understated or omitted by the prior administration. Strong tax revenues in FY 2026—largely the result of better-than-expected stock market gains, rapid growth in Wall Street profits, and a robust bonus season—as well as the enactment of a new surcharge on non-primary residences (the “pied-a-terre tax”) which goes into effect this fiscal year, help to fund these now recognized costs.

The Adopted Budget for FY 2027 totals $125.84 billion, a $1.14 billion increase compared to the Executive Budget released in May. It addresses several important needs. These include the creation of a new rental assistance program that settles the longstanding litigation to expand CityFHEPS, an expansion of the Fair Fares program, and additional support for cultural institutions and the City University of New York. The FY 2027 Adopted Budget and June Financial Plan, however, fail to resolve the underlying fiscal challenge facing the City—that recurring spending continues to outpace recurring revenues.

Even with the higher-than-expected tax revenues and the new property surcharge, the Mamdani administration relied on $6.07 billion in temporary measures announced over the course of the budget cycle to close its projected budget gaps in FY 2026 and FY 2027. These one-time or short-term savings include the re-amortization of the unfunded accrued liability of four of the City’s five pension funds (including savings effectively captured from the City’s public hospital system and the Metropolitan Transportation Authority); favorable State actions, such as the passage of legislation to slow the implementation of the class-size reduction mandate and a one-time infusion of unrestricted State aid; as well as a historic write-down of prior-year accrued expenses in FY 2026, and, for the first time, a prospective write-down of prior-year expenses during FY 2027.

These measures replace other, more problematic solutions proposed by the Mamdani administration in the Preliminary Budget, and subsequently reversed in the Executive Budget, including a highly inequitable property tax increase and $1.21 billion in planned withdrawals from the City’s long-term reserves. While the administration reversed the drawdown of long-term reserves, a $1 billion reduction to in-year reserves announced in the Preliminary Budget remains. This leaves just $450 million in the budget this year for unexpected costs.

The growing imbalance between the City’s revenues and spending is clearly evidenced by the drop in the City’s prepayment of the upcoming year’s expenditures, falling from $3.79 billion in FY 2025 to $1.96 billion in FY 2026. Although the final FY 2026 prepayment is $896 million higher than the amount included in the Executive Budget, this is the fourth consecutive year of decline in the prepayment and the largest annual drop among the four.

The administration has made progress over the course of the year in taking a critical look at City spending. First, a citywide savings initiative announced as part of the Preliminary Budget and allocated in the subsequent Executive Budget resulted in budgeted savings of $1.77 billion over FY 2026 and FY 2027. Planned savings through this initiative in FY 2028 through FY 2030 average $1.09 billion, although an average of $131 million in each outyear remains unallocated to specific costs. The Executive Budget also added “cost containment” initiatives to reduce budgeted spending on CityFHEPS rental assistance, shelter costs, and special education Due Process cases. These initiatives, if successful, are projected to reduce costs by $668 million in FY 2027 and an average of $433 million in the outyears compared with previously planned amounts.

Following budget adoption, the administration announced, in late July, 2.5 percent annual savings targets for City agencies in FY 2027 through FY 2030. Savings programs are to be reflected in the Mayor’s November Financial Plan update. This Office preliminarily estimates such a reduction in City-funded spending could save approximately $1.50 billion annually with the actual impact dependent upon exemptions and if savings targets are applied to centralized costs. This is a critical and positive step in addressing the City’s fiscal imbalance, allowing agencies the time to find real efficiencies and recurring savings. However, the administration must also be clear about the success of all the savings initiatives announced thus far.

To build on the administration’s progress in improving budget transparency, the Mayor’s Office of Management and Budget (OMB) should resume regular joint reviews of savings initiatives with our Office and other fiscal monitors. These reviews, similar to those conducted in the past, should assess whether planned savings are achievable and on track, and identify initiatives that have failed to produce their budgeted savings.

The success of these savings initiatives is particularly crucial as the City is facing large outyear gaps. In each year of the financial plan period this Office forecasts higher City-funded revenues, but also higher City-funded expenditures than OMB. In FY 2027 and FY 2028, these higher expenditure projections more than offset higher revenue estimates, resulting in higher gaps than the administration: $743 million in FY 2027 and $7.25 billion in FY 2028. Conversely, in FY 2029 and FY 2030, this Office’s higher revenue estimates more than offset the higher expenditure projections, resulting in somewhat lower gap estimates than OMB’s: $7.87 billion and $6.84 billion, respectively.

These estimates, however, assume the success of several savings initiatives already announced that at present lack sufficient detail to be fully evaluated as achievable. If any of these actions are not realized as planned, gaps could increase. As previously mentioned, the Mamdani administration has still not provided any details on a portion of the citywide savings announced in the Preliminary Budget, including $179 million planned in FY 2028, $124 million in FY 2029, and $89 million in FY 2030. The administration has also provided only cursory descriptions of plans to achieve its cost-containment initiatives. Until detailed plans are released and/or there is evidence of savings, these initiatives pose risks to the financial plan. In total, risks from cost-containment initiatives and unallocated savings could increase this Office’s gap estimates by $668 million in FY 2027, $586 million in FY 2028, $559 million in FY 2029, and $547 million in FY 2030.

Although not included in this Office’s gap estimates, uncertainty around collectively bargained wage increases for municipal workers also presents a risk to the financial plan. Contracts for several major unions have already expired, including the Police Benevolent Association (PBA) and the Uniformed Firefighters Association (UFA). The contract for District Council 37, the City’s largest municipal labor union, expires in November. According to OMB, the labor reserve holds sufficient funds for 1.25 percent annual wage increases and any raises above this amount would require additional funding.

Other risks not incorporated into the Financial Plan or this Office’s re-estimates include broader uncertainty surrounding New York City’s economic outlook. The ongoing war in Iran has already led to a steep rise in oil and gas prices and could be a catalyst for a downturn in the near term. Another set of risks pertains to developments in Artificial Intelligence (AI). On one end of the spectrum is the risk that AI adoption replaces many jobs and causes widespread dislocation in the labor market. At the other end, is the risk that the AI boom ends, causing a downturn in the financial markets and losses in wealth and profits, along with layoffs in crucial high-wage industries—similar to the burst of the dot-com bubble in the early 2000s.

This uncertainty underscores the need for the City to adopt a clear rainy-day fund policy. The Comptroller’s Office has repeatedly advocated for such a policy, including proposing a City Charter amendment that would do so.

The Charter Revision Commission appointed by Mayor Mamdani has advanced a proposal that sets a target rainy-day fund balance of 12 percent of the prior years’ tax revenues. Funds to be included in the target include the Revenue Stabilization Fund (RSF), the City’s true rainy-day fund, and “any other reserve fund maintained by the city,” including but potentially not limited to the Retiree Health Benefit Trust (RHBT). The RHBT is not a true rainy-day fund, although it historically has been used as such. The RHBT balance of $5.2 billion at the end of FY 2025 is instead counted against the approximately $100 billion long-term liability from retiree health care benefits. The Commission’s proposal also sets a deadline for publishing a methodology to calculate deposits, and some weak rules for withdrawals that replicate those already set in State law. The methodology to determine a deposit formula and what reserves to count against the 12 percent target is to be developed in consultation with this Office. FY 2028 would be first year when the deposit formula is in effect.

The Commission’s proposal marks progress but contains several weaknesses, including the commingling of other to-be-determined reserves in its target; excessive discretion in the deposit formula due to the consideration of the current year’s prepayment of future year costs and “any other factors deemed relevant for the purpose of ensuring sound fiscal management”; and the lack of more stringent withdrawal rules.

As outlined in its recent report, Strengthening the City’s Rainy-Day Fund, this Office has proposed a formula for deposits and detailed rules for withdrawals. According to this formula, the City should have made a $1.73 billion deposit in FY 2026 based on this Office’s revenue forecast. Based on OMB’s forecast, the deposit should have been $1.41 billion. No deposit took place in FY 2026.

By more accurately reflecting City spending and introducing multiple savings programs, the Mamdani administration has made critical progress in creating a more honest and responsible budget. However, there is still considerable work to be done. Short-term measures and one-shots are not the solution to the City’s current fiscal imbalance—something that will take long-term and strategic planning to resolve. Well-funded reserves, with clear deposit and withdrawal rules, are an essential component of this work to ensure that vital City services can continue in an economic downturn—when New Yorkers need them most.