Joseph Krist

Publisher

NYC BUDGET

Mayor Mamdani presented his preliminary budget – emphasis on preliminary – and it includes a $5.4 billion budget gap. The presentation was all over the place. The City apparently cannot survive without new taxes but there is $14 billion of new spending. The Mayor laid out two approaches both of which would saddle state legislators with the job of increasing taxes. They either raise taxes on million dollar earners in the City and get the blame directly or they “force” the Mayor to raise property taxes while being blamed by him for having to do it.

This after the Governor found some $1.5 billion of new aid that reduced the projected gap to be closed. Nevertheless, the Mayor continues to ask for increased aid from the State citing the mismatch between State revenues from the City and state aid to the City. It’s an old argument and it will play poorly upstate. It certainly did not attract a lot of support when the Mayor’s made his first “Tin Cup Day” visit in Albany to the State Legislature. 

The expense side of the budget is problematic. The plan spends some $121 billion. Some 40% of City spending will be on the Board of Education. The potential for savings there is likely low. The budget would  provide for an FY26 draw down of $980 million from the Rainy Day Fund. In FY27another draw down of $229 million from the Retiree Health Benefits Trust is projected. At the same time, the Mayor proposes to fund a new Department of Public Safety. The projected year 1 cost – $1.1 billion. The source of revenue? To be determined doesn’t cut it.

Income taxes on the wealthy are a central tenet of the Mayor. Recently, the NYC Independent Budget Office (IBO) released data on the City’s personal Income tax collections and the wealthy. In 2023 (the last year for which data has been released by the State) , about 3.9 million New York City residents filed income tax returns.  The typical (median) filer reported about $42,700 in income, and most filers earned less than $170,000 for the year. Income is defined as filers’ adjusted gross income on their tax return. More than two-thirds of New York City income came primarily from wages and salaries, rather than investments. 

The top 1% of the New York City income distribution began at $906,677 and tops out at more than $5 billion in 2023. IBO defines millionaire filers as filers with an AGI of at least $1 million. Although not quite as high as in 2021, when the count of millionaire filers went over 35,000, the number of millionaire filers hovered around 34,000 in 2022 and 2023.

The shares of overall income (measured through AGI) and overall Personal Income Tax liability attributable to millionaire filers hit a high in 2021 at 43% and 48%, respectively, driven largely by realized capital gains income from the strong stock market in that year. These shares declined to 35% and 39% in 2022, and 33% and 37% in 2023. Though on the lower end relative to recent past years, 2023 values of millionaire filers are in line with historical trends.

It has always been our view that ideologically driven approaches to municipal finances always run into reality. It’s not the ideology itself. It’s the fact that ideologically driven policies often don’t fit the realities on the ground. There is little or no appetite for tax increases in either the City Council or in the State legislature. The Governor is trying to get reelected. Increasing taxes is not a practical approach especially if it hits “middle class” homeowners rather than “the rich”.

The discussion of the potential property tax hike highlights the problems with the City’s property tax system. The system is riddled with inequalities and single family homeowners in the outer boroughs are rightfully upset with it. It is a long standing problem, and the Mayor is right to say that it needs to be addressed. Nevertheless, that reform will not occur in the next two months which is when the City can find out how much state help it will receive.

The capital side of the budget carries some impressive numbers, but the City faces enormous capital needs just in areas like housing. It will be interesting to see the politics of housing play out. The Mayor has clearly targeted landlords in his initial actions. Private landlords. Quietly, the City’s status as the largest landlord through its housing authority will create political roadblocks as the deteriorating physical plant of NYCHA facilities continues as a problem.

We’ve seen what can happen as the result of ideological approaches. Putting city council members in difficult positions initially has made Brandon Johnson’s life in Chicago quite difficult. Last minute budgets and budgets constructed solely by the local legislators have characterized a rough two years. Chicago’s credit remains under pressure as many of the long term issues pressing down on ratings go effectively unaddressed.

We know that the starting credit point for Chicago and New York differs significantly. If nothing else, the pension situations facing each city are not comparable. Nevertheless, we believe that even with balanced budgets that New York’s rating will be under pressure. As much as one would like to separate politics from the numbers, in the current environment they matter greatly. Hopefully, Mayor Mamdani embraces reality more quickly than Mayor Johnson has.

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