Making sense of Mamdani’s budget — and what it signals for his ambitious agenda
On the morning of May 12, 2026, Gov. Kathy Hochul and Mayor Zohran Mamdani announced that New York State would provide New York City with an additional $4 billion “in gap-closing support” over the current and upcoming fiscal years to enable the City to balance its FY 27 Executive Budget without the need for increased property taxes or significant reductions in services.
The joint announcement noted that between the current budget year and the upcoming FY 27 Budget, the State had provided the City with $8 billion in additional resources, comprised of about $3 billion of additional direct State assistance and approximately $5 billion being State authority for the City to engage in financial engineering in the form of deferring pension contributions, a new pied-à-terre tax and permission for the City to delay implementation of the State’s small class-size unfunded mandate.
Later that afternoon, Mamdani introduced New York City’s $124.7 billion FY 27 Executive Budget. The mayor’s narrative is that he was able to overcome a $12 billion budget deficit created, and hidden, by his predecessor. He argues that he accomplished this through the skillful identification of “waste” in City government and savings opportunities, increased State assistance won through his collegial relationship with Hochul and legislative leaders, and by “taxing the rich.”
What is left of the mainstream media in New York saw things differently. The New York Post ran an op-ed titled “Zohran Mamdani’s unbelievably dishonest NYC budget.” The New York Daily News editorial headline was, “Logic triumphs over mayor’s initial very bad plans.” The editorial criticized the “tax the rich” rhetoric the mayor used as the organizing principle of his budget strategy, adding: “He is mayor now (and has been since Jan. 1) and must end his political campaigning.”
All elected officials try to win the “history of the war” irrespective of whether they have actually won the war. Mamdani not only is no exception to that rule, he pays more attention than most to controlling the narrative. He built his political career on the combination of a bold agenda and an exceptionally effective communication strategy, using social media to communicate directly with his political and ideological base in New York City and beyond.
Mamdani concluded his Executive Budget presentation by saying that he had “made the choice to tax the rich and reject the false inevitability of austerity.” In fact, very little of the City’s Budget gap was closed by taxing the rich — and although this is not an austerity budget in the sense that there are significant reductions in services or programs, this budget also does little to advance the ambitious affordability agenda on which Mamdani campaigned.
It will take a few more days to parse all the nuances. But we know enough now to understand the extent to which Gov. Hochul bailed out the mayor from a fiscal dilemma that he largely ignored in his campaign. She arguably advanced both of their political needs in doing so. The mayor needed significant cooperation from the State to avoid deep cuts in services or unpopular property tax increases. The governor needs the political support of Mamdani’s political base in her upcoming re-election and to relieve pressure from progressives in the state Legislature.
But despite Mamdani appearing to declare victory, New York City’s fiscal pressures are not going away. The City still faces a substantial structural budget deficit (i.e., recurring revenues minus recurring expenses). As New York City Comptroller Mark Levine said:
“[T]he Executive Budget relies on $2.8 billion in one-time measures and $2.3 billion in short-term pension savings, without solving for the fact that City government continues to spend more than we take in, even in a year of record revenues …Taken together, these actions delay addressing the deeper structural imbalances in the City’s budget, as is clear from out-year gaps of $7.1 billion in FY 2028 growing to $9.8 billion in FY 2030.”
Understanding the evolution of the City’s deficit-closing dance with the State and the strategies ultimately adopted to achieve a balanced budget holds clues for the obstacles Mamdani will face in the future as he attempts to implement the ambitious vision on which he was elected.
Mayor Mamdani’s budget odyssey
Mayor Mamdani’s budget odyssey began with his dramatic announcement on January 28, 2026, that he had discovered that New York City was facing a “budget crisis”: a $12 billion deficit that needed to be resolved in order for the City to enact a balanced budget by the constitutional deadline of June 30, 2026. Mamdani insisted that he saw few opportunities to meaningfully close the budget gap through spending reductions. Instead, he called for New York State government to authorize the $9 billion of corporate and personal income tax increases he had campaigned on, as well as to increase State funding to address a “structural imbalance” between the City and the State.
After the mayor’s announcement of the $12 billion deficit, it was reported that Gov. Hochul thought the City was exaggerating its budget problem to create leverage for the mayor’s priority of raising taxes on wealthy New Yorkers and large corporations. Indeed, by the time the mayor presented New York City’s Preliminary Budget on February 17, City Hall had reduced the size of the City’s deficit to $5.4 billion, primarily as a result of upward revenue revisions but also aided by a last-minute addition of $1.5 billion in new State funding on top of the roughly $1 billion in budget relief funding for the City that had been included in the governor’s initial Executive Budget.
Even with this smaller deficit, the mayor continued to insist that the problem could only be solved by the State. In a transparent effort to force the State’s hand, the Mayor threatened to increase New York City property taxes — the only tax the City can increase without State approval — by 9.5% unless the State authorized the alternative taxes he proposed and substantially increased State funding to the City.
In the end, both the Governor and the Mayor got what they needed. The governor was able to find enough other resources for New York City through a combination of additional State aid and State authorization of City actions to bail out the City without increased personal income taxes or increased corporate taxes. The mayor got Albany’s support for $7.5 billion of additional resources between increased aid, relief of unfunded mandates and authorization of pension “smoothing,” plus a new pied-à-terre tax supposedly worth $500 million, which enabled the mayor’s frame of his budget solution in the context of “taxing the rich.”
Although not the largest contributor to deficit reduction, the signature initiative of New York City’s FY 27 Budget is certainly that new tax on luxury second homes. Such a tax was not a radical idea. It had been seriously considered in 2019, with even Gov. Cuomo reported as being open to the idea if it advanced through the legislature.
Several obstacles have stood in the way since. First, it is difficult to operationalize given the complexity of New York City’s real estate tax law. Second, previous studies suggested it would not raise that much revenue. A study by New York City’s Independent Budget Office in 2020 concluded a tax on second homes with a value above $5 million would only raise approximately $232 million a year. Third, and decisively, it was bitterly opposed by New York’s real estate industry, which argued it would sufficiently impair market value and wind up rendering many new luxury projects uneconomic.
Although the pied-à-terre tax could have been sold to the public as a relatively modest proposal that addresses the inequity of wealthy part-time residents avoiding the high State and City income taxes borne by full-time residents, Mamdani had the opposite goal in mind. He wanted to present the pied-à-terre tax as fulfilling his promise to “tax the rich.” He boasted about the tax in a social media video that was uncharacteristically off-key, “naming and shaming” the billionaire Ken Griffin as being a representative target of the tax.
The video unleashed a ferocious backlash from New York City’s business and media elite, reinforcing many of the negative perceptions of the mayor that he had been working to reverse.
As for the pied-à-terre tax itself, as of this writing, the provisions of the law remain unclear, reflecting the difficulty of translating a simple concept into programmatic language. The New York City Comptroller, Mark Levine, said his office estimated that the tax would quite possibly raise only about $340 million to $380 million because of tax-avoidance efforts by owners of second homes.
In short, the pied-à-terre tax is not a bad idea, but the amount of revenue it can produce is paltry within a $125 billion budget, and it comes with intangible baggage in the form of loss of business confidence.
Budget watchdogs view stretching out pension obligations as the road to perdition, and this deferral may rattle the bond rating agencies that have already reduced the outlook on New York City’s debt from Stable to Negative.
So where did the money come from? The largest single gap-closing measure in the New York City budget involves deferral of pension contributions. Instead of amortizing the unfunded liability in New York City pension plans by 2032 as required under current law, that obligation will be stretched out to 2037. This will save New York City $652 million in FY26 and $1.64 billion in FY27.
Budget watchdogs view stretching out pension obligations as the road to perdition, and this deferral may rattle the bond rating agencies that have already reduced the outlook on New York City’s debt from Stable to Negative. Moreover, this deferral of contributions is subject to the approval of the City’s five pension plans, which at a minimum gives the public employee unions considerable leverage in upcoming contract negotiations. That said, with the governor ruling out significant new taxes and the mayor rolling out meaningful program cuts, this act of financial engineering, at least in hindsight, looks inevitable.
In addition to calling for significantly increased taxes on the rich, the mayor based his strategy for closing the City’s budget gap on the argument that decisions by Gov. Andrew Cuomo during his time in office from 2011-2021 had shifted funding away from New York City and created a “structural imbalance” between the City and the State. This argument always ignored the fact that the State had assumed far more spending that the City historically had been responsible for — about $1.5 billion annually just from freezing the City’s Medicaid contribution. It similarly ignored actions Mamdani had supported in the state Assembly, such as the unfunded mandate for smaller class sizes.
In any event, the reversal of fortune between the City and the State in recent years was attributable to the fact that New York State significantly increased income taxes on high earners in 2021, while the City did not. This action, combined with the exceptionally strong stock market over the last three years, has left the State with an embarrassment of riches in fiscal terms, while the City now faces a deep structural deficit.
The State could have used a number of mechanisms to drive funding to New York City, at least some of which would have been justified in light of the change in the City’s financial position relative to that of the State. As it happens, the State chose to direct approximately $1 billion of funding in the Executive Budget that could be construed as budget relief, mostly in the form of increased child care spending, $1.5 billion over two years (of which $500 million was non-recurring) in additional assistance in the 30-day amendments to the Executive Budget and approximately $352 million of direct assistance in the package announced on May 12, 2026.
Other than the pension smoothing and the pied-à-terre tax, the City’s gap-closing actions fall primarily into two buckets. First, the City is saving approximately $1 billion by delaying the implementation of two major program expenses — the small class-size initiative and the expansion of the CityFHEPS rental subsidy program. In addition, the City assumes it will save approximately $149 million by stemming the tide of the growth in special education due-process cases, which now cost the City approximately $1.4 billion annually. This has long been a policy goal of City Hall, but has proven very difficult to implement in the real world.
What is second nature to fiscal experts but not always intuitive to the general public is that “savings” typically involve reductions in baseline growth rather than the actual elimination of spending. About $300 million of the bucket of savings in this case comes from budgeting increased staff vacancies, while much of the rest comes from the familiar goal of increasing “efficiency” in government operations and programs. No doubt that in a $125 billion budget, efficiencies can be achieved. With the potential of AI, in particular, the extent to which efficiencies can be realized is as much a matter of political choice as it is technical capability.
Conclusion
The way in which Mayor Mamdani has managed his first budget is fairly conventional. Blaming one’s predecessors for fiscal problems is par for the course. Faced with the dilemma of choosing between unpopular spending cuts and unpopular broad-based taxes, financial engineering such as deferring pension contributions is a budget director’s best friend. The mayor was fortunate that New York State is in its strongest fiscal position in 50 years — and can afford to rebalance spending obligations with New York City. Finally, the mood of the times makes taxing the rich in the form of a pied-à-terre tax acceptable even to a moderate governor.
What is less typical is the chasm between the expectations Mamdani created for his administration and the amount that can actually be accomplished not just now, but for the foreseeable future. Something major will have to give — such as a willingness for the State to enact significant increases in personal income taxes on high earners and corporate taxes — or not even someone with Mamdani’s exceptional political skills can square this circle.
