Last week, the New York City Council released its proposed fiscal 2027 budget. Widely perceived as a rebuke to Mayor Zohran Mamdani’s proposal from last month, the council’s plan is more fiscally responsible and pro-economic growth than is the mayor’s proposal. While Mamdani insists that higher taxes are necessary to prevent austerity measures, the council’s proposal shows that the city need not broadly “tax the rich” to close its budget gap.
Mamdani responded to his fellow Democrats’ proposal with outrage, claiming that it “would result in slashing billions of dollars from agency budgets, which would force the City to cut services.” He directed particular ire at Speaker Julie Menin, a more moderate counterpart to the democratic socialist mayor.
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Contrary to Mamdani’s claims, the council’s budget does not propose cutting services. In fact, it includes additional social welfare spending. Under the council’s budget, the Fair Fares program would allow low-income New Yorkers, currently eligible to ride the bus and subway for half-price, to ride for free. The council offers a benefit more generous than Mamdani’s free-bus plan, but in a means-tested way that targets the relief to the needy.
Even if Menin wanted to enact service cuts or reduce the city’s employee headcount, she would not have the necessary support to do so. Politically, such a plan would allow the mayor and his progressive allies to paint her and the council’s moderate wing as the new face of cruel austerity. It would also estrange Menin from the city’s public-worker unions, aligning them more closely with the mayor.
Mamdani was clearly angered by the refusal of Menin and colleagues to go along with his proposed tax hikes. Even if Albany passes legislation authorizing the council to increase the city’s personal income tax and corporate taxes, the majority of council members seem uninterested in enacting higher rates.
Instead, the council plans to eliminate the city’s budget gap by relying on revenue re-estimates, savings achieved through efficiency measures, and targeted tax increases. For example, the council proposes to raise $1 billion in revenue over two years from a reduction in the application of the Pass Through Entity Tax (PTET) credit, a state tax-credit system that shelters some income from taxation no longer deductible on federal returns. A lower PTET credit, a measure that requires Albany’s approval, would allow the city to collect more revenue from upper-income earners, as about 95 percent of those who receive the PTET credit have adjusted gross incomes of over $1 million.
Thus, Menin’s proposed tax increases are far more modest than those Mamdani demands, implicitly rejecting his “tax the rich” ideology. The council seems to recognize that the city will imperil its long-term viability by imposing ever-more taxation on the high earners and corporations that employ millions of New Yorkers.
After all, New York State and City are extraordinarily dependent on millionaire earners to sustain the tax base. In 2023, New York households with $1 million or more in adjusted gross incomes represented just 0.7 percent of all state personal income tax filers, 26 percent of income, and 41 percent of total income taxes paid, according to a recent report by Manhattan Institute Adjunct Fellow E. J. McMahon.
To be sure, the council’s spending plan is not perfect. It relies on higher revenue assumptions and revised expenditure estimates compared with the mayor’s proposed budget. The council’s estimates are not unreasonable because the city does not have a revenue problem—at least not yet—and, unfortunately, the present political reality does not allow for the possibility of major reforms to the city’s spending habits.
That said, some elements of the council’s plan are unacceptable. It must remove the section that plays dangerous fiscal games with pensions. The proposal relies on recovering $1.2 billion by re-amortizing the remaining years of the current pension funding schedule. As McMahon shows, this amounts to refinancing a debt that’s set to be retired, saddling future taxpayers with years of additional compounded interest.
Worse still is the council’s proposal to borrow money to make up for shortfalls in the pension system through the issuance of pension obligation bonds (POBs). This would raise city debt to cover gaps in the funding level needed to meet retiree obligations. It would worsen fiscal risk by betting that borrowed funds will generate returns greater than what the city pays in bond yields. This kind of borrowing recalls those that brought the city to the brink of bankruptcy in 1975. The council must eliminate these measures.
The council’s budget represents a substantial improvement over the mayor’s plan. Menin has put forth a reasonable attempt to close the city’s current shortfall while resisting the most excessive demands for higher taxes and unchecked spending. The speaker and her colleagues deserve recognition for doing something the mayor refuses to do: maintaining contact with fiscal and economic reality.