Hochul’s No-tax-hike Stance Gets An Unexpected Boost From Mamdani

ALBANY, New York — Just weeks after warning of a fiscal crisis “greater than the Great Recession,” Mayor Zohran Mamdani arrived in Albany with better news: The city’s budget shortfall is billions of dollars smaller than he thought.

The disclosure reinforced Gov. Kathy Hochul’s opposition to raising taxes on the rich, potentially helping her escape a contentious policy fight in a critical election year. But it didn’t stop the democratic socialist from making the same case he’s been making since launching his long-shot mayoral bid.

Testifying before lawmakers during Albany’s annual “Tin Cup Day,” Mamdani and his team said the city’s deficit had shrunk by roughly $5 billion, thanks to better-than-expected Wall Street revenue, improved tax collections, city reserves and unspecified cost savings.

The mayor, who took office six weeks ago, testified that he still needs Albany to enact tax increases on wealthy people and large corporations because the city needs a permanent new revenue stream. He continued to defend his push to raise taxes this year given “the scope and the scale” of the city’s ongoing challenges.

“We’ve made some meaningful progress towards shrinking the gap,” he told lawmakers. “However, New York City is still placed on a ledge. The most responsible way off is with dedicated, recurring revenue that can provide the services New Yorkers deserve.”

But the improved outlook for the city’s budget undercuts his tax-hike push, which needs approval from Albany and the state’s reluctant governor.

“No one should look at the lowering of the deficit and think we’re out of the woods,” said Andrew Rein, president of the fiscally hawkish Citizens Budget Commission.

The mayor, Rein contended, should start with disclosing a thorough accounting of the savings he can secure on the city level before he continues to press the state for tax hikes.

Hochul, a moderate Democrat who Mamdani endorsed last week for a second full term, has been steadfastly opposed to increasing taxes while she runs for reelection.

For months, the governor has tried to defuse the debate over new taxes. She has been booed by Mamdani’s left-flank supporters trying to pressure her to back tax increases. Unveiling her $260 billion state budget plan in January, Hochul did not include any broad-based changes to levies, insisting instead that the existing rates are “progressive.”

The governor has forged an alliance with the left-leaning mayor despite their differences over Israel, public safety and taxes. Their shared goal of expanding free child care in New York led to one of Mamdani’s earliest victories after taking office Jan. 1. They have also bonded over making it easier to build housing in perpetually crowded and highly regulated New York City.

Yet a heated fight over taxes has loomed over the two Democrats — a battle that is as much about funding the new mayor’s agenda in the long term as it is a philosophical duel. Hochul has insisted she doesn’t want to raise taxes without a clear purpose.

And for Mamdani’s political allies, the smaller budget gap won’t end their effort to press for an increase.

“A gap still exists,” said Working Families Party Co-Chair Jasmine Gripper. “They have two options: They can either balance the budgets on children and families or they can balance the budget on the backs of the rich who got a tax cut from Donald Trump.”

While improved tax revenues are a welcome sign for any budget-maker, Mamdani’s deficit lowering maneuver is rooted in other sources as well.

Sherif Soliman, Mamdani’s budget director, told POLITICO after the hearing that the deficit decrease is also driven by City Hall tapping $1.45 billion in municipal reserves. That allocation would effectively deplete the reserves held in place for the current fiscal year, Soliman said, though he noted other contingency funds remain at the mayor’s disposal.

Dean Fuleihan, Mamdani’s first deputy mayor, said in his testimony that leaning on the city’s reserves to balance the budget isn’t sustainable in the long-term.

"We need a sustainable revenue source," Fuleihan said in a nod to the mayor’s proposed tax increases. "That's clearly been the whole argument that we have presented.”

The governor's office is sticking to the no-tax-hike position.

“Governor Hochul has been clear, she will continue to work with Mayor Mamdani to find ways to support New York City and deliver on their shared affordability agenda,” Hochul spokesperson Jen Goodman said.

Hiking taxes carries significant economic risks.

Wealthy New Yorkers pay among the highest taxes in the country behind California and Hawaii. More than 40 percent of the state government’s revenue comes from a small number of very rich taxpayers. If they leave, New York’s finances would take a hit.

During his testimony, Mamdani insisted it was middle and low-income New Yorkers who can no longer afford to live in the city. Long Island Democratic state Sen. Monica Martinez pointedly disagreed.

“For you to say that someone would not leave when we’re seeing some exodus is a little disingenuous — because we are seeing it,” she said.

The concern is bipartisan. Republican state Sen. Tom O’Mara pointed to the potential impact on the city’s financial sector and the growth of the securities industry in low-tax states like Texas.

“The lack of concern over the financial industry is very concerning to me, especially since it makes up such a huge portion of the state and city’s revenues,” he said.

Mamdani was in Albany to take part in the annual local government budget hearing — known as Tin Cup Day in state government parlance. The hotseat questioning is typically a humbling moment for any Gotham mayor who, despite leading the nation’s largest city, must come to this small Hudson River city 150 miles north of Manhattan to ask state lawmakers for help enacting their agenda.

Mamdani is not a stranger to Albany, having served in the state Assembly for five years. He received a warm reception from lawmakers, including a handful of Republicans, during the four and a half hour-long testimony and questions.

And while he was grilled on his proposed no-cost bus service proposal, antisemitic incidents and the outdoor deaths of 18 people who perished during an extended cold snap, his budget gap update reverberated the most.

Mamdani’s brighter budget outlook on Wednesday came weeks after he provided a more gloomy assessment of the city’s finances. His office had projected a $12.6 billion gap and the mayor blamed his predecessor, Eric Adams, as well as his chief 2025 foe, Andrew Cuomo for hurting the city while serving as the state’s governor. Mamdani spoke about the city budget in nearly apocalyptic terms at the time, suggesting the gap was a massive challenge worse than the 2008 financial crisis.

While blaming Cuomo and Adams was still on display during his Albany sojourn, the mayor acknowledged the more modest gap improved things for the city.

To that end, Mamdani also called for a reset in the relationship between Albany and the nation’s most prosperous city.

The city, he told lawmakers, has for decades gotten a raw deal from the state by being allocated less than 50 percent of its total budget despite providing nearly 60 percent of its revenues.

As Mamdani decried the state government’s “extraction” of cash from the five boroughs, lawmakers signaled they are open to reviving a dormant program that provided direct aid to City Hall.

“I look forward to something different: a productive relationship with Gov. Hochul, and a collaborative relationship with the Legislature,” the mayor said.