When he entered office, Mayor Zohran Mamdani feigned shock upon discovering that, as had been widely reported since 2022, New York City’s finances are severely strained. Spending, boosted by billions in federal pandemic-related aid, has soared over the last 10 years, with the city budget ballooning far faster than the rate of inflation. That would be fine if revenue growth kept up with outgoing expenses, but it hasn’t: from 2021, spending grew at 6.8% annually against only 5.2% annual growth in tax revenue.

No wonder, then, that three credit agencies have shifted their outlook for New York City to negative, highlighting the dire state of the city’s finances. This means that New York is on the verge of a credit downgrade, which could lead to soaring borrowing costs.

While the strain on public finances is not Mamdani’s doing, his response has been conspicuously ineffective. In recent months, he has escalated his calls for higher taxes rather than setting out workable remedies. His stance appears driven less by problem-solving than by an ideological commitment to “taxing the rich”, which he invokes as an end in itself. The allocation of any new revenue is treated as a secondary concern; the priority is ensuring that the wealthy “pay their fair share”. On the campaign trail, he proposed a 2% levy on income above $1 million alongside a significant rise in corporate taxes, with the proceeds earmarked for free daycare, fare-free buses, and subsidised grocery stores. For someone who has based his platform on making the city more affordable, his policies risk plunging the city into financial ruin.

Problems with the New York pursestrings have been brewing for years, and start with the city’s approach to migration. Eric Adams earned the enmity of the Joe Biden White House when he announced in 2023 that a flood of tens of thousands of migrants would “destroy New York City”. This might have sounded alarmist, but New York has embraced a “right to shelter” policy that guarantees every person a bed for the night, including meals and towels. The cost of this programme was already exorbitant, but the arrival of 110,000 migrants created a uniquely expensive situation. This was then exacerbated by the continual under-budgeting of migrant aid and general social service spending, which — predictably — caught up with the city.

None of this was new, despite Mamdani’s professed dismay. Yet he has seized on the city’s deteriorating finances to advance his own political agenda. An obvious alternative — barely acknowledged in his remarks — would be to rein in spending. But on the Left, even the language of “budgeting” tends to be conflated with austerity and swiftly dismissed. The result is a narrow policy frame in which the default options are higher taxes and a drawdown of the city’s emergency reserves.

Bond markets tend to react sharply to such signals. Higher income and corporate taxes can erode the tax base by pushing out top earners and mobile firms. Credit rating agencies, for their part, look for fiscal headroom — capacity within both spending and taxation — to absorb a downturn. Once a city approaches its effective tax ceiling, the risk of a fiscal death spiral comes into view.

Mamdani’s dilemma is that he arrived promising a sweeping expansion of public spending in the name of “affordability”. Yet New York already devotes vast sums to social services. On the city’s Left, there is a persistent assumption that its allure is so great the wealthy will remain regardless of the tax burden. The evidence points the other way: the state’s population is declining, and a number of billionaires and financial firms have already decamped. In trying to make the city more “affordable”, Mamdani may instead be steering it toward fiscal strain.

---

Seth Barron’s new book Weaponized will be released in April.

SethBarronNYC

---