City Comptroller Mark Levine warned Wednesday that the city faces at least $7.3 billion in budget pressure over this fiscal year and the next, as the City Council opened hearings on Mayor Zohran Mamdani’s preliminary budget.
In testimony before the Council’s Finance Committee, Levine praised Mamdani for presenting a budget that is more transparent than those of recent years. However, he said that clearer accounting also exposed a deeper problem: “New York City is quite simply spending more than it takes in.”
Wednesday’s hearing came as Moody’s Ratings revised New York City’s outlook to negative from stable while affirming its Aa2 issuer rating, citing “sizable and persistent projected budget gaps” that it said point to an underlying structural imbalance and reduced financial flexibility even under still-favorable economic conditions.
The rating agency said the city’s core credit strengths remain intact, including its vast and diverse economic base, strong revenue-generating capacity and established financial management practices. But it warned that the emergence of large, recurring gaps at a time of relative economic strength underscores the seriousness of the city’s budget challenges and could leave New York more exposed if growth slows or an outright downturn takes hold.
Levine’s budget warnings on Wednesday set the tone for the first major hearing on Mamdani’s fiscal 2027 preliminary budget. His $7.3 billion deficit estimate was more dire than the administration’s own recent public projection of a $5.4 billion gap over this fiscal year and the next.
Both Levine’s office and the Independent Budget Office said the administration had moved away from years of chronic underbudgeting by more fully recognizing the true cost of city programs. But both also concluded that recurring spending is now growing faster than recurring revenue.
Levine’s office said the administration closed near-term budget gaps with a combination of higher tax revenue assumptions, a proposed property tax increase, assumed state actions, reserve drawdowns and savings targets. The comptroller’s report warned that those steps increase fiscal risk by reducing the city’s flexibility if revenues weaken or the economy slows.
Menin on budget: Property tax increase ‘should not be on table’
Speaker Julie Menin, in her opening remarks, called the preliminary budget “one step toward a more honest budgeting practice” but said the administration’s plan to balance it raised serious concerns.
“A significant property tax increase should not be on the table,” Menin said. “That is non-negotiable.”
A major point of contention is the mayor’s proposed 9.5% property tax increase, from 12.283% to 13.450%. Levine argued that such an increase would worsen an already inequitable property tax system and bring the city close to its constitutional levy limit.
A report from the comptroller’s office also highlighted the decline in the city’s operating surplus used for prepayments. It said prepayments would fall from $3.79 billion in fiscal 2025 to $238 million in fiscal 2026, a 94% drop. Once the city’s planned $980 million rainy day fund drawdown is included, the report said fiscal 2026 operating expenses would exceed revenues by $4.53 billion.
The Independent Budget Office struck a similar note in testimony delivered by Director Louisa Chafee, joined by Senior Research and Strategy Officers Sarah Parker and Sarita Subramanian.
Chafee said the administration’s first budget was “noteworthy because it reverses years of underbudgeting practices by prior administrations,” and said IBO “applauds the Administration’s move to acknowledge the true cost of programs and services.”
But Chafee also said the budget is “grounded in two optimistic revenue assumptions” — stronger growth in personal and business income taxes and new property tax revenue that would require Council approval. IBO projected a $535 million gap in the current year and nearly $6 billion in 2027, with revenues growing about 2% annually through 2030 and expenditures growing about 4.5%.
IBO also said the administration is using $980 million from the rainy day fund to balance fiscal 2026 and plans to replace the money in 2028. Chafee said that “points up the need for clear rules of use of this fund.”
Rising spending pressures
Both fiscal watchdogs pointed to the same fast-growing spending pressures.
Levine said CityFHEPS rental assistance is projected by his office to reach $2.6 billion next year, while special education due process cases are expected to reach $1.5 billion. He also said the city’s education budget now totals $36.9 billion, up 31.5% since 2020 even as enrollment has fallen by about 100,000 students.
IBO likewise cited CityFHEPS and due process special education costs as major drivers of future spending. It said CityFHEPS spending has grown from under $300 million in 2021 to almost $1.3 billion in 2025 and is projected to rise to almost $3.5 billion by 2030. The office said due process case spending rose from $807 million in 2021 to $1.2 billion in 2025, with $1.6 billion budgeted in 2027 and beyond.
IBO also highlighted state mandates as a growing burden on the city. It said the city may need almost 7,000 additional teachers to comply with the state’s class-size mandate and that the administration added $3.6 billion from 2027 through 2030 for that purpose, with only $228 million expected from state aid.
The budget fight is also unfolding as Mamdani seeks more help from Albany.
On Tuesday, the state Assembly and Senate backed parts of his push for higher taxes on corporations and top earners in their one-house budget plans, though Gov. Kathy Hochul has continued to oppose broad new tax increases.
At the close of IBO’s testimony, Chafee said the office still had unresolved concerns. “IBO continues to have questions,” she said, before listing concerns about the city’s economic assumptions, corporate tax outlook, federal funding risks, child care plans, vacancies, labor costs and health insurance savings.
A day earlier, Menin and Lee released the Council’s March 2026 economic and tax revenue forecast, saying the city could identify nearly $1.7 billion in potential savings and additional revenue in fiscal 2026 without drawing down the rainy day fund. Their analysis pointed to nearly $1.4 billion from debt service adjustments, reductions in long-unfilled vacancies and additional interest earnings, and estimated $386 million more in tax revenue than the mayor’s Office of Management and Budget projected for fiscal 2026 and 2027, excluding any increase in the overall property tax rate.
Moody’s downgrade ‘a sobering wake-up call’: Levine
Meanwhile, Levine seized on Moody’s bleaker outlook for the city’s finances in a statement later Wednesday, calling it “a sobering wake-up call” and noting that it was the first negative outlook the city has received since the COVID crisis. “The fact that this is happening at a time of relative health in our local economy is all the more remarkable,” he said.
Levine said the outlook change reinforced his central warning from the hearing: that “New York City is currently spending more than it is bringing in,” and that balancing the preliminary budget by drawing down reserves only heightens the need for a more sustainable long-term plan.
He said the city now needs to focus on realistic revenue projections, sustainable spending growth, fair funding from Albany and rebuilding reserves ahead of possible economic risks next year.
