Then Mayor Michael Bloomberg reviews the Fiscal Year 2010 budget. Image Credit: Ed Reed/Mayoral Photography Office.
By Jim Caras
This month the Mayor releases his Preliminary Budget, marking the start of the City’s annual budget process for the 2026 fiscal year that begins July 1, 2025. The City Charter, in Chapter 10, requires the Mayor to propose a budget and the City Council to adopt a budget for each fiscal year. The City budget is a vitally important document that sets the City’s spending priorities by determining funding levels for various programs and functions performed by City agencies (and infrastructure projects in the Capital Budget).
It is a process that involves many steps and often a fair amount of maneuvering, such as when a mayor proposes cuts to popular programs, perhaps with the goal of focusing the City Council’s attention on restoring them rather than on new spending. Some refer to this as the “budget dance.” While it can at times look like a “dance,” this should not obscure the fact that genuine and significant policy decisions on City priorities are made during the budget process: Are trash collections going to be increased, maintained at current levels, or cut? Will the number of police officers be increased or decreased?
For all the attention that the City budget and its negotiation do receive, there is often still a great deal of misunderstanding about the budget. What follows are 15 things to know about the City budget and its adoption to become a City budget wonk:
- The City budget consists of an Expense Budget, which pays for operations of City government, and a Capital Budget, which in general funds physical infrastructure improvements and certain equipment with a long enough lifespan that State and City law have determined can be purchased “on credit” and paid for over time (e.g. roads, buildings, etc.).
- The Expense Budget, which covers a single City fiscal year from July 1 through June 30, must be balanced each year and is primarily funded by tax revenue, fines and fees and other charges, and state and federal aid. Generally, when people discuss “the City budget” they are almost always talking about the Expense Budget, which funds City operations and sets forth spending on programs for every City agency as well as spending on fixed costs such as City debt and City pension contributions.
- The Capital Budget is generally financed by the incurrence of debt, in the form of bonds issued by the City. The City’s fiscal crisis of the 1970s was largely precipitated by the payment of operating expenses through debt. Reforms ensure that only physical assets and improvements and their related costs can be financed through debt. (When people are talking about the City’s Capital Budget, they typically say “Capital Budget” to differentiate from the Expense Budget, often just referred to as “the City budget.”)
- The Fiscal 2025 Expense Budget when adopted was just under $112.5 billion, making it larger than every state budget in the U.S. except California, New York, Florida, and Texas. (The latest quarterly financial plan reflects an increase in this fiscal year’s budget to approximately $115 billion.) Roughly 75% of City expenditure is based on City revenue, while the rest comes from Federal and State aid.
- The property tax is the City’s largest single source of revenue, estimated to account for over $34 billion this year, and the City Personal Income Tax is the second largest, at approximately $17 billion.
- The Department of Education is the largest City agency in terms of dollars, accounting for almost $33 billion in funding (plus additional charges related to debt service and pensions found in other parts of the Expense Budget totaling almost another $6 billion) and the NYPD is the second largest accounting for approximately $5.8 billion (which roughly doubles when pension costs, debt service, and police overtime are added in). Together the two agencies account for almost half of the City’s expense budget.
- Following the Mayor’s submission of the Preliminary Budget on January 16, the City’s Independent Budget Office, the Borough Presidents, and the Community Boards review and comment on the Preliminary Budget. The City Council holds public hearings and this review period culminates in a City Council response to the Preliminary Budget due by April 1.
- The Executive Budget is submitted by the Mayor to the Council by April 26. The Executive Budget is the document that will form the basis of the adopted budget. After another round of review and comments and Council budget hearings, the Council uses the Executive Budget as the basis from which it makes changes in a final adopted budget, which is due by the July 1 start of the new fiscal year.
- Budget negotiations between the Mayor and Council occur from the time of the submission of the Preliminary Budget through the adoption of the final budget. But the final negotiations kick into high gear following the conclusion of the Council’s Executive Budget hearings and the issuance of the Mayor’s Revenue Estimate on May 25.
- The City’s Expense Budget generally must be balanced which means that revenues must equal expenses. The Mayor is responsible for estimating the amount of all revenues – including taxes, fines, fees, state and federal aid – other than the property tax – by May 25. The Council sets the property tax rates so that the amount raised by the property tax closes the gap between expenses and non-property tax revenues (see NYC Charter section 1516). However, the Council rarely raises the property tax rate, so the amount available to spend is generally determined by taking the amount of revenues estimated by the Mayor and adding to that the amount that would be raised by continuing the property tax at the existing rate. (The amount of property taxes tends to increase over time even without a rate increase because the value of the property against which the rate is applied increases.)
- Since 2021 the City has had a “rainy day fund.” This account currently contains approximately $2 billion, according to the City’s Office of Management and Budget (OMB) and allows for the City to save money from one fiscal year to the next (the requirements of a balanced budget would otherwise force the City to spend all its revenue in the fiscal year it was collected).
- The adopted City budget is almost always a “negotiated” budget although there is often talk of the Council “doing its own budget.” In either case the adopted budget is a series of City Council changes to the Executive Budget documents but in a negotiated budget those changes are agreed to by the Mayor. Only in 1998 did the Council adopt a non-negotiated budget and the Mayor sought to prevent this by lowering his revenue estimate to force the Council to come up with additional revenue or cut spending, and then by refusing to spend money on Council additions to the budget.
- In addition to changes to spending on agency programs and projects, the City Council adds to the City budget items in the form of “discretionary funding.” Provisions for this funding are found not in the City Charter but in the City’s procurement rules, which allow the Council to essentially line item appropriations to specific not-for-profit, community-based organizations in the budget (see NYC Procurement Policy Board Rules, 1-02(e)). While not a large percentage, this additional funding for social services organizations can total hundreds of millions of dollars annually.
- The target date for adoption of the City Budget set forth in the Charter is June 5 (NYC Charter section 254). The budget is rarely adopted by this date. It is really the June 30 end of the fiscal year that is considered the deadline for budget adoption and by which date there is almost always an adopted City Budget. (The main practical effect of not adopting a budget by June 5 is that the Department of Finance sends out first quarter property tax bills based upon the prior year’s rates and will need to amend the bills (Charter section 1516)). The Charter even contains provisions for a later budget, specifying in section 254 that if an Expense Budget is not adopted by the end of the fiscal year the appropriations in the prior year’s budget are deemed reappropriated until a budget is adopted.
- Since 1975, a State Board known as the Financial Control Board reviews the adopted City Budget, generally before the end of the summer (as well as each quarterly financial plan) and determines whether the City is in compliance with its requirements including those relating to payments of its obligations, issuance of debt, and balancing its budget. Since 2008, that Board no longer has the authority to take control of City finances for violations of these requirements, but such a determination could have serious consequences for the City in terms of its credit rating or the risk of state legislative action over the City’s control of its own finances.
One could say that because the Mayor proposes the budget and issues the non-property tax revenue estimate, that the Mayor leads the “budget dance.” Nevertheless, with its power to adopt a final budget and set the rate for the City’s largest single source of revenue (although it is loath to raise property tax rates), the City Council is a partner with significant power. This, together with the specter of a negative determination by the Financial Control Board, could explain why in the last 35 years, since the Council became responsible for adoption of the City budget, there has only been one non-negotiated budget that was eventually resolved through negotiation. Before the last day of June the two partners usually agree that they can achieve better results if they are dancing to the same tune.
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Jim Caras is an Adjunct Professor at New York Law School and Senior Fellow in its Center for New York City and State Law. Before his recent retirement from City government, he served as General Counsel to the New York City Council and Special Counsel to the Speaker. He also served as Finance Counsel to the Council and Acting Finance Director.