Press Release of the Financial Control Board

     Many of the same macroeconomic dynamics affecting the nation also influence the city’s economy.  Like the nation, job growth in the city continues to decelerate, and inflation remains elevated.  While office vacancy rate continues to show signs of improvement, the commercial real estate market remains depressed.  One bright spot is Wall Street, where a strong stock market has contributed to a sharp rise in profits.  Based on these factors, the local economy is expected to continue to exhibit moderate growth.

Total nonfarm payroll employment reached 4.8 million jobs in the first nine months of 2025, a 1.7 percent year-over-year increase. Consistent with national trend, job growth continues to decelerate.  However, wages have not kept pace with inflation.  Private sector hourly earnings rose only 2.5 percent year-over-year, less than the 3.6 percent rise in the metro area CPI annual rate of inflation in the first nine months of 2025.  This continuing decline in real wages, which has persisted since 2022, erodes the purchasing power of city residents.

The commercial real estate market continues to improve, with Manhattan’s office vacancy rates dropping to 22 percent in the third quarter of 2025, the fifth consecutive quarterly decline.  However, vacancy remains near historical high.  Tourism indicators are mixed.  The latest passenger count at the major airports shows a decline, though remains above pre-pandemic levels.  However, Broadway attendance increased, with corresponding growth in gross ticket sales. Wall Street continues to deliver strong results with year-to-date profits totaling almost $48 billion, a 34 percent increase, and the second highest on record for the first three quarters.

Looking forward, the city faces many of the same economic uncertainties confronting the nation.  Continued tariff pressure, slowing global economic growth, and persistent inflation risks could weigh on local economic activity, particularly in finance and trade-exposed industries.  In addition, the escalation of federal immigration enforcement poses risks for sectors that rely on immigrant labor and may affect population trends, hiring and overall demands.  Furthermore, federal budget actions that reduce or restrict funding to jurisdictions with policies deemed inconsistent with federal priorities could present significant economic and fiscal challenges to the city.

In the November Modification, the FY 2026 budget increased by $2.3 billion since adoption to $118 billion, driven by a $1.8 billion expansion in categorical funds, and a  $512 million increase in city funds.  The categorical-funds increase reflects a $1.1 billion rise in federal aid and a $606 million increase in state aid.  City-funds revenues are revised upward primarily due to a $419 million net increase in tax revenues.  These revisions reflect technical adjustments to align with year-to-date collection trend. Personal income tax collections are ahead of the June forecast, while business tax collections have been weaker than projected.  Revisions to the city-funds portion of the FY 2026 budget result in a modest $74 million budget surplus, which will be used to prepay a portion of FY 2027 debt service.  Outyear tax revenue forecasts remain unchanged from the June 2025 Financial Plan.

On the expenditure side, city-funded spending in FY 2026 is $438 million higher than the June 2025 estimate.  This is driven by an $848 million increase in agency spending, and an additional $118 million health insurance cost.  Partially offsetting these increases are $212 million in Personal and Other Than Personal Services underspending, $116 million in debt service savings, and a $200 million reduction in labor reserve.  Beyond FY 2026, city-funded expenditures are reduced by $237 million in FY 2027, and together with the $74 million prepayment of debt service, narrows the gap by $353 million to $4.7 billion.  In contrast, increases to city-funded spending of $221 million in FY 2028 and $380 million in FY 2029 contribute to widening the outyear gaps to approximately $6.3 billion in each fiscal year.

However, the Financial Control Board estimates that there could be a budget gap of $948 million in FY 2026 and larger outyear budget gaps of $6.7 billion in FY 2027, $8.3 billion in FY 2028, and $8.5 billion in FY 2029.  The FY 2026 gap and larger outyear gaps stem from the FCB’s estimate that expenditures could exceed the November Plan projections by $1.7 billion in FY 2026, $3.0 billion in FY 2027, $3.4 billion in FY 2028, and $3.5 billion in FY 2029.  Offsetting some of the expenditure risks are FCB’s revenue forecasts which exceed the Plan projections by $738 million in FY 2026, $1.1 billion in FY 2027, $1.4 billion in FY 2028, and $1.3 billion by FY 2029.

In addition to the FCB’s quantified risks, there are uncertainties related to federal fiscal policy that could materially affect the city’s financial plan.  The One Big Beautiful Bill Act reduces the federal reimbursement for Supplemental Nutrition Assistance Program administrative cost from 50 percent to 25 percent.  More broadly, the city’s federal aid assumptions may be vulnerable to additional reductions.  The Trump Administration’s proposed federal budget calls for substantial cuts to domestic discretionary programs, including health, social services, education, housing, and emergency management, which collectively represent the vast majority of federal categorical grants in the Financial Plan.

The city released its recent four-year capital plan for FYs 2026–29 totaling $93 billion in total-funded authorized commitments, an increase of $5.3 billion compared to the prior capital plan.  The city’s considerable capital program drives the increasing debt service burden over the plan period.  Given higher inflation-driven construction costs in combination with the city’s ambitious housing, education and borough-based jails programs, as well as large capital repairs that are not yet fully quantified, there is a possibility for further growth in the capital program.  As a result, there is a potential for debt service expenses to be higher than projected, requiring more tax revenues and putting added pressure on the city’s operating budget.