Outgoing Comptroller Lander warns gap could hit $13 billion by 2029, raising questions about funding promises to tax the wealthy
Budget Shortfall Immediately Tests Mayor-Elect’s Campaign Promises
Mayor-elect Zohran Mamdani faces an immediate fiscal challenge as he prepares to take office, with a projected budget shortfall of $2.18 billion that could balloon to over $13 billion by 2029 according to a report from outgoing Comptroller Brad Lander. The fiscal reality collides with Mamdani’s campaign pledge to spend over $10 billion on new programs including free buses, universal childcare, rent freezes, and city-run grocery stores. Mamdani has proposed funding these initiatives primarily through tax increases on corporations and the wealthy, but implementation requires state approval and faces political opposition from Governor Kathy Hochul. Democratic strategist Bill Cunningham observed that the mayor-elect’s ally Lander, now running for Congress as a progressive challenger, delivered a report card showing nothing but fiscal problems to deal with before even trying to get additional funds. The budget situation reveals tensions between ambitious campaign promises and practical governance constraints facing the incoming administration.
Structural Underbudgeting and Growing Fiscal Gaps
The budget challenges extend beyond immediate shortfalls to structural problems with how the city funds current services. Over the last three years, expenses have outpaced city revenues, in part due to federal pandemic aid ending and the surge in asylum seekers across New York City. The Citizens Budget Commission found that between fiscal years 2015 and 2021, the city added an average of $783 million a year after budget adoption to maintain service levels, but this doubled to $1.5 billion in fiscal years 2022 and 2023, then jumped to $4.1 billion in fiscal year 2024. Just halfway through fiscal year 2025, the city had already added $3.8 billion for programs that were underbudgeted at adoption. This pattern of systematic underbudgeting means published budget gaps understate actual fiscal stress. State Comptroller Thomas DiNapoli noted that the city faces heightened fiscal uncertainty pending the outcome of upcoming federal budget negotiations and comprehensive federal assistance funding reviews being conducted by the new administration.
Inherited Deficit From Adams Administration
Mayor Eric Adams himself inherited an even larger $5.4 billion budget shortfall from former mayor Bill de Blasio, which contributed to early budget cuts during his administration. An Adams spokesperson claimed the administration’s policies have set the table for a thriving economy and that strong fiscal management has produced a stable city budget. The spokesperson pointed to recent AA bond ratings from the agencies Moody’s Ratings, S&P Global Ratings, Fitch Ratings and KBRA as indicators of the city’s financial strength and borrowing power. The Adams administration stated it is leaving the next administration with a strong foundation for success. However, fiscal monitors and budget watchdog organizations paint a more challenging picture, noting that dwindling surplus funds from prior years may soon be insufficient to cover future shortfalls. Year-end prepayment of expenses declined from $6.1 billion in fiscal year 2022 to $4.4 billion in fiscal year 2024, and is likely to decline further in fiscal year 2025.
Tax Proposals Face State Approval Hurdles
Mamdani has proposed raising approximately $9 to $10 billion annually through tax increases targeting high-income individuals and large corporations. The plan includes a 2 percentage point increase in the city income tax for individuals earning over $1 million per year, affecting approximately 1 percent of filers. Mamdani also proposes hiking the state’s top corporate tax rate from 7.25 percent to 11.5 percent, which would affect about 1,000 of the city’s 250,000 businesses. However, these proposals require state legislative approval and Governor Hochul’s signature to become law. Hochul has consistently opposed raising income taxes, arguing that higher rates risk driving residents and businesses out of New York. Assembly Speaker Carl Heastie and Senate Majority Leader Andrea Stewart-Cousins have signaled openness to tax increases, particularly to fund popular programs like childcare, but Hochul remains a significant barrier. The political dynamics mean Mamdani cannot unilaterally implement his revenue proposals despite winning the mayoral election.
Revenue Projections Face Skepticism From Analysts
Independent analysts have questioned whether Mamdani’s tax proposals would generate the projected revenue. The Empire Center for Public Policy noted that his campaign estimates the proposals would generate an additional $9 billion per year, representing an 11 percent increase in tax revenues. However, analysts warn that these figures do not account for taxpayer responses including relocation and tax avoidance strategies. The Cato Institute calculated that even on a purely static basis, increasing the top corporate tax rate would generate only $2.6 billion to $3.8 billion for New York State, well short of the $5 billion goal. For the income tax surcharge, the top 1 percent of city taxpayers already paid 40 percent of the city’s income tax in 2022, and if Mamdani’s proposal becomes law, that share would likely rise to more than 60 percent. Critics point out that the share of income millionaires choosing to live in New York has been declining, from 12.7 percent of the national total in 2010 to 8.7 percent in 2022.
Major Contract Negotiations Loom
Beyond baseline budget challenges, Mamdani will inherit contract negotiations with the Police Benevolent Association and DC 37, the city’s largest municipal union. These negotiations occur against a backdrop of high inflation that has increased pressure for wage increases. Comptroller Lander’s report noted that appropriate salary increases for city workers in a high-inflation environment contribute to growing budget gaps. The financial plan already anticipates significant costs from collective bargaining, though actual agreements could exceed budgeted amounts. State Comptroller DiNapoli noted that since budget adoption, the city has updated its fiscal year 2025 projections to include $400 million in lower-than-expected collective bargaining costs, but future rounds of negotiations remain uncertain. The combination of baseline budget gaps, structural underbudgeting, potential federal funding cuts, and major labor negotiations creates a challenging fiscal environment for implementing ambitious new spending programs.
Competing Spending Priorities and Underbudgeted Programs
The fiscal challenges are compounded by competing demands from existing programs that remain underbudgeted in future years. Services currently not funded at fiscal year 2025 levels in coming years include special education pre-kindergarten, arts funding, and early childhood education expansions, totaling over $600 million according to State Comptroller DiNapoli’s analysis. The CityFHEPS housing voucher program expansion could result in costs of $11.4 billion cumulatively from fiscal year 2025 to fiscal year 2028. Implementation of the state’s Class Size Reduction mandate will cost money mainly to hire more teachers, beginning in fiscal year 2026, but remains largely unbudgeted. Rapid spending growth for special education Carter Cases, NYC Health and Hospitals city subsidy, public assistance, and rental assistance programs will further strain city finances. These existing commitments compete with Mamdani’s new spending priorities for limited fiscal resources.
Federal Funding Uncertainty Adds Risk
Federal receipts account for 6.4 percent or $7.4 billion of the city’s fiscal year 2026 operating budget, but significantly more federal funding flows through the state to provide services including more than $30 billion in Medicaid expenditures. The new federal administration is conducting a comprehensive review of grant programs to identify those implicated by recent executive actions. State Comptroller DiNapoli warned that given recent uncertainty created by federal fiscal and economic policy choices, the city should be preparing for scenarios where all resources including federal, state, and local may be impacted. One way to mitigate disruptions would be to further build reserve levels and develop formal policies around the accumulation and uses of these funds. However, the city’s Rainy Day Fund currently equals just 1.7 percent of total planned spending in fiscal year 2025, and the city stopped depositing additional money in this fund in fiscal year 2022.
Balancing Ambition With Fiscal Constraints
The fiscal situation creates immediate tension between Mamdani’s campaign promises and practical governance realities. On day one, the mayor will confront nothing but fiscal problems to deal with before even trying to get additional funds for new initiatives. The path forward requires either securing state approval for substantial new revenues, identifying significant spending cuts or efficiencies in existing programs, or scaling back campaign promises to match available resources. Supporters argue that Mamdani’s agenda addresses immediate affordability and equity challenges facing New York City residents, while critics warn about unsustainable revenue assumptions and implementation complexity given competing budget priorities. The incoming administration faces choices about which campaign promises to prioritize, how aggressively to pursue state tax approval, whether to propose spending cuts in other areas, and how to manage public expectations about the pace of implementing ambitious reforms in a constrained fiscal environment.
