We’re seeing a lot of headlines and finger pointing about NYC’s budget crisis. Here’s a clear-eyed breakdown I wrote of what’s actually happening and why, and what we can do about it.
New York City is currently staring down a projected budget gap of $12.6 billion over the next two fiscal years ($2.2 billion for 2026 and $10.4 billion for 2027). While headlines often focus on political blame, the math behind this crisis is driven by three specific, documented factors:
1. The “Funding Cliff”
During the pandemic, the city received billions in one-time federal aid. This money was used to launch or expand recurring programs, such as 3-K, mental health services, and summer youth employment. Now that the federal funds have dried up, the city must either find its own tax revenue to pay for them or shut the programs down. This “cliff” accounts for roughly $700 million to $1 billion in new annual costs.
2. Chronic Underbudgeting
Non-partisan watchdogs like the IBO have flagged a trend of “underbudgeting” known expenses. This occurs when the city’s budget lists a cost (like police overtime or housing vouchers) far below what history suggests will actually be spent.
- The Reality: In FY 2026 alone, unbudgeted costs for rental assistance (CityFHEPS), uniformed overtime (NYPD/FDNY), and special education legal cases are projected to create a $3.8 billion hole that wasn’t fully accounted for in initial plans.
3. State Mandates
New York State laws often require the city to spend more without providing the full funding to cover it. The most significant example is the Class Size Mandate, which requires smaller classes in NYC schools. The IBO estimates this will cost the city an additional $700 million to $1.6 billion annually by 2027.
What Can Be Done? (Mamdani & Levine’s Path Forward)
Mayor Zohran Mamdani and Comptroller Mark Levine are now tasked with closing this gap. Here is what they are proposing (or could do) to mitigate the crisis in both the short and long term:
Short-Term Fixes (Closing the 2026 Gap)
- Targeted Efficiency (PEGs): The Mayor can implement a Program to Eliminate the Gap (PEG). Rather than across-the-board cuts, this targets “administrative efficiencies”—like consolidating back-office functions or reducing the $1 billion spent annually on vacant positions that haven’t been filled in years.
- Re-evaluating the “Rainy Day Fund”: The city currently has billions in reserves. While monitors warn against using these for recurring costs, a one-time draw could prevent immediate, “destabilizing” service cuts while more permanent solutions are negotiated.
- Revenue Generation: Mayor Mamdani has proposed taxing the city’s highest earners and most profitable corporations. This would require state approval and is a central part of his strategy to avoid “austerity” cuts to services.
Long-Term Solutions (Stabilizing the 2027+ Gaps)
Healthcare Savings: The Citizens Budget Commission (CBC) has suggested that rebidding the city’s massive health insurance contracts for employees could save upwards of $1 billion annually without reducing benefits, by leveraging the city’s massive size to get better rates.
Budgetary Transparency: Comptroller Levine has pushed for a “Truth in Budgeting” approach. This means accurately budgeting for overtime and housing vouchers from day one, rather than pretending the costs will be lower. This prevents mid-year “surprises” and allows for more honest long-term planning.
State Level Negotiation: The city is currently pushing Albany to foot more of the bill for the Class Size Mandate and to increase the city’s share of state tax revenue. (Currently, NYC provides over 50% of state revenue but receives back much less in aid).
For further reading and raw data, visit these non-partisan resources:
- The NYC Independent Budget Office (IBO): An independent city agency that provides non-partisan analysis of the city’s budget and economy.
- The Citizens Budget Commission (CBC): A non-profit civic watchdog dedicated to constructive change in the finances and operations of New York City and State.
- Office of the NYC Comptroller – Budget Reports: For detailed monthly economic outlooks and audits of city spending.
- The New York State Comptroller’s NYC Oversight: For state-level reviews of the city’s financial health and long-term risks.
Christa Avampato 