Comptroller Levine: $8.8 billion FY28 gap and structural imbalance warnings
Levine warns that reduced prepayments and prior year expense re-estimates mean spending $4.4 billion more than revenue this year, with the General Reserve at just $100 million. He projects an $8.8 billion FY28 gap, noting the city won't have one-shot measures available next year and faces this without assuming a recession or AI disruption.
budget plan also dramatically draws down prepayment of next year's expenses from $3.8 billion in FY25 to roughly $1 billion in FY26, a 72% decline year over year, the largest single drop
since 2002, right after the 9-11 attacks.
Taking the reduced prepayment and the re-estimate of prior year expenses together means that we are spending $4.4 billion more than we're bringing in in this fiscal year, continuing a worrisome trend.
And next year, the General Reserve stands at just $100 million, and we're already assuming reductions in prior year expenses, setting a new precedent for using these types of measures even before the start of the fiscal year.
I also have to note that some of the savings in the plan are really just targets at this point.
The plan still carries roughly $600 million in unallocated efficiencies from various agencies, plus $1.97 billion over four years in three new cost containment targets.
City FEPS, DHS shelter, and DOE special education due process cases, all still lacking implementation plans.
In plain English, this all means that we are kicking a very big can into next year.
Just how big is that can?
The executive budget projects a gap of no less than $7.1 million in FY28 and rising steadily.
Now, my office, of course, runs our own calculations of out-year gaps.
When we plug in our tax forecast and our estimates of under-budgeted costs and unmet program needs,
including overtime and child care vouchers, the FY28 gap widens even further to a whopping $8.8 billion.
We will face that gap without the option of the many one-shot measures that we've used up this year.
We won't be able to re-amortize our pension again.
We're unlikely to be able to further delay class size implementation, etc., etc.
And all of this is predicated on a strong economy.
Our baseline forecast does not assume a recession.
It does not assume an AI-driven labor dislocation or the popping of an AI investment bubble.
Outcomes which, according to our recently released analysis, could lower revenues relative to baseline by between $9 billion and $14 billion over the period of the financial plan.
This plan assumes continued strength in the securities industry, in the pool of bonus payments, in stock markets, the volatile foundations of our personal and business income tax collections.
The city's bottom line in FY27 depends, in a real sense, on the bull market continuing for another year.