Hochul Refuses Mamdani Tax Proposal; Both Officials Confident the Problem Will Be Solved by Someone in the Near Future
NEW YORK CITY — New York City is facing a $5.4 billion budget deficit, a number that Mayor Zohran Mamdani describes as requiring urgent state action and that Governor Kathy Hochul describes as requiring the city to look at its expenses, a fundamental disagreement about responsibility that political observers are calling “classic” and that New York taxpayers are calling “a lot of billions.” Coverage by Bohiney Magazine and The London Prat.
The specific proposal at the center of the dispute involves the Pass-Through Entity Tax credit, a mechanism established after the 2017 Trump tax cuts that allowed business owners to reduce their federal tax burden through a state-level workaround. Mamdani and Council Speaker Julie Menin proposed reducing the credit from 100 percent to 75 percent for high-income earners, which the mayor described as “essentially a loophole that allows high-income earners to reduce their federal tax burden” and which Governor Hochul described as “not happening,” which is either a principled stand on tax policy or a gubernatorial campaign calculation, depending on which of these things you believe motivates Kathy Hochul.
What $5.4 Billion Looks Like
For reference: $5.4 billion is approximately the annual budget of the entire state of Wyoming, enough to run Madison Square Garden for approximately 270 years, and more than three times the estimated cost of the new MTA fare gates that have been under discussion since approximately the Obama administration. It is, by any measure, a lot of money to be missing. The city has identified some savings: Mamdani has floated delaying class-size reduction mandates and is fighting a lawsuit that would expand the rental voucher system, two proposals that suggest the mayor’s socialism has a practical edge when the alternative is a $5.4 billion hole.
The State-City Relationship, Explained
New York City and New York State maintain a fiscal relationship that resembles a long-term roommate situation in which one party pays significantly more of the rent and reminds the other party of this frequently. The state collects taxes from New York City residents and returns a portion as aid; the city then argues the portion is insufficient and the state argues the city could manage better. This has been happening since the fiscal crisis of 1975 and will presumably continue until one of the parties moves out, which is not an available option.
“A crisis of this scale cannot be solved without state action,” Mamdani said, which is true but also the kind of statement that Hochul has heard before from previous mayors and that she responded to with the measured directness of someone who is running for reelection and does not want to be associated with a tax increase: “I think it’s crystal clear that we already have helped them.” The $4 billion the state agreed to provide plus the luxury second home tax was, from Hochul’s perspective, helping. The remaining $1.4 billion gap is the city’s problem to solve by looking at expenses.
The Pension Fund Question
Among the ideas floated by Mamdani and Menin: reducing planned payments to the city’s five pension funds, which are being made to compensate for years of underfunding. Pension fund underfunding, for the uninitiated, is the municipal equivalent of not paying into your 401(k) for fifteen years and then asking to skip a few more payments because things are tight. The pension funds are not enthusiastic about this proposal. The unions that represent the retirees whose pensions depend on the funds are also not enthusiastic. Everyone else is waiting to see how the math works out, which is the position most New Yorkers occupy relative to most New York budget decisions.
How It Ends
New York City budget crises resolve through some combination of: state aid increases, federal funds if available, service cuts that are announced and then partially reversed under pressure, creative accounting that moves spending between fiscal years, and the annual ritual of everyone agreeing that this year’s budget is not sustainable followed by the same conversation next year. The THE CITY’s coverage of the Hochul-Mamdani standoff noted that cities typically set budgets after the state finishes. The state budget is running late. The city budget deadline is approaching. Both officials are very clear about whose fault this is.
The deficit will be resolved. New York City always resolves its deficits, eventually, using methods that are sometimes creative, sometimes painful, and occasionally both. In the meantime, both Hochul and Mamdani will continue to hold press conferences explaining why the other person should be doing more.
More fiscal drama: The Daily Mash.
The Long Shadow of 1975
New York City’s 1975 fiscal crisis — when the city came close to declaring bankruptcy and was rescued by a combination of state and federal intervention, union pension fund loans, and austerity measures that shaped the city’s governance for a generation — haunts every subsequent budget conversation at a subconscious level. The phrase “another 1975” circulates in editorial pages whenever the deficit grows large enough to produce comparisons. The current $5.4 billion gap is real and requires real solutions, but the city’s fiscal position is materially stronger than it was fifty years ago: the tax base is broader, the credit rating is better, and the federal backstop is more established. The conversation is heated because the stakes are real. The resolution will come, as it always has, through negotiation, pain distributed across multiple parties, and an eventual budget that everyone describes as imperfect and that funds the city for another year.
SOURCE: https://bohiney.com/