State and Federal Education Policy Changes Weigh Heavily on New York City’s Education System
Last week, the Trump administration released an executive order announcing the elimination of the U.S. Department of Education. Sixty percent of Americans oppose this action, which cannot in fact be accomplished by executive order, and which, if carried out, will disproportionately harm the most vulnerable students, including those with special needs or living in poverty.
While the battle about the future of the federal Department of Education will likely take time to play out in Congress and the courts, the adoption of New York State’s budget for the fiscal year beginning April 1st will also have significant repercussions for New York City’s Department of Education (DOE) and public education for the approximately one million children enrolled in its schools (3-K to 12th grade). In this Economic Update, we describe how federal and State education policy actions will impact the City’s public school funding in the near term.
The City’s DOE Budget is Primarily Funded by the City and State
While the City’s DOE receives more federal funding than any other City agency, it is primarily funded by City and State revenue. Figure 1 shows the share of the DOE budget funded by the federal, State, and City government. With the exception of the pandemic period, when additional funds to states and local governments provided a lifeline, federal funding has averaged only about seven percent of the DOE’s annual budgets since 2017.
City revenue has always been the largest source of DOE funding, with the State historically a close second. However, as Figure 1 illustrates, State contributions towards the DOE have been declining in recent years. This trend began under Governor Andrew Cuomo and has continued under Governor Kathy Hochul. This has required the City and all other local school districts, which have fewer revenue sources than the State, to pick up the tab. The Mayor’s preliminary budget for City Fiscal Year 2026, which begins July 1st, expects the State’s share of City DOE funding to reach an all-time low of 40 percent and the City’s share to reach an all-time high of 53 percent. This reflects, in part, the City’s decision to continue pay for programs previously funded with emergency federal stimulus dollars during the Covid-19 pandemic.
Foundation Aid Formula Changes
The governor and State Legislature are wrapping up negotiations on the State’s FY2026 budget over the next week. This will likely include a change to the complex Foundation Aid formula, which is used to determine how much of the State’s annual education budget (a proposed $37.4 billion in FY2026) is allocated to each school district in the state. (For this purpose, the City DOE is considered a single school district.) If the State decides to finalize a new Foundation Aid formula in this year’s budget, school districts across the state will experience a change from the status quo funding they’ve relied on for years.
If enacted, the Governor’s proposed changes to the formula would result in the City losing $347 million in State education funding in FY2026. The State Assembly and Senate have counter-proposed measures that would somewhat soften this blow. The New York City Council and other advocates across the state have also weighed in with their opinions of how to equitably amend the formula and protect the most vulnerable students.
A loss of $347 million may seem a small factor in the City’s $33.5 billion proposed DOE budget for City FY2026. It will, nevertheless, further complicate the City’s education mission, especially in light of a State-imposed responsibility to also reduce class size citywide.
Class Size Reduction Mandate
The State’s Class Size Reduction Mandate (CSRM) became law in 2022. It put the City, but no other school district in New York State, on a five-year track to reduce class sizes. All City classrooms must be capped at 20 students (from kindergarten to 3rd grade), 23 students (4th grade to 8th grade) and 25 students (high school) by September 2028. The city is required to make annual progress towards the CSRM. For example, for the school year starting September 2025, 60 percent of classrooms are required to meet these caps.
The CSRM poses two principal challenges. First, the State has provided no additional funding to meet this mandate. The City’s Independent Budget Office (IBO) has estimated that about 17,700 additional teachers would have to be hired to ensure the City meet full compliance with the CSRM by September 2028. To meet the September 2026 CSRM benchmark, $374.2 million is needed in the City’s FY2026 budget, and the Mayor’s Preliminary Budget for FY2026 is $168 million shy of that figure. City Comptroller Brad Lander estimates an additional $1.24 billion in annual funding will be required to reach full compliance by September 2028. Since June 2024, Lander has been sounding the alarm to Governor Hochul that the City’s education budget alone does not allow the City to make progress on class size reduction mandated by law, this year and beyond.
The second CSRM challenge follows from the first. Non-compliance with the annual targets included in the CSRM mandate jeopardizes the funding the City receives from the State. In fact, if the City is unable to meet its target in a given year (as Lander anticipates for the school year starting September 2026), the CSRM authorizes the State to withhold a portion of the City’s education funding in a subsequent budget. (The portion in question is called “Contract for Excellence” funding, and is part of State Foundation Aid.) This could amount to a budget cut of approximately $803 million, which is the amount this City received from this funding stream in the State FY2025 budget.
Trump’s Potential Impact on the City’s Public Schools
The City is dependent on the federal government for over $2 billion of its annual education budget. About half of this funding is administered by the federal Department of Education, while the rest comes from programs administered by other federal agencies.
Funds that are directly administered by the federal Department of Education that could be most immediately impacted by a shutdown of this agency include Every Student Succeeds ACT (ESSA) and Individuals with Disabilities Education Act (IDEA) funding. Together they amount to an expected $1.14 billion annually.
ESSA Title 1 funding is distributed to schools serving a large number of low-income students. Seventy-four percent of the City’s public school students live in poverty. Therefore, the City is counting on $685.9 million in ESSA Title 1 funding for the City’s FY2026 budget. In FY2025, the City received an additional $171.5 million in ESSA funding for various initiatives, including to support English Language Learners, and the City is counting on similar funding levels for FY2026. Twenty-two percent of public school students have special needs, so the City also expects to receive $291 million of IDEA funding to support students with disabilities for FY2026.
Actions by the Trump administration over the last two months, as well as the “Project 2025” blueprint that appears to be guiding the administration, demonstrate that the Trump administration may try a variety of strategies to disrupt these steady levels of ESSA and IDEA funding, tied to metrics on student need. If the past two months provide any insight, disruption could include pauses or delays in sending federal funds, refusal to deliver funds already allocated to the City, or clawing back of funds already deposited in the City’s coffers. The City may need to quickly adjust its expectation related to the $1.14 billion combined ESSA and IDEA funding for the City’s FY2026 budget.
The City’s DOE budget also includes funding from a variety of other federal agencies. Funding for the school food program, while administered by the federal Department of Education, comes from the U.S. Department of Agriculture. In FY2025, the City received $588 million for this program. The City’s DOE also receives funds annually from several U.S. Department of Health and Human Services programs. These include the $196 million in federal funding through the Child Care Development Block Grant (CCDBG) and for HeadStart in FY2025, which it uses to support EarlyLearn, 3-K, Pre-K and Head Start programs around the city. The DOE also relies on $81 million in Medicaid funding to support students with disabilities. While none of these funding sources are immediately under threat from Trump’s attempts to eliminate the federal Department of Education, all of these funding sources have been identified for cuts by the Trump administration.
Combined Impact of Federal and State Education Policy Changes
The City faces actual and theoretical education funding shortfalls in both the current State budget negotiations and from the Trump administration. If any of these are enacted, they will put pressure on the City to maintain equitable programs and services for students and meet City and State standards.
Given already insufficient funding to achieve the CSRM mandate, State and federal funding cuts for the City’s public schools could lead to future State “Contract for Excellence” funding cuts. With all of the federal uncertainty on the horizon, the State should therefore either delay the CSRM or provide the City with implementation funding. This will make the impact of any Foundation Aid formula changes easier for the City to plan for.
Given the relatively small contribution federal funds make to the City education budgeting and the discretion with which the City can spend most State education funding, it is unlikely that the loss of federal or state funding will lead to the immediate elimination of specific programs or the closure of a particular school. Instead, the City will need to figure out how to move its own revenue around within its education budget to fill gaps and maintain education services in the short-term.
In preparation, the City should consider new revenue-generating policy proposals to replace what will be lost. If the City is put in a position where it must cut DOE programs and services, such cuts will have a real impact on children’s educational and health outcomes, job growth and decline in the education sector, and the short- and long-term growth of the City’s economy.