NYC’s $7B Budget Gap Ignites Tax Battle

NEW YORK, NY — Mayor Zohran Mamdani warned that New York City faces a $7 billion budget gap over the next two fiscal years, calling for higher taxes on wealthy residents and corporations to close the shortfall and restore the city’s fiscal balance with the state, at a joint budget hearing in Albany on Wednesday.

He said the administration will release its preliminary budget on Feb. 17, when City Hall is expected to provide updated revenue and spending details.

He said New York City contributes 54.5% of state revenue but receives 40.5% in return, adding that in fiscal year 2022 the city sent $21 billion more to Albany than it got back.

Weeks after declaring a $12 billion problem, Mamdani told lawmakers that updated revenue forecasts, Wall Street bonus estimates and in-year savings reduced the projected shortfall.

Mamdani said the administration narrowed the projected $12 billion shortfall to $7 billion over two years by combining targeted cost savings, updated revenue and Wall Street bonus estimates, and the use of in-year reserves, while maintaining existing city services.

He called the remaining gap the largest fiscal challenge since the Great Recession and said efficiencies alone would not close it.

“The most responsible way off is with dedicated, recurring revenue that can provide the services New Yorkers deserve,” he said.

His plan calls for increasing the city’s corporate tax rate and raising personal income taxes by 2% on the highest earners.

“Someone earning a million dollars a year, the top 1% of New York City, can afford to contribute $20,000 more in taxes,” Mamdani said. “That 2% tax alone would resolve nearly half of our budget deficit.”

According to Mamdani, prior budgets set aside hundreds of millions of dollars less than required for core safety-net programs, including cash assistance, rental subsidies and homeless shelters, forcing the city to cover higher actual costs as need rose.

State and city fiscal reports show the scale of the increase. The number of people in New York City’s shelter system rose from roughly 45,000 in early 2022 to nearly 90,000 by early 2024, according to the state comptroller, with asylum seekers accounting for a large share of that growth.

City comptroller data show spending on shelter and services for asylum seekers climbed from about $1.5 billion in fiscal year 2023 to roughly $3.7 billion in fiscal year 2024, reflecting higher rental costs, expanded emergency housing and related support services.

Mamdani first framed the crisis on Jan. 28 inside City Hall’s Blue Room, flanked by First Deputy Mayor Dean Fuleihan and Budget Director Sherif Soliman. He announced that the city confronted “a massive fiscal deficit in our City’s budget to the tune of at least $12 billion,” including a $2.2 billion gap in the current fiscal year projected to swell to $10.4 billion the next.

“We did not arrive at this place by accident,” Mamdani said on Jan. 28. “This crisis has a name and a chief architect. In the words of the Jackson 5, it’s as easy as A-B-C. This is the Adams Budget Crisis."

He attributed the gap to what he described as years of chronic under-budgeting under former Mayor Eric Adams.

Mamdani also faulted former Gov. Andrew Cuomo, who left office in 2021, arguing that state policies over more than a decade diverted revenue from the city.

He has pressed Gov. Kathy Hochul and state lawmakers to authorize the increases, arguing that “working people did not cause this crisis, and they cannot be made the victims of its solution.

Hochul has rejected broad tax hikes.

“We’re not raising taxes in the state of New York. I’m not raising taxes for the sake of raising taxes,” she said Jan. 28. “So he’ll continue to say what he needs to say.”

Independent projections complicate the debate over the scale of the crisis.

In December, the City Council Finance Division projected no budget gap for fiscal year 2026 and a $4.6 billion gap for 2027.

The Citizens Budget Commission projected no gap for 2026 and an $8 billion gap for 2027. Similar out-year gaps projected in prior budgets did not materialize after revenues exceeded expectations and some anticipated costs declined.

After the fiscal year 2024 budget was adopted, Comptroller Brad Lander warned that “gaps will total $1.96 billion in FY 2024, $9.65 billion in FY 2025.” The larger shortfall never emerged.

Business groups and fiscal watchdogs have cautioned that additional tax increases could affect competitiveness and risk further outmigration among high-income residents, whose earnings account for a disproportionate share of city income tax revenue.

The Citizens Budget Commission has urged the city to align recurring spending with recurring revenues and identify structural savings.

Mamdani has tied the proposed tax increases to expanded investments, including a path toward universal child care backed by a $1.2 billion state commitment, and increased school funding. He has argued that without recurring revenue, the city would face cuts to services or rely on temporary fixes.

Mamdani detailed the updated projections and tax proposals during testimony before state lawmakers in Albany, where negotiations over the state budget continue. This is a developing story.