Good afternoon, Chair Brannan and members of the City Council Finance Committee. I am Ana Champeny, Vice President for Research at the Citizens Budget Commission (CBC), a nonpartisan, nonprofit think tank and watchdog dedicated to constructive change in the finances, services, and policies of New York City and New York State governments. Thank you for the opportunity to testify on the NYC Fiscal Year 2025 Preliminary Budget. 

Chronic underbudgeting and the more recent trend of funding recurring programs one year at a time—what we call the fiscal cliff—have grown to dangerous levels in recent years. These, along with the surge in costs to support migrants and asylum seekers, put the City’s fiscal health at significant risk despite an expanding economy.  

Through its role in shaping the City budget, the City Council will partly determine whether the City’s fiscal foundation is stable, and therefore, whether the City will be able to serve New Yorkers well.  

We urge you to ensure that your proposals to add or modify spending are affordable and do not make the City budget even more fiscally precarious. This first requires that the City fully fund the programs it plans to deliver. The spending plan has to accurately reflect the program plan. While the Administration made some important improvements to budget transparency by funding some previously underbudgeted ongoing programs, much more must be done to show clearly the City’s fiscal condition once current services are fully funded in the budget.  

By this, for example, we mean that the funding required to support the current level of City FHEPS vouchers—whose costs are expected to exceed $800 million this year but are budgeted at approximately $150 million next year—should be in the budget before adding or expanding this or other programs. Adding programs when the current ones are not fully funded, yet are expected to continue, adds unsupportable weight to the fiscal house of cards. 

CBC’s analysis finds that the Preliminary Budget presents balanced budgets for fiscal years 2024 and 2025 as required by law; however, proposed spending in fiscal year 2025 is short by $3.6 billion needed to continue the current level of services. (A full table is provided with the testimony.) Furthermore, spending in fiscal years 2026 through 2028—assuming ongoing programs will be fully funded—is similarly understated. Adding this, we project the future budget gaps are between $8.8 billion to $9.7 billion, even without expanding City FHEPS or complying with the State class size reduction law, and assuming the Administration’s revenue estimates hold.  

That is why CBC believes it was ill advised to cancel the April 2024 Program to Eliminate the Gap (PEG). Even if higher revenue projections prove accurate, which would be good news, the City may abruptly face funding shortfalls that require significant, sudden spending cuts that can harm programs more than restraining spending to affordable levels over time. Furthermore, the City has not made a voluntary deposit to the Rainy Day Fund since fiscal year 2022; the $2 billion set aside is woefully insufficient for the next economic contraction. 

CBC found that higher than previously projected revenue, in-year reserves and resources, and reductions in agency and asylum seeker spending provided $10.2 billion of resources across fiscal years 2024 and 2025. These resources were used to balance fiscal year 2025 ($7.1 billion), fund underbudgeted fiscal year 2024 programs ($2.5 billion), for increased spending in fiscal year 2025 ($400 million), and to restore some previously announced PEG savings ($200 million), just 5 percent of the fiscal year 2024 and 2025 PEG savings. 

The fiscal year 2025 budget was balanced in part by the two PEG rounds. Even if the revenue added in January had been added in November 2023, those spending reductions would still have been needed to get to where the budget is now. Furthermore, additional revenue, if available, will be needed to support already planned spending in fiscal year 2025, unless those unsupported programs are shrunk or eliminated. 

The current level of underfunded ongoing programs, which started in the years right before the pandemic and was increased by using federal COVID aid for recurring programs, has reached critical levels—$3.6 billion next year, far exceeding in-year budgetary reserves of $1.45 billion.  

Only when the budget is transparent—and completely and accurately funds the City’s current programs and the full cost of desired program expansions—will the prospect of a fiscal reckoning be clear. We hope that this would encourage City leaders, both the Executive and the City Council, to make the hard and wise choices needed to prioritize key, high-impact programs and increase government efficiency.  

Prioritization based on data and efficient and quality service delivery are hallmarks of the thoughtful, nuanced approach needed. Blunt instruments, such as blanket hiring freezes and across-the-board targets, may achieve needed savings, but too often come with unwarranted service reductions. Doing this right will protect essential services and create the fiscal stability needed for the City to ensure New York and New Yorkers thrive. 

Proximate funding shortfalls and future gaps this large, especially during an economic recovery, are evidence of the City’s precarious fiscal position. Budget gaps that appear smaller due to underbudgeting may be easier to abide by in the short term, but they dangerously mask the true challenge and minimize the need for swift and thoughtful action to restrain City spending growth. That lack of transparency could have dire consequences in the long term. 

Thank you and I would be happy to answer any questions you may have.