Overview of the FY 26 NYC Executive Budget

The Executive Budget

On May 1, 2025, Mayor Eric Adams released New York City’s balanced $115.1 billion FY 26 Executive Budget, with projected gaps of $4.6 billion in FY 27; $5.8 billion in FY 28, and $5.7 billion in FY 29. Following that, City Charter Section 1515 gives the mayor discretion to change the FY 26 estimates for all revenues (including federal and state grants) up to May 25, 2025, in a communication to the City Council. Subsequently, the FY 26 revenue estimate can be amended with a message of fiscal necessity to the Council delineating the reasons for the change. Through May and June, the Council and the Mayor negotiate adjustments to the Executive Budget, resulting in an agreement known as the Adopted Budget. This agreement must be reached before July 1, the beginning of the next fiscal year.

It should be noted that the Executive Budget, which Mayor Adams released earlier this month, is predicated on economic conditions as well as federal fiscal and trade policy known prior to April 2025. [1] The unprecedented federal trade policy announced in April 2025 and the subsequent impact on financial markets poses a potential impact to the city’s economy as well as its tax base. Therefore, the outlook may be updated in the upcoming Adopted Budget.

Revenue Sources

New York City’s budget is funded through a mix of local taxes, non-tax revenue, and state and federal grants. Non-tax revenue comes from sources like permits, licenses, and fees. State and federal categorical grants provide additional funding for specific programs and services. The budget’s local tax revenue sources include the following:

(i)     Property tax;

(ii)    Personal Income Tax;

(iii)   Business income taxes, which include taxes on both corporations and unincorporated businesses;

(iv)   Sales tax; and

(v)   Real estate transaction taxes, which include both the Real Property Transfer Tax and the Mortgage Recording Tax.

Personal and business income tax revenues are sensitive to both economic and financial market downturns. Lost jobs and lower bonuses or incentive pay result in lower taxable incomes. Meanwhile, lowered capital gains from asset sales and diminished business income for sole proprietors, partnerships, and other pass-through entities, further erode income tax collections. Declines in the financial sector’s profitability have a disproportionate impact on the city’s business income tax collections, due to the significant share of the financial sector in the city’s economy.

Sales tax and real estate transaction taxes fall because of declining incomes from wages, capital gains, and business income. Additionally, investment in commercial real estate is dependent on overall business conditions, including policy uncertainty, and asset prices.

Chart 1 below shows the break-out of business income tax collection by entity type, including flow-through entities and corporations.

Chart 1: Business income tax liability by entity type ($ billion)

Business Income Taxes

In recent years, the growth of city taxes on business income has outpaced the growth of other local tax revenue sources. Since FY 19, business income taxes (inclusive of tax audits) have increased by more than 50%, whereas all other tax revenues combined grew by 17%. In FY 24, business income taxes represented 14.1% of all city tax revenues, 3 percentage points higher than in FY 19 and the highest share since FY 13.

New York City has a complex system of business income taxes, which are administered by the city’s Department of Finance (DOF) and include the following:

(i)   Business Corporation Tax (BCT) which applies to C-corporations;

(ii)  Banking Corporation Tax (BTX) which applies to banks that are also S-corporations;

(iii) General Corporation Tax (GCT) which applies to S-corporations;

(iv) Unincorporated Business Tax (UBT) which applies to sole proprietors (IRS Schedule C businesses) and unincorporated entities (partnerships and LLCs); and

(v)   Pass-Through Entity Tax (PTET) which is an optional tax on pass-through entities (specifically, S-corporations and partnerships) created in 2022 to circumvent the $10,000 cap on the state and local tax deduction from federal taxable income for individuals.

Chart 2 below shows the combined BCT, BTX, and GCT revenues for FY 2000 through FY 2024.

Chart 2: BCT, BTX, and GCT Revenues ($ billion)

Chart 3 below shows the UBT revenues for FY 2000 through FY 2024.

Chart 3: UBT Revenues ($ billion)

Impact of US Policy Changes

According to US Treasury Secretary Scott Bessent, tariffs, tax cuts, and deregulation are the “core components” of President’s Trumps economic agenda. [3] These three components, which are creating short-term turbulence, are supposed to work together to drive long-term investment and growth to the US economy. The Treasury chief said that the US markets are “anti-fragile” and well equipped to weather any short-term turbulence, citing the rebound from the Great Depression, two World Wars, the September 11 attacks, the 2008 – 2009 global financial crisis, and the COVID-19 pandemic.

As noted in the New York City Comptroller’s report entitled “Taking Trump’s Tariffs Seriously: The Fiscal and Economic Impact for NYC,” [4] tariffs are expected to have an indirect impact on the city’s business income taxes through their impact on GDP, consumption, and overall profit margins. The city’s economy is unlikely to benefit from onshoring of manufacturing activities or to be hurt directly by retaliatory tariffs, because exports are not sourced to New York City. Tariff-induced price increases may temporarily help sales tax collections, but declining consumer spending as a result of reduced employment and wage growth, combined with lower demand for goods due to higher prices, could have a stronger impact and reduce sales tax collections.

Federal tax policy will be a major focus of attention in 2025, mainly due to the extension of expiring individual tax provisions. At this time, proposals concerning the corporation tax appear to have a limited impact on the city’s business income taxes.

Deregulation could impact the financial and technology sectors through lower capital requirements and a wave of mergers and acquisitions and initial public offerings. Reports from recently released 2024 Q4 earnings of large banks signal high expectations for 2025, including for dividends and buybacks. If these expectations were to be realized, there would also be positive repercussions on personal income taxes.

It is worth noting that this is not a full evaluation of President Trump Administration’s economic policies. The slashing of federal government capacity and funding impacts the state and city budgets, the private sector, health and education institutions, and the providers of health and social services in ways that are not directly captured in this analysis. Immigration policies can drive population losses in New York City and could remove tens of thousands of workers from the labor market. The federal budget is also a source of uncertainty as the House and the Senate have just started the committee work that will lead to a final agreement.

Similar to families and businesses, the city is facing great uncertainty as it approaches the final stages of its budget process for FY 26. The Comptroller’s Office estimates suggest that the impacts of a recession on tax revenues, while possibly less severe than in the past, could be significant. As tax revenues for the rest of FY 25 appear to be on track to exceed budget expectations, the city should not waste the opportunity to deposit resources in its “rainy-day” fund to shore up finances in FY 26 and beyond. In addition, as previously proposed in the Comptroller’s report on the city’s Preliminary Budget, $1,0 billion should be added to the city’s general reserve fund in FY 26, to help protect New Yorkers from the broader fiscal uncertainties stemming from President Trump Administration’s funding cuts and immigration policies.

Sources:

[1] “Mayor Adams Releases “Best Budget Ever,” City of New York, Office of the Mayor / News, May 1, 2025.

[2] The Budget Process, New York City Council at https://council.nyc.gov/budget/process

[3] “Trump's tariffs, tax cuts, deregulation will drive US growth, investment, Bessent says” by David Lawder; Reuters, May 5, 2025.

[4] “Taking Trump’s Tariffs Seriously: The Fiscal and Economic Impact for NYC,” Office of the New York City Comptroller Brad Lander, April 16, 2025.