Mamdani has plugged $12bn deficit, but it's not a long-term fix

When the New York Democrat mayor Zohran Mamdani released his budget for the 2027 financial year, it was heralded as zeroing the massive $12 billion budget deficit he inherited from his predecessor, Eric Adams.

In turn, it also strikes a symbolic blow against critics of Zohran’s fiscal politics, which struck a notably more socialist tone than those of Independent competitor, Andrew Cuomo. In a statement, Mamdani’s office announced:

Through strong fiscal management, Mayor Mamdani balanced the budget through a combination of aggressive savings, new tax revenue, partnership with Albany and critical new investments in the needs of working class New Yorkers.

The budget is balanced without raising property taxes, slashing services or drawing down the City’s Rainy Day or Retiree Health Benefit Trust reserves and makes the largest City capital commitment to NYCHA in recent history.

If this all sounds a little bit too good to be true, it’s because it is. Mamdani has drawn large chunks of his proposed savings from the state of New York, along with delays on several other key expenses. As such, the budget is more of a short-term patch than a long-term fix.

However, this isn’t necessarily as large a criticism as it may seem. A $12 billion deficit can’t exactly be plugged without massive tax hikes or cuts to public services, neither of which would be popular. As such, we might expect some one-time cash injections and delayed payments.

Mamdani: ‘This budget rejects that failed politics’

Mayor Mamdani said:

For too long, working New Yorkers have been told that austerity was the answer to adversity. This budget rejects that failed politics.

We are restoring fiscal stability without slashing the services people depend on, without raising property taxes and without asking working families to pay for a crisis they did not create.

Instead, we are making government work for the people of this city: securing support from Albany and taxing the rich so we can invest in housing, safety, child care, parks, libraries and the public goods that make New York the greatest city in the world.

That tax on the rich takes the form of a ‘pied-à-terre’ second-home tax on properties worth more than $5 million. The mayor’s office values this new income stream at around $500 million.

Likewise, Mamdani is also proposing a reduction to Unincorporated Business Tax (UBT) tax credit. This credit, he claims, “overwhelmingly benefits millionaires”. However, the mayor will first have to get his proposal past Speaker Julie Menin and the city council.

On top of this, Mamdani also conjured up $1.2 billion in otherwise-idle salary money. Politico largely attributed to this to “the city’s smaller-than-expected headcount in the current fiscal year, which the budget office is using to fund recurring expenses”.

Delayed costs not paid costs

Regarding those one-time cash injections, the mayor’s office stated:

Thanks to Governor Kathy Hochul, Senate Majority Leader Andrea Stewart-Cousins, and Assembly Speaker Carl Heastie, the City secured an additional $4 billion in state support and actions to help stabilise the budget. That includes $352 million in direct aid, $3.2 billion in state authorisations.

Those state authorisations include permission to delay compliance with maximum classroom size mandates. This law was a result of years of lobbying by the Union for Teachers, requiring limits of 20-25 students according to age. As such, the delay is bad news for both teachers and students, even if it does massage the budget.

Likewise, Mamdani also obtained the state’s approval to delay the city’s contributions to pension payments. However, this will also require the permission of four of New York’s five major public pension funds. The plan has also drawn fire from commentators such as Andrew Rein, of the Citizens Budget Commission.

He said:

We have to solve this budget gap today, and basically by stretching out pension payments we’re asking people in the mid-2030s to solve the 2027 budget gap, and that’s simply not fair. We’re going to ask people who don’t even live here yet to help us balance the budget now.

Public money for public services

However, solving this budget gap today is hardly a realistic proposal, especially alongside the ambitious public programmes and expansions that Mamdani has planned. These include, but are by no means limited to:

$15m for the Department of Parks and Recreation
$31.7m for the city’s libraries
$15m for the City University of New York
$2.3m to launch Little Apple — “the City’s first Municipal day care system”
$20.5m on supporting street vendors.
$47.3m for access to mental health care

Faced with a choice between austerity and investment, Mambani’s budget has lent more (but not completely) towards the latter. As such, his long-term gambles may prove an interesting proving ground for similar anti-austerity measures.

The real test will come in several years time, when such temporary fixes are less readily apparent.

Featured image via AP Photo/ Alejandro Granadillo