(co-authored with Benjamin Weiser)

The past 5 weeks have been painful to observe and experience. The Trump Administration has, in rapid fire fashion, moved to pause and condition federal funding, reduce the federal workforce, impose tariffs on trading partners and defy judicial orders. On Tuesday, the House passed a budget resolution that would continue tax policies enacted in 2017 (at a cost of roughly $4 trillion over the next 10 years) while reducing federal spending by $2 trillion over the next decade, with Medicaid and Supplemental Nutrition Assistance Program (SNAP) being the primary targets.

We are in uncharted and uncertain territory. The implications of these multiple moves, and others that emerge on a daily if not hourly basis, are to remind us of the invisible but fundamental role that the federal government plays in the life of tens of millions of households and thousands of cities and counties. Unless they are thwarted and countered, these moves will trigger a shift of responsibility for a broad array of domestic challenges downward to states and localities.

Devolution is not new or novel, but this time it is of a different order of magnitude. During his first year in office, Reagan “engineered the passage of $39 billion in budget cuts”; accounting for inflation, that’s about $140 billion today. Over the course of his administration, the Cato Institute estimated that Reagan “shrank the federal government by about 5 percent” based on revenue and expenditures as a share of GDP. The 1997 bipartisan budget agreement spurred by the Gingrich revolution cut total spending (discretionary and mandatory) by more than $300 billion over a five year period; about $590 billion in today’s dollars. This Administration and the Congressional majority are talking in the trillions – simply put, there is no precedent.

It is paramount that cities, counties, metropolitan areas and states get organized. A recent newsletter recommended that the first order of business for state and local governments is to understand their fiscal exposure by conducting a Stress Test. We are in the process of teasing out what a standard Stress Test for localities might look like, so that it can be used by communities throughout the country. As a start, we are inspired by analyses undertaken and tools created by the Office of the Comptroller in New York City, an elected position currently held by Brad Lander.

Looking to New York City

In November, a week after the election, the Comptroller’s Office published a seminal report entitled “Protecting New York City”, a “sound the alarms” document which looked to “assess the risks posed by the Trump Administration to New York City’s budget, economy, infrastructure, and people.” In December, the Comptroller’s Office issued a more detailed analysis of the myriad of federal transfers, programs and incentives that flow to people, the city government and affiliated entities.

Since then, the Comptroller’s Office has continued to be a national leader in calling out budget claw-backs (e.g., FEMA’s decision in early February, now the subject of a lawsuit, to revoke $80 million in payments to NYC to house and assist migrants) as well as creating transparent tools to enable residents to understand what is at risk.

Together, these analyses and tools begin to create a roadmap for a Municipal (or County or Metropolitan) Stress Test, that can be repeated across the country. Comptroller Lander’s signature achievement is to show how arcane budget categories used by the federal government (e.g., “mandatory” and “discretionary” expenditures) translate to the operations of city government and the tangible impact that federal programs and resources have on city residents, institutions and critical services.

The Comptroller’s analysis dispassionately categorizes federal spending to estimate the monumental risks that a scale back poses for NYC. The numbers are supersized. In total, the federal government provides more than $100 billion annually to NYC.

We acknowledge that NYC is a bit of an outlier, given its size and the fact that the city government performs both city and county functions. We are, however, impressed by the way Comptroller Lander’s office has assessed the current state of federal spending and believe that it can be easily adapted by other communities.

To that end, the NYC analysis is highly instructive. It divides federal spending into five main categories: entitlement spending, federal programs delivered through city government, federal funding delivered by affiliated entities, federal disaster aid, and the federal workforce. Every community in the nation can do a similar calculation and assess their distinct exposure.

Entitlement Spending

The federal government is the principal source of funding for the social safety net, the array of retirement, health care and income supplements that make our society civil and caring.

The numbers are large and the economic and social benefits of these transfers are varied. As the December Comptroller report found:

“Many New Yorkers receive federal benefits which in aggregate total nearly $33 billion, including Social Security and Supplemental Security Income and the Supplemental Nutrition Assistance Program. Federal support of healthcare coverage totals approximately $54 billion through Medicare, Medicaid, and the Affordable Care Act.”

People with real needs are served by these numbers. For example, Lander’s analysis of publicly available data from the Social Security Administration notes that, in December 2023, 1.3 million individuals receive Social Security benefits totaling $2.1 billion, or $25.2 billion annually. That same month, 335,000 people received a total of $229 million in Supplemental Security Income. The SNAP program serves 1.8 million residents (including 560,000 children).

Federal Programs Delivered by City Government

Many city and county governments administer critical federal programs. New York City’s FY 2025 November Budget includes $7.92 billion in federal grants, approximately 7% of the total. These resources provide a range of critical services and are delivered by an array of city agencies.

As the December report describes:

Over 80% of funding flows to just 5 agencies. The Department of Education receives the largest amount of federal non-emergency funding of any City agency, with $1.97 billion. Social service agencies: the Department of Social Services, the Administration for Children’s Services and the Department of Homeless Services, receive just over half of the City’s non-emergency federal funding, [$1.88 billion, $1.57 billion and $625 million respectively]. The Department of Housing Preservation and Development budget reflects $673 million, which does not include the Community Development Block Grant funding that is allocated to the mayor’s office.

The share of federal funding as a proportion of overall agency spending varies.

While the Department of Education’s federal revenue budget is the largest in magnitude, only 6% of its expenditure is federal funding. The budget of the Administration for Children’s Services, by contrast, is 50% federally funded. The Department of Housing Preservation and Development also receives over half of its funding from the federal government.

Beyond its year-to-year operating budget, the city government also receives federal funding to undertake longer-term capital infrastructure projects. The city government’s September 2024 Capital Commitment Plan (FY 2025 to FY 2028) includes $2.56 billion in federal funding, with $941 million anticipated in FY 2025 alone. The highest level of capital support is for Department of Transportation projects ($728 million through FY 2028), and for the Department of Parks and Recreation ($290 million, also through FY 2028).

Federal Funding Delivered by Affiliated Entities

Funding delivered by city government represents only a portion of the overall federal support for New York City. Significant federal funding also flows to other public entities, non-profit organizations and health care providers. For example, the federal government provides $5.5 billion to other public entities: including the NYC Housing Authority (NYCHA), City University of New York (CUNY), and NYC Health + Hospitals.

As with entitlement funding, it is worth putting a face on these numbers.

The New York City Housing Authority (NYCHA), the largest public housing authority in the country, currently serves over 520,000 low- and moderate-income residents across over 300 developments. Incredibly, NYCHA is home to approximately 1 in 17 New Yorkers. NYCHA also administers the largest housing choice voucher program in the U.S., with over 104,000 households renting private apartments with federal assistance.

CUNY, for its part, receives an estimated $1.1 billion in federal funding largely in the form of financial aid funding (Pell Grant funding and Direct Student Loans). 50% of CUNY students are from households that earn less than $30,000 per year, warranting this financial aid.

Two other major public authorities, the Metropolitan Transportation Authority (MTA) and the Port Authority of New York and New Jersey also receive significant capital infrastructure funding. For example, federal funding for the MTA’s 2020-2024 Capital Plan is estimated at $13.1 billion. This capital funding doesn’t include, of course, the revenues that would be raised via congestion pricing, which the Trump Administration is seeking to end.

Federal disaster aid

New York City experienced 5 disasters between 2011-2023, which resulted in $10.3 billion in recovery funding to the city. Without federal capital interventions to support these investments, the long-term aftermath of natural disasters would look very different, particularly given the state of private insurance markets.

Federal Workforce

Over 46,000 federal employees worked in New York City as of September 2024. Their total wages in 2023 amounted to $4.7 billion. The planned federal reductions in force will have multiplier effects that ripple through the local economy.

Closing Thoughts

The NYC Comptroller’s timely and thorough analysis deserves widespread coverage and repetition.

The analysis will need some tweaking as it is conducted across the country. As we note above, NYC’s government combines both city and county functions. In most parts of the country, municipal and county stress tests will ideally need to be conducted together.

The Comptroller’s analysis is also not comprehensive. Direct federal procurement (i.e., the purchase of goods and services) is not highlighted in the analysis. Such procurement is particularly large in communities with military bases and defense research and manufacturing hubs and will need to be part of local stress tests.

The effect of federal tax incentives also needs more focus, particularly as Congress considers the extension of the Tax Cuts and Jobs Act of 2017.

We further assume that NYC’s categorization of federal spending may evolve as Municipal and County Stress Tests get performed and routinized. Practice will make perfect.

As Stress Tests get repeated, lessons about the uniform and distinctive impacts of federal spending in different parts of the country will emerge. Entitlement spending, as the term suggests, will affect all communities, although the impact will vary by region. As the defense examples indicate above, cities with large federal facilities and installation (e.g., National Energy Labs) may be particularly vulnerable to funding shocks.

For now, let’s appreciate the service that Comptroller Lander and his team have performed. The Trump administration promised radical change, and it is here. Federal retrenchment is no longer hypothetical; it’s a harsh reality.

It is now incumbent upon every city, county, and state government to understand the current state of federal spending and the risks associated with scaling back programs, services and workers.

At the federal level, some may ignore the consequence of spending cuts; localities do not have that luxury.

Ignorance today is not bliss; it’s just ignorance.