Rising costs of food, rent and other essential goods could spur a recession that will hurt New York City’s finances – and the poorest New Yorkers – for years to come, according to state and city officials.
At a meeting of the New York State Financial Control Board on Tuesday, budget experts laid out grim realities for the city’s financial future, driven by record levels of local inflation, Manhattan office vacancies, expiring federal funding for COVID-19 aid and waning profits on Wall Street, one of the main engines for the city’s tax revenue.
In one of the most foreboding fiscal projections, state comptroller Thomas DiNapoli estimated the city could face a nearly $10 billion budget shortfall in fiscal year 2026.
The remarks were the starkest reminder yet of the risks facing Mayor Eric Adams in his first term in office as he attempts to navigate the city through what has been a prolonged and uneven financial recovery amid the pandemic.
Although recent data has led some economists to believe that inflation has peaked and will begin to decline, the possibility that prices remain high could lead the Federal Reserve to continue raising interest rates – which makes borrowing more expensive – to rein in inflation. That would increase the likelihood of a recession, in which businesses reduce spending and most importantly, hiring.
“We have to be clear we are entering uncertain waters,” Adams said.
The mayor billed his first budget – a $101 billion spending plan that has been overshadowed by controversial school cuts – as fiscally responsible in light of the uncertainties. Aided by better-than-anticipated tax revenues driven by a good year for Wall Street, city officials set aside nearly $2 billion into the city’s reserve fund.
Tuesday’s meeting, which was chaired by Gov. Kathy Hochul, marked the mayor’s first appearance before the state board charged with reviewing the city’s finances. It included testimony from DiNapoli, City Comptroller Brad Lander and the Financial Control Board's deputy director, Michelle McManus.
Adams conceded that the “uncertainties are real,” but he also said the partnership between himself and Hochul would mean the city and state would have a united approach to financial challenges.
“If we're not together, then New Yorkers are going to be impacted,” he said.
His remarks are a stark departure from the relationship between his predecessor, former Mayor Bill de Blasio, and ex-Gov. Andrew Cuomo, who were at odds on a variety of issues.
James Parrott, the director of economic and fiscal policies at the Center for New York City Affairs at the New School, said budget officials were doing their job by laying out the risks facing the city. But he said the next few months of data would provide experts with more clarity about what truly lies ahead.
I think it’s far from certain that we are headed into a recession
“I think it’s far from certain that we are headed into a recession,” he said. “If we’re not, it might just be a period of slower but positive economic and employment growth.”
“Things could work out to be not so dire,” he added.
At a national level, job growth has continued to be strong. Parrott estimated that New York City has regained 83% of jobs lost during the pandemic.
According to Adams, the city expects to fully recover those jobs in the next two years.
But the disparity in the labor market has continued to trouble many experts, including Parrott, who has urged the administration to invest in more workforce development programs targeting both communities of color as well as younger New Yorkers who have struggled to find jobs.
During his testimony, Lander said the unemployment rate for Black New Yorkers remains at 10% — three times higher than the national average.
The city comptroller suggested that tougher economic times would pose a key test for Adams, who said he would prioritize equity during his mayoral campaign.
“How do we live up to the commitment that we made to address inequalities in the labor force that we saw during the pandemic even as we face all these challenges?” he said.