Mayor Eric Adams is facing increasing pressure to enhance the city’s reserve funds as the risks of both significant cuts to federal aid and an impending economic downturn loom.
City Comptroller Brad Lander recently called for the mayor to set aside approximately $1 billion in anticipation of a recession, plus another $1 billion earmarked for potential federal aid cuts. These measures were not included in the mayor’s preliminary budget presented in January.
Additionally, the City Budget Commission, a fiscal oversight organization, also advocated for a reserve fund of at least $1 billion during a City Council hearing, citing the Trump administration’s threats to slash aid.
The Independent Budget Office joined the chorus of voices urging the administration to re-evaluate its economic and tax projections, emphasizing the need for accurate spending estimates.
“The Adams administration has done nothing to reckon with the choppy financial waters that we’re in because the increased likelihood of an economic downturn or recession threatens to reduce jobs in New York City, threatens to reduce tax revenues, and to blow a hole in next year’s city budget,” said Lander, who is also running for mayor.
He added, “The city needs to take the economic conditions we’re in far more seriously.”
Simultaneously, there seems to be little enthusiasm for making similar provisions in the state budget, which is still under negotiation between the state legislature and Governor Kathy Hochul. Hochul’s proposed budget amounts to $252 billion, relying heavily on $91 billion in federal aid primarily aimed at health care and education.
In contrast to calls for increased reserves, Albany’s final budget is anticipated to raise spending by as much as 10% and include some form of Hochul’s commitment for a $3 billion tax rebate intended to return surplus sales tax revenue collected due to inflation.
Andrew Rein of the Citizens Budget Commission remarked, “There is no question that the state should proactively plan and should be putting aside at least $2 billion in a contingency fund and protecting its rainy day reserves.”
The state’s reserves currently stand at approximately $21 billion.
The outcome of these fiscal deliberations remains uncertain, particularly as the mayor and City Council find themselves under considerable pressure in an election year to bolster funding for popular programs.
This pressure includes needs to account for any cuts to federal aid essential for services such as food assistance, all while confronting the shifting economic landscape. For instance, on Wednesday, the mayor announced he would restore $167 million that had previously been excluded from the budget allocation for the 3K public preschool program.
In January, the mayor unveiled a preliminary budget of $114.5 billion, fueled by optimistic tax revenue projections and reduced spending on migrants. Nonetheless, no additional funding for city reserves was proposed.
The City Council suggested allocating approximately $2 billion towards reserves in their response earlier this month; they also indicated a potential for $6 billion more than the mayor estimated as available for discretionary spending.
However, these assumptions are now threatened by the economic ramifications stemming from President Donald Trump’s inconsistent tariff policies, according to Lander.
In a scenario where an economic downturn does not materialize, Lander suggests that tax revenues would likely surpass the mayor’s projections. However, a modest downturn could see revenues fall short by around $4 billion in the next fiscal year.
In the case of a more pronounced recession, the city could face a revenue shortfall of approximately $5 billion in the upcoming year and another $5 billion in 2027.
The mayor’s initial budget had forecasted a $5 billion gap for 2027, which implies that the city could be confronted with an overall shortfall nearing 10% of the budget, necessitating many challenging financial choices.
Presently, the city possesses $8 billion in reserves spread across various funds. While this figure reflects a historic dollar amount, it has not seen an increase in recent years and constitutes a diminishing proportion of total expenditures.
Moreover, the city lacks established guidelines regarding the circumstances under which reserves should be accessed, despite calls from Lander and organizations like the CBC to utilize economic indicators or specific revenue declines as triggers to dip into reserve funds.
The stakes are enormous, as the city anticipates more than $7 billion in federal aid within the next budget cycle. A CBC analysis of grants exceeding $100 million highlights that approximately $2 billion is allocated for the Department of Education, $1.6 billion for Social Services, and $1.3 billion for the Administration for Children’s Services.
Beyond the city budget, but potentially requiring intervention from both the Council and the mayor, the New York City Housing Authority (NYCHA) receives $1.4 billion in operating subsidies. Furthermore, healthcare funding cuts could compel the city to supplement NYC Health + Hospitals, which is already receiving nearly $1 billion from the city budget.
Additionally, the Trump administration is contemplating reductions to food assistance programs and housing vouchers, prompting advocates to urge the city to prepare for potential replacements.
During a hearing on Wednesday, Council members criticized the mayor for failing to send a representative and voiced concerns that the administration was not adequately addressing the potential implications of the Trump administration’s actions.
“They’re not doing anything, and we’re about to negotiate a budget that relies on almost 10% of federal grants and federal subsidies,” said Councilmember Justin Brannan (D-Brooklyn), who chairs the finance committee.
“There needs to be a plan here. At the very least, they should have an accounting of all the agencies and what their vulnerabilities are to federal cutbacks. At the very least, tell me, tell us, that you’re doing this.”
In response to growing tensions as budget negotiations loom, the mayor’s press office pushed back.
“While the City Council wants to throw up their hands and hold orchestrated hearings about potential federal funding cuts, New Yorkers can rest assured that we are actually focused on the substantive work to make sure they receive all the services they deserve,” said Adams press secretary Kayla Mamelak Altus.
She added, “Any Council member claiming otherwise is exposing this hearing for what it truly was: a political stunt, not a genuine effort to solve problems.”
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