The city’s economy continues to expand, but momentum has become more uneven across sectors amid slowing labor market conditions, softening tourism activity, and persistent inflationary pressures. While parts of the local economy remain resilient, broader uncertainty, including geopolitical volatility, travel demand, and global business sentiment, adds to the uncertainty surrounding the outlook. At the same time, wages, transit activity, and commercial real estate conditions continue to show areas of stabilization and improvement.
The city recorded a decrease in employment during the first four months of 2026, representing the first sustained decline since the post-pandemic recovery period. However, wage growth has strengthened, outpacing inflation and supporting modest gains in real purchasing power after several years of erosion. While the finance sector registered only modest job gains, pretax profits of New York Stock Exchange member firms increased 37 percent compared to last year to $21.1 billion in the first quarter of 2026, the strongest first quarter since records became available in 1986.
Public transit usage and commercial real estate market continue to improve. Subway ridership in the first quarter of 2026 rose 2.3 percent relative to last year. Manhattan office vacancy rates declined to 19.9 percent from 21.1 percent, marking the seventh consecutive quarterly improvement. However, tourism activity has softened in recent months with passenger traffic at the major airports declining 3.5 percent in early 2026. Slower national growth, persistent inflationary pressures, and elevated geopolitical uncertainty contribute to a more uncertain outlook for the local economy.
The FY 2026 Modified Budget released with the FY 2027 Executive Budget totals $124.4 billion, an increase of $2.0 billion from the February Modification. The increase reflects a rise of $504 million in the city-funds portion and a $1.5 billion increase in the noncity-funds portion. The increase in noncity funds is driven primarily by an upward revision of $1 billion in federal categorical aid. City-funds revenues increase by $504 million relative to the February Modification, bringing total city-funded spending to $91.7 billion. The most significant change in the Modification is the reversal of the February Plan's proposal to withdraw $980 million from the Revenue Stabilization Fund (Rainy Day Fund) to help balance the FY 2026 budget. At the same time, the Plan incorporates several other actions that provide budget relief, including prior-year accrual write-downs, pension contribution relief, state cost sharing, additional savings actions, and higher city-funds revenues. The largest of these actions is an increase in the net write-down of prior-year accruals amounting to $1.2 billion. The combination of lower expenditures and the increase in city-funds revenues adds $825 million to the FY 2026 surplus.
The FY 2027 Executive Budget shows a balanced budget of $124.7 billion. The Executive Budget is $2.3 billion less than the Preliminary Budget released in February, reflecting a drop of $2.7 billion in the city-funds portion of the budget, slightly offset by a $418 million increase in the noncity-funds portion of the budget. The most significant change is the reversal of the proposed property tax2rate increase that was projected to generate over $3.6 billion in each of FYs 2027–30. Partially mitigating the reversal is an estimated $500 million in annual revenues from the newly enacted pied-a-terre tax, beginning in FY 2027. Nevertheless, total tax revenues are projected to decline by $3.1 billion relative to the Preliminary Budget. The remaining impact of the property tax reversal is addressed through a series of expenditure actions that provide substantial budget relief. The May Plan includes reductions in pension contributions from the extension of the amortization period for pension unfunded actuarial liabilities from seven years to twelve years. The change is projected to reduce pension contributions by $1.6 billion in FY 2027 and between $1.5 billion and $1.7 billion in the outyears. The Executive Budget also identifies significant additional savings initiatives beyond those reflected in the February Plan. These initiatives provide $1.7 billion in expenditure reductions and $86 million in revenue enhancements in FY 2027. A substantial portion of the savings is attributable to cost-containment initiatives related to class size reduction, due process cases, CityFHEPS, and shelter expenditures.
While the May Modification and Financial Plan shows budget balance in FYs 2026 and 2027 and projects growing gaps in the outyears, the Financial Control Board forecasts larger budget gaps in every year except FY 2030. The FCB estimates deficits of $270 million in FY 2026 and $1.8 billion in FY 2027, and larger gaps of $8.1 billion in FY 2028, $9.2 billion in FY 2029, and $9.5 billion in FY 2030. The FCB's estimates are driven primarily by expenditure risks, which total $262 million in FY 2026, $1.0 billion in FY 2027, $868 million in FY 2028, and approximately $1.3 billion in each of FYs 2029 and 2030. The largest expenditure risk is uniformed services overtime, which the FCB estimates as underbudgeted by more than $710 million annually beginning in FY 2027. In FYs 2026 through 2028, revenue risks add to expenditures risks, resulting in total risks of $270 million in FY 2026, $1.8 billion in FY 2027, and $1.1 billion in FY 2028. In contrast, the Financial Control Board projects property and nonproperty tax revenues to exceed the City's forecast in the latter years of the Plan, generating offsets that substantially mitigate expenditure risks in FYs 2029 and 2030.
With the May 2026 Executive Budget, the city released a five-year capital plan. When compared to the prior capital program released in February, total-funded authorized capital commitments increased by a net $4.2 billion amounting to $117.1 billion in the FYs 2026–30 five-year plan. The increase in the five-year capital plan reflects additional commitments for the Department of Housing Preservation and Development and the Department of Education, which were partially offset by reductions in other areas. The growth in the May five-year capital plan results in increased long-term borrowing, creating higher debt service costs. Financing the program will require an increasing portion of the city’s tax revenues to pay debt service costs, which is projected to reach 13.3 percent in FY 2030, with the burden approaching but still under the affordability level of 15 percent determined by the city.
