New York’s Resource Curse

On January 28, 2026, less than a month into his administration, Mayor Zohran Mamdani stood in City Hall’s Blue Room and declared a fiscal emergency. New York City, he said, faced a $12 billion budget shortfall over fiscal years 2026 and 2027, a crisis he portrayed as worse than the Great Recession. He blamed his predecessor Eric Adams’s “years of staggering mismanagement” for putting his administration in a hole before it started.

Yet revenues were still pouring into municipal coffers, lifted by robust Wall Street bonuses and stock-market gains. The mayor’s $127 billion preliminary budget was almost $30 billion larger than Adams’s first, just four years earlier. What Mamdani called a fiscal emergency was, in reality, an attempt to persuade Albany to levy punitive tax increases on the rich—not to fund his expansive campaign promises but just to sustain the existing government’s growth. The projected gap reflected spending commitments that outpaced recurring revenues, leaving the city exposed even as tax collections continued to rise.

The episode uncovered one of New York’s deepest structural problems. A long period of tax-revenue growth has created a municipal “resource curse”—a condition in which abundant revenues weaken the pressure to spend wisely and govern efficiently. Like a country rich in oil or minerals that can paper over dysfunction with resource wealth, New York’s surging revenues have fueled government expansion at the cost of the discipline that scarcity imposes. A long bull market, federal pandemic aid, and relentless interest-group pressure have enabled city leaders to add new programs without cutting old ones, placate unions and contractors without demanding greater productivity, and postpone trade-offs that a fiscally constrained government would have been forced to make.

Mamdani’s first budget suggests that he has little intention of breaking this resource curse. If revenues keep rising, he may not need to; he can preserve the status quo while using social-media videos to present his administration as a transformative socialist project. If revenues fall, however, he will face hard choices that he has so far avoided. New York Governor Kathy Hochul and City Council Speaker Julie Menin should not help him evade those trade-offs. Instead, they should use their leverage to secure the overdue reforms that the city’s long-term fiscal health requires.

Long before Mamdani’s election, budget watchdogs had warned that New York City’s apparent fiscal strength rested on underbudgeted costs, temporary revenues, and an eroding tax base. In June 2024, Manhattan Institute’s E. J. McMahon testified before the Charter Revision Commission, recommending solutions to the “now-routine, systematic under-estimation of certain expense requirements in the mayor’s financial plan,” as well as the city council’s habit of creating multibillion-dollar obligations without appropriating the money to pay for them. By March 2025, the Citizens Budget Commission had put the fiscal 2027 shortfall at $7.8 billion. That summer, Nicole Gelinas wrote in City Journal that Mamdani’s program rested on the fantasy that New York could keep expanding government without hard trade-offs, which higher interest rates made implausible.

The resource curse hasn’t been confined to city hall. Albany has used temporary revenue windfalls and high-earner tax hikes to normalize a permanently larger state government. Thanks partly to federal Covid cash, Albany’s spending from all sources swelled from about $173 billion in fiscal 2020 to an estimated $268 billion in fiscal 2027—nearly $100 billion larger in just seven years. Now that the pandemic aid has receded, the state has substituted its own revenues for temporary federal support. State operating funds spending, or that derived from state sources, increased from $104 billion in fiscal 2020 to about $160 billion in the just-enacted fiscal 2027 budget.

At the same time, New York State and City tax burdens stand at multi-decade highs, heavier than in any other jurisdiction in the country. As McMahon has noted recently, millionaire filers pay over 40 percent of the state and city’s personal income taxes and already face the nation’s highest combined top federal, state, and city tax rate—51.8 percent. Years of heavier progressive taxation have made New York increasingly dependent on a tiny, mobile class of high earners with volatile income.

As the state legislature has lurched leftward over the last decade, its refusal to cut taxes and let supposedly temporary tax hikes expire—including Governor Andrew Cuomo’s three-year income-tax increase, enacted in 2021—has also fed the resource curse. When the government transforms temporary or emergency tax raises into permanent revenue sources, it frees itself from the discipline of matching spending to revenue growth. Albany’s repeated tax increases on high earners have allowed the state to expand outlays—particularly on Medicaid and public-school aid—without forcing lawmakers to assess whether such growth is making the Empire State more attractive and competitive relative to rivals such as Texas and Florida.

Mamdani inherited a city government already heavily dependent on the same high earners he wants to tax further. Yet doing so risks slowing the city’s growth and, with it, future tax collections—a danger his first budget fails to acknowledge. In February, he presented Albany with a choice: enact his campaign’s tax increases on corporations and high earners—not to fund fare-free buses or universal child care, but simply to sustain the existing city government—or face his alternative, a 9.5 percent property-tax hike, which would require city council approval.

Yet without either of those levies, Mamdani’s claimed two-year gap quickly narrowed as healthy Wall Street bonuses, hoped-for city savings, and Hochul’s state-aid package brought Gotham’s shortfall down from $12 billion to $5.4 billion. His $1.77 billion in proposed cuts over fiscal years 2026 and 2027 rely heavily on optimistic assumptions, such as saving $368 million over two years through efficiency improvements, overtime management, and the phaseout of unused programs. Apart from being vague, reining in overtime costs is especially hard to enforce.

Mamdani has shown little willingness to confront the city’s labor costs, which consume roughly half the municipal budget. His budget-balancing plan did not seek standard savings such as program eliminations or a hiring freeze—moves that might have invited accusations of austerity. Nor did he ask Albany in February or March for relief from the state’s class-size mandate, a $1.6 billion annual full-employment program for the teachers’ union trumpeted as an educational improvement. Instead, he coyly waited until June to accept a delayed implementation period from Albany as part of its relief package, alongside a separate deal with the union to give teachers a bonus if their classes are above the cap.

Hochul also blessed a re-amortization of city pension liabilities, refinancing pre-2011 debt that was set to be paid by 2032 until 2037. Mamdani may enjoy the lower near-term contributions, but Gotham will be on the hook for larger payments in a decade’s time—with interest. Facing progressive cries to tax the rich, Hochul settled for a pied-à-terre tax on non-primary residences in the city, with initial thresholds of $1 million for condos and co-ops and $5 million for one-to-three-family homes. The measure is projected to raise $500 million, but the administrative difficulty of identifying and imposing the tax on covered properties puts that figure in some doubt.

Mamdani closed his budget gap, then, less through visionary leadership than through one-time maneuvers and state assistance. In his Election Day victory speech, he declared that voters had signaled “a mandate for change” and “​a mandate for a new kind of politics.” His first budget delivered not change but business as usual, suggesting that the old interest-group politics still dominates city hall. Though he didn’t earn most of organized labor’s support in last year’s primary, Mamdani’s path of least resistance was union-friendly: demanding higher taxes (even as revenues kept growing) instead of reassessing how city government operates.

Since the Great Recession, and but for a momentary panic at the start of the Covid-19 pandemic, no New York mayor has had to contend with true budget stress. Flush revenues make for easy decisions.

All told, city government spends $16 billion more today than it would have if it merely had kept pace with inflation over the past decade, according to the Citizens Budget Commission, despite a population that has contracted by nearly a quarter million residents since 2020. In real terms, New York City’s budget has roughly doubled over the last quarter century, as Nicole Gelinas has noted. (See “What We Talk About When We Talk About Austerity,” page 70.) Much of this new spending owes not to organic economic growth but to a booming stock market and the highest-earning taxpayers.

That doubling hasn’t provided a commensurate improvement in public services. It has instead benefited the interests dependent on it—particularly the unionized workforce—and made retrenchment politically harder. A more constrained fiscal environment would have forced city government to prioritize the highest-value and most needed programs, cutting where necessary to preserve them. Mamdani’s refusal to make meaningful cuts demonstrates how city government has become a one-way ratchet.

This reality is most apparent in the Department of Education. Its total budget has exploded by nearly $10 billion since fiscal 2020, even as enrollment has shrunk by more than 100,000 students since the 2019–20 school year. As Manhattan Institute’s Danyela Souza Egorov has shown, it has been easier to keep underenrolled schools open and funded as though they had full enrollment, rather than close failing schools and reduce school-level budgets in proportion to enrollment declines. The end result is a school system that, all-in, spends an estimated $42,000 per pupil—highest in the nation by far—with results at or below the national average.

Likewise, despite repeated promises to reform the city’s arcane, irrational, and unfair property-tax system, Mamdani has yet to offer a concrete plan. Among other problems, because taxable assessed values increasingly fail to keep pace with market values, owners of highly desirable small homes pay a smaller share of their properties’ value in taxes than comparable owners in working-class neighborhoods. His problem is that the 45-year-old system’s biggest beneficiaries are his voters: homeowners in brownstone Brooklyn whose market values have far outpaced their capped assessments. The biggest losers are owners of large apartment buildings—Mamdani’s natural political foes. As a result, his voters pay far less in taxes relative to property value than homeowners in less expensive parts of the city or landlords of multifamily properties.

Underneath the buoyant revenues, however, New York City’s fiscal situation is ever more precarious. While major catastrophes like 9/11 or the 2008 financial crisis tested mayors’ fiscal capabilities, even a slight revenue decline, such as from a mild recession or sustained stock-market correction, would be enough to force Mamdani to make choices that he’s been able to evade so far. If Mamdani treated an expected budget gap as a crisis while revenues were still growing, what will he do when tax collections start coming up short?

Mamdani’s fiscal straitjacket and reluctance to pursue genuine reform create political openings for Hochul and Menin. The governor, likely headed for an easy reelection win in November, holds considerable leverage over him. She must approve the tax hikes central to his affordability agenda, and she controls state funding that Mamdani will almost certainly seek, no matter how city tax revenues perform.

The mayor has already shown deference to Hochul. He has held back on criticizing her, unlike his Democratic Socialists of America allies who have branded her a shill for billionaires. In late May, DSA lawmakers voted no on the state budget’s revenue package because it didn’t include taxes on high earners and corporations. Senator Jabari Brisport, a close Mamdani ally, said, “If Governor Hochul and her billionaire funders think they have done enough to quell this brewing storm, they’re wrong; we’re just getting started.” Yet in March, Mamdani stayed away from Senator Bernie Sanders’s “Tax the Rich” rally to avoid intensifying pressure on Hochul.

Hochul has her own political challenges. She finds herself stuck between a far-left legislature, a socialist in city hall, and a structurally imbalanced state budget. Should President Donald Trump cut off funding for the city and state, she would be hard-pressed to make up the difference.

Unlike Mamdani, however, the governor recognizes that a durable tax base for the city and state depends on robust private-sector growth and high-earning individuals and corporations. In a March forum, she asked high net-worth individuals to “go down to Palm Beach and see who you bring back home because our tax base has become eroded.” In May, she stood up to the Long Island Rail Road unions’ strike, revealing a willingness to buck organized labor’s most unreasonable demands. Facing no electoral pressure for the remainder of Mamdani’s term, Hochul will have a chance to be New York’s great moderating force. While she has so far allowed state spending to expand in tandem with revenue growth, controlling costs to contain the state’s structural budget deficit will give her the most flexibility over the mayor—and thus over the city and state’s future.

If Hochul can discipline Mamdani from Albany, Menin can do so from inside city government. The council’s budget counterproposal to Mamdani, while imperfect, implicitly rejected the mayor’s tax-the-rich maximalism while acknowledging the political reality that large service cuts or headcount reductions were unlikely. For the first time in the city’s modern history, the council’s proposal was more fiscally responsible than the mayor’s. It sought to close the budget gap through narrower, targeted relief, avoiding tax hikes and preserving a consistent business environment.

Menin should signal to the city’s business leaders that the mayor won’t be allowed to achieve the worst of his antigrowth policies. She will also need to resist the council’s usual game of spending more than the mayor and passing expensive legislation without having the means to pay for it, particularly by arresting the expansion of the City Fighting Homelessness and Eviction Prevention Supplement housing voucher. CityFHEPS has ballooned from $25 million in fiscal 2019 to nearly $2 billion in Mamdani’s executive budget, thanks to the council’s legislation expanding voucher eligibility.

Going further, Menin should turn the tables on Mamdani by proposing a comprehensive property-tax reform that more nearly equalizes tax burdens across residential property types. By accelerating home assessments toward market values while reducing the tax load on large rental buildings—particularly rent-stabilized properties—she would force more of Mamdani’s coalition to bear the costs of his agenda while providing much-needed relief to distressed rental owners. Better still, such a reform would encourage housing production by reducing the need for tax abatements, which are often necessary to make rental projects financially viable under the city’s current tax structure. Importantly, Menin could propose a revenue-neutral overhaul, whereas Mamdani would likely be tempted to use reform as a vehicle for higher taxes.

Menin’s proposal would require Mamdani to choose whether he truly wants to overhaul a system that he claims needs one. If he opposes reform, he’ll expose himself as unwilling to ask his coalition to help pay their fair share. Either way, Menin can shift the tax debate onto stronger ground.

Mayor Mamdani’s first budget reveals an administration more intent on avoiding trade-offs than confronting hard challenges. Breaking the city’s resource curse will require city and state leaders to stop treating budget gaps as reasons to take more from the taxpayers and firms that keep New York afloat—and start forcing city hall to spend within its means.