Mayor Mamdani’s Budget Gamble

NEW YORK — The New York City budget team has a reputation as staid, inscrutable stewards of the municipal purse. Mayor Zohran Mamdani is changing that.

Faced with a challenging fiscal landscape, the young democratic socialist is tossing aside some of the office’s most reliable safety cushions — normally reserved for economic downturns or major emergencies — in the name of avoiding service cuts and shaking down New York Gov. Kathy Hochul.

In doing so, he’s assuming risk in ways not seen in recent memory: Mamdani’s office has already planned to spend significant cash reserves. He is threatening to increase property taxes by enough to put the city closer to a constitutional limit. And most tellingly, the mayor is dispensing with conservative tax revenue forecasts — a departure from his predecessors that gives him more money on paper but upends a longstanding tradition that has functioned as a de facto safety net.

Municipal finance data shows that, as it now stands, the mayor’s budget pencils out only if the financial sector has another banner year — an outcome both uncertain and ironic, given the industry’s jaundiced eye toward Mamdani and his political brand.

“In some ways, the success of his mayoralty rests on the success of Wall Street,” said Chris Coffey, head of government relations firm Tusk Strategies. “That’s where the money comes from — yet he has a somewhat adversarial relationship with them.”

During the campaign, those C-suite executives were among critics who doubted the mayor’s ability to competently steer the city’s sprawling bureaucracy. By pursuing a budget strategy that removes several safeguards, Mamdani has dialed up the risk with the aim of proving them wrong while mollifying a base keen on expanded city services.

Pulling it off would once again vindicate the political instincts of someone who has become famous for them. The cost of failure, however, would be measured in far more than dollars and cents.

For a democratic socialist who believes more tax revenue is key to making the nation’s largest city more affordable, Mamdani’s scarcity-themed budget proposal last month could hardly have been worse.

In laying out the $127 billion spending plan for the fiscal year beginning July 1, Mamdani pointed to a major contributor to the city’s harsh fiscal reality: His predecessor, Eric Adams, purposely low-balled expenses for years to make the budget appear balanced when it was actually billions of dollars in the red, a sleight of hand made possible in part by federal pandemic aid that has since run dry.

By more accurately reflecting the city’s hefty financial obligations, Mamdani earned plaudits for his honesty. Some of his proposed remedies, though, are generating concern.

One of the most potent tools at any mayor’s disposal is the projection of how much tax revenue will flow into the city’s bank account over the course of the fiscal year, a figure that dictates how much there is to spend on programs and one that has largely followed a predictable pattern — until this year.

Historically, the budget office has started with very cautious estimates to ensure it never spends more than it will end up taking in. Strategically, that also limits the ability of the City Council, which must ratify the budget, to advocate its own spending priorities — a gambit that has enraged generations of city lawmakers and backfired spectacularly for the last mayor.

As the budget cycle grinds on, the city inevitably revises its revenue projections upward, settling disagreements with the Council, appeasing some advocates and wiping away some proposed service cuts. By the end of the fiscal year, when revenue comes in above expectations, municipal bean counters are left safely in the black and ready to do it all again.

This year, however, there will be no deus ex machina.

The budget office’s revenue projections are so aggressive they are expected to be on par with other fiscal monitors like the City Comptroller and the Council that typically take a sunnier view of the city’s earnings, leaving little room for upward revision. The driving force of those rosy projections? Personal income taxes, which are highly dependent on the fortunes of Wall Street and the bonuses paid out to financiers.

Last year, the sector returned near record profits. For the upcoming fiscal year, Mamdani is essentially banking on another blockbuster performance, an optimistic assumption — especially given the uncertainty caused by the war in Iran and the White House’s whipsaw tariff policy — that translates to roughly $22 billion in personal income taxes.

“They pushed the envelope on the revenues,” said Ana Champeny, vice president for research with the Citizens Budget Commission. “That could be a problem, especially because their general reserve is down.”

Maximizing revenue alone would not necessarily place the city in fiscally risky territory. But Mamdani is also planning to spend around $1 billion usually reserved to cover unexpected costs throughout the next fiscal year. He plans to draw down another $1 billion from the city’s rainy day fund to balance the books this fiscal year. And he has tapped hundreds of millions of dollars from a trust meant to pay for retiree health benefits.

“It's not the first thing we want to do. We would rather reserves be there for an economic downturn or some other crisis, not one that actually is internal to the city,” First Deputy Mayor Dean Fuleihan said during a budget presentation Thursday. “But we had to address this.”

City Hall disputed the notion it's putting the city at greater fiscal risk, arguing the mayor is simply being more upfront with revenues and expenses compared with past administrations.  

Furthermore, the city’s optimistic personal income tax estimates are on par with what the state is projecting, the mayor's team said, and are a helpful overture to Albany.

And while Mamdani has drawn down reserves, City Hall noted, he plans to replenish them in the next budget cycle, and there is still roughly $6 billion to cover pop-up expenses in the retiree trust fund (which is not technically a reserve but is often tapped into as if it were).

“The mayor inherited a fiscal crisis that rivals the Great Recession, and is taking every step possible to deliver the services and programs working New Yorkers rely on, while protecting our city's long-term fiscal health,” Mamdani spokesperson Monica Klein said in a statement.

Even after exhausting some of the budget department’s most treasured revenue tricks, the mayor was still left with a $3.7 billion shortfall. And the options to bridge it each come with significant political downsides.

Mamdani could have tried to cut costs beyond the 2.5 percent savings target he has given city agencies in the upcoming budget.

“New York City is seeing soaring revenue powered by Wall Street, yet faces its worst fiscal strain since the Great Recession,” City Comptroller Mark Levine said in a statement. “The first thing we need to do under such a conflicting dynamic is identify savings and efficiencies in our own system.”

Programmatic cuts are always an unpopular move — the mayor has proposed a cut to libraries, which will surely spark outrage as the fiscal year wears on. But they would inflict particularly significant damage on Mamdani.

The democratic socialist won last year with support from many of the advocacy groups that typically come out in force to oppose reductions in city funding. And ideologically, Mamdani and his base believe in expanding the scope of government — not reducing it.

The only other direction is to raise revenue, which Mamdani hopes will come from the governor hiking taxes on the wealthy and corporations while separately sending the five boroughs a greater share of state tax revenue.

“He continues to believe the best path forward is to raise taxes on the wealthiest and most profitable corporations and to end the drain of city resources to the state — not to balance the budget on the backs of working people,” Klein said of Mamdani’s decision not to pursue service cuts.

Hochul, who is running for reelection this year along with the state’s congressional delegation, has repeatedly said she’s unwilling to budge on taxing the rich. 

In the hope of pressuring her, Mamdani has threatened to hike property taxes by 9.5 percent if he doesn’t get his way, a gambit that would hit building owners and middle-class homeowners — hardly Mamdani’s core supporters but significant stakeholders who helped him cobble together his win in November.

The gambit, which has generated backlash among much of New York government, seems like a long shot. It would need to be approved by the City Council, whose leader has labeled it a non-starter. And politics aside, raising property taxes by that much could also put the city at further financial risk.

State law caps the money municipalities like New York City can generate from property taxes. According to experts including the Citizens Budget Commission and Martha Stark, a former city finance commissioner who is leading an effort to reform the system, the city has already been teetering close to that limit.

Mamdani’s plan would push the city even closer, leaving it vulnerable to unintentionally crossing the threshold while taking away another fail-safe if City Hall needed to raise money in a hurry, as financial watchdogs have warned.

“As a city advances towards its tax limit, it loses flexibility in its revenue structure and may not be able to sustain the current level of services provided to its citizens,” the office of state Comptroller Tom DiNapoli wrote in a recent report.

The city disputed that its property tax hike would cause any budgetary problems by encroaching on the limit.

How this year’s budget dance will end remains unclear. But another theme apparent in the runes of the city’s voluminous financial documents is just how constrained Mamdani’s term could be.

His most analogous predecessor, the progressive Bill de Blasio, was among the luckiest executives in city history. A proponent of growing the size of government, de Blasio’s tenure coincided with an unprecedented expansion of the U.S. economy, allowing him to increase spending by 30 percent and the municipal headcount by 10 percent.

De Blasio was able to achieve enviable goals with that money, but an analysis by the Citizens Budget Commission shows a major chunk of de Blasio’s windfall went toward increased services for an increasing homeless population that has only grown since.

Mamdani is promising even bigger changes. And he will have to do it with far less money. Spending on new priorities in Mamdani’s budget proposal, for example, totaled $576 million, or about 4 percent of the total budget.

“And by the way, the $576 million includes $100 million for snow,” Fuleihan said Thursday. “It's not exactly what we had in mind.”