Introduction

In September 2023, Mayor Eric Adams’s Office of Management and Budget (OMB) directed every City agency to identify actions that would reduce City-funded spending by 5 percent through a Program to Eliminate the Gap (PEG). This directive came as OMB projected multi-billion-dollar budget gaps, in part due to spending $10.8 billion in fiscal years 2024 and 2025 on housing and services for migrants and asylum seekers, $6.9 billion more than previously budgeted.¹

Even after the PEG, the November 2023 Financial Plan projects out-year budget gaps of $7.1 billion in fiscal year 2025, $6.5 billion in fiscal year 2026, and $6.4 billion in fiscal year 2027, which do not include the impacts of the federal and City fiscal cliffs or potentially higher revenues.²

The November 2023 PEG comes on the heels of four prior savings plans during the first two years of the Adams’ Administration. As with the prior PEGs, agencies were instructed to avoid service cuts where possible and not layoff staff. In addition, OMB reinstated a hiring freeze, froze certain other than personal services (OTPS) spending such as out-of-town travel and the use of temporary services contracts, directed the uniformed agencies to reduce overtime spending, and halted any new agency spending.³

CBC’s review of the November 2023 PEG covering fiscal years 2024 to 2027 found that:

• Eighty percent of the PEG savings should not affect services;
  • 16.7 percent is from increasing efficiency;
  • 31.8 percent is from underspending and re-estimates of what programs will actually cost;
  • 12.4 percent is from shifting costs from City funds to State or federal resources;
  • 10.5 percent is from vacancy reduction initiatives that eliminate 1,975 positions in fiscal year 2025;
  • 3.2 percent is from debt service savings; and
  • 5.4 percent is from collecting more revenue than currently projected from fees, fines, and taxes.
• Program reduction savings are roughly 20 percent, twice the share of prior PEGs;
  • The cancellation of five classes of police officers represents one-half of all program reduction savings and one-tenth of the total PEG; and
• Most agencies reduced their City-funded agency operating budget by at least 4.5 percent.

Despite the 5 percent agency target, the PEG reduction is approximately 2.2 percent of total City-funded spending because OMB excludes certain funds from the PEG. CBC’s analysis estimated that 58 percent of fiscal year 2025 City-funded spending was not subject to the PEG, including central costs for fringe benefits and pensions, the Medicaid local share, and spending on migrants and asylum seekers.

To help present a balanced Preliminary Fiscal Year 2025 Budget this month as legally required, Mayor Adams directed agencies to identify a second 5 percent PEG in the upcoming budget, as well as a 20 percent reduction in spending on asylum seekers and migrants. Agencies should continue to identify efficiency savings that do not affect critical program services.

80 Percent of November 2023 PEG Savings Will Not Affect Services

CBC found that in the four savings plans before November of 2023, 92 percent of the savings did not reduce services but instead came from re-estimates, funding shifts, vacancy reductions, debt service savings, efficiencies, or new revenues.⁴ In the November 2023 PEG, this number is modestly lower, with 80 percent of cumulative four-year savings coming from these categories.

Of the cumulative four-year impact of spending reductions in the latest PEG: 31.8 percent are re-estimates and underspending, 12.4 percent are funding shifts, 10.5 percent are vacancy reductions, 3.2 percent are debt service savings, 16.7 percent are efficiency savings, and 5.4 percent are revenues. (See Figures 1A and 1B.) Typically, the distribution of savings in the current year differs from the latter years because the types of savings that happen mid-year rely more on underspending and funding shifts.

Underspending and re-estimates are $515 million in fiscal year 2024 and more than $500 million annually in fiscal years 2025 to 2027. Some re-estimates do not recur, such as Department of Education (DOE) personal service savings from vacant positions in fiscal year 2024 for $102.7 million and a one-year delay in the expansion of the Department of Parks and Recreation (DPR) Swim Safety program for $5.3 million. Other re-estimates are recurring and reflect ongoing changes in spending projections. For example, DOE is reducing superintendent budgets by 5 percent, for annual savings of $9.3 million.

More than one-quarter of the fiscal year 2024 PEG savings are from funding shifts ($489.6 million), which decrease to approximately $150 million in fiscal years 2025 to 2027. The one-time funding shifts in fiscal year 2024 are mainly due to higher than expected federal or State revenue for prior year services, with the majority, $340 million, from the Department of Social Services (DSS) ($284.4 million), the Department of Health and Mental Hygiene ($37.8 million), and the Department of Youth and Community Development ($17.8 million).

Recurring funding shifts also do not affect services, but just shift their support to non-City revenue sources. For example, the New York City Housing Authority (NYCHA) will use capital funds instead of City funds for the Vacant Unit Readiness Program, which renovates vacant apartments for tenants. Similarly, DOE is securing additional federal funding of $60 million a year for the School Food program, freeing up the same amount of City funding for other expenditures. 

There are vacancy reduction and hiring freeze initiatives that reduce headcount by 2,407 full-time positions in fiscal year 2025; associated savings, including fringe benefits, are $172 million in fiscal year 2024 and average $274 million annually in fiscal years 2025 to 2027. These positions are either currently vacant or expected to become vacant and remain unfilled in this year or next. Therefore, unlike prior PEGs that eliminated only currently vacant positions and did not affect services, some of these reductions will reduce staffing below those currently on-board. CBC’s analysis of on-board headcount as of October 31, 2023 and the PEG finds that 48 percent of the vacancy and hiring freeze positions are currently filled. (There are also positions eliminated for PEGs classified as program reduction or re-estimates; the PEG eliminates a total of 2,873 positions across 24 agencies in fiscal year 2025.)

Maximizing efficiency is critical because it reduces City costs while maintaining service levels. Efficiencies total 16.7 percent of savings cumulatively in the November 2023 PEG. Programs and processes may be streamlined; technology can be leveraged to reduce time; and work rules can be renegotiated to create flexibility and increase productivity. Because efficiency savings require program changes, current year savings are often lower. In the November 2023 PEG, agencies identified approximately $360 million of annually recurring efficiency savings, including:

• Reducing DOE administrative staff per diem and per session costs, which cover work or training completed outside of normal business hours, for savings of $85.9 million this year and $96.3 million annually beginning in fiscal year 2025;
• Reducing Early Childhood spending while maintaining current seat levels for annual savings of $120 million beginning in fiscal year 2025;
• Reassigning staff at the Fire Department for $12.8 million in savings annually;
• Eliminating DOE copiers and printers as leases expire for savings of $3.5 million per year; and
• Ending an unused DOE training program for $3.0 million in annual savings.

Rather than reduce spending, PEG measures sometimes increase City revenue, such as through hikes in fees, fines, or permits, or better collection rates. The November 2023 PEG includes additional revenue of $42 million in fiscal year 2024 from increased speed camera enforcement at certain intersections, increased Department of Finance audit revenue of $24.3 million in fiscal year 2024, doubling annually thereafter, and $7.5 million a year from ensuring recipients are eligible for the coop and condo property tax abatement.

Program Reduction Savings Are Roughly 20 Percent, With Half Coming from the NYPD

Across the four years of the November 2023 savings plan, 20.0 percent are from program reductions that may directly affect the level of services being provided, up from 12.5 percent in the April 2023 PEG and 10.3 percent in the November 2022 PEG. (See Figure 2.) Cumulatively, in the first four PEGs, program reductions were 10.0 percent of all savings, excluding illusory savings.⁵

The largest programmatic reduction PEGs are in the Police Department (NYPD). (See Table 3.) The cancellation of five Police Academy classes of roughly 600 recruits each accounts for more than half of all the program reduction savings and 10.4 percent of total PEG savings. It is estimated to save $41.7 million in fiscal year 2024, increasing to $288.9 million in fiscal year 2025, and then decreasing to $229.1 million in fiscal years 2026 and 2027. The NYPD will also delay vehicle purchases, for cumulative savings of $73.3 million in fiscal years 2024 and 2025.

In total, CBC’s analysis identified 29 program reduction initiatives in fiscal year 2024, saving a total of $233.1 million, though 80 percent of these are for less than $10 million each. In fiscal years 2025 to 2027, savings from 30 program reduction initiatives total $490.5 million, $395.7 million, and $393.8 million, respectively.

The City will save $102.5 million over four years by reducing the subsidy to New York City Health + Hospitals, the second largest programmatic reduction in the current PEG. Elimination of the Job Training Programs at the Department of Sanitation (DSNY) and DPR similarly reduces the Department of Social Services (DSS) spending by $102.1 million over four years. 

Within DSNY, there are nine program reduction initiatives that will save $14.6 million in fiscal year 2024 and more than $25 million annually in fiscal years 2025 to 2027; DSNY program reduction PEGs are 46 percent of the Department’s total PEG savings. An across-the-board cut of 5 percent to the operating subsidies for each of the library branches, approximately $22 million annually, represents 6 percent of total program reduction PEGs and 1.2 percent of the total November 2023 PEG.

Most Agencies Reduced Agency Spending by at Least 4.5 Percent

Of the 65 agencies that identified PEG savings, 39 (60 percent) reduced their City-funded agency operating budget between 4.5 percent and 5.0 percent. Just seven agencies achieved savings of more than 5.0 percent, while 19 agencies reduced spending across the four years by less than 4.5 percent. (See Tables 2A and 2B.) PEGs at the Department of Environmental Protection (DEP) and DSS are a significantly smaller share of the total City-funded agency spending, when the calculations include water and sewer charges for DEP operations, Medicaid local share payments, and public assistance grants; as those three items are not subject to the PEG, they were excluded in Table 2A to reflect the PEG share more accurately.

PEG Excluded 58 Percent of City Funds

When setting PEG targets for agencies, OMB excludes certain City-funded expenditures that are centrally funded, like employee benefits, are not at the City’s discretion, or are exempted for other policy reasons. The first two categories are challenging or impossible to change in the short run, though savings on benefits are possible over the long term and should be a component of efforts to stabilize City finances. The November 2023 PEG targets were based on the June 2023 Adopted Budget. Based on OMB’s target savings, CBC’s analysis finds that approximately 42.3 percent of City-funded spending was subject to the PEG. (See Figure 3 and Table 3.)

The November 2023 funding base excluded:

• Employee benefits and pension contributions that are funded centrally and are not part of agency operating budgets;
• The City’s local share for Medicaid, which is determined by the State;
• Public assistance payments made by the City;
• Budgetary reserves—the General Reserve and Capital Stabilization Reserve, which are not initially allocated to particular programs, but are for contingencies;
• Debt service expenses;
• Spending on migrants and asylum seekers;
• Agency budgets of elected officials who are not mandated to participate in the PEG; and
• Other expenses that CBC could not specifically identify but were excluded, such as required MTA subsidies.⁶

The November 5 Percent PEG Will Reduce Total City-Funded Spending by Approximately 2.2 Percent

The savings in the November Plan PEG total $1.7 billion in fiscal year 2024, $2.0 billion in fiscal year 2025, $1.9 billion in fiscal year 2026, and $2.0 billion in fiscal year 2027.⁷ Since the City excludes certain City-funded spending from the PEG, savings as a percentage of the total City-funded budget, are significantly lower than the annual 5 percent target. In fiscal year 2024, total PEG savings are just 2.1 percent of the City-funded budget; the savings average 2.2 percent across fiscal years 2024 to 2027. (See Table 4.)  Relative to the whole City budget, including federal and State aid, the PEG equals 1.5 percent of spending in fiscal year 2024 and 1.7 percent over the four years of the financial plan.

What to Look for in the January 2024 Financial Plan

Following the release of the November 2023 financial plan, agencies were instructed to submit savings plans for the Fiscal Year 2025 Preliminary Budget, which is due to be released in January 2024. Agencies will submit reductions equal to 5 percent of the November 2023 City-funded budgets; Mayor Adams exempted NYPD, FDNY, and DSNY from the next round of 5 percent PEGs. City agencies are also directed to reduce spending on services to asylum seekers and migrants by 20 percent in fiscal years 2024 and 2025.⁸ The City is also continuing the hiring freeze, limits on other than personal services spending, overtime reduction efforts, and the freeze on City-funded new spending that were implemented as part of the November 2023 PEG.

Agency PEG Initiatives

As agencies have now completed four rounds of PEGs (excluding the January 2023 Vacancy Reduction), savings initiatives are starting to hit City services more directly. Low-hanging fruit was picked early, and it is now more challenging for agencies to find savings.  Still, City agencies should use a data driven approach to identify less- or in-effective programs and inefficient processes that can be shrunk or streamlined to reduce costs. Agency leadership should collaborate with line staff to determine how programs and services can be delivered more efficiently.

Agencies appear to be identifying more efficiencies—the share of the November 2023 PEG that is categorized as efficiencies is 16.7 percent, up from 6.8 percent, 6.7 percent, and 8.7 percent in the three prior PEG rounds (excluding the Vacancy Reduction). These efforts should be continued and strengthened. Furthermore, as agencies have had more time to prepare (the January 2024 PEG was initially mentioned in September 2023), there may be even greater efficiency savings in the January 2024 PEG.

However, given the significant opposition to some of the November 2023 PEGs, it is possible that some initiatives will be restored. Whether any restorations are “paid for” with other PEG savings remains to be seen.

Asylum Seeker and Migrant Services PEG

Spending on services for migrants and asylum seekers can be reduced either by having fewer households in shelter at any given point in time (either because of fewer entries and/or shorter stays) or by spending less per day per household. In fact, several fiscal monitors project significantly lower spending than currently budgeted because of different assumptions about per-diem costs, long-term arrival trends, and average lengths of stay. (See Table 5.) Some of these estimates are more than 20 percent below currently budgeted City spending.

The Comptroller’s Office also recently released a report recommending that contracts for migrant and asylum seeker services be competitively sourced whenever possible. After the Adams’ Administration authorized an emergency declaration on July 30, 2022, the City awarded 74 contracts totaling $1.4 billion using emergency procurement methods. Problems arising related to these contracts include insufficient vetting of prime and subcontractors to ensure that they can perform the services adequately; limited evaluation of the services performed before contract extensions are approved; and limited or reduced competition as noticing requirements are eliminated and specific vendors are invited to apply. Returning to standardized procurement practices wherever possible should increase competition and drive down the cost of providing services.⁹