An Expanding Economy and Growing Tax Collections

The City’s economic trajectory is positive. Office attendance continues to improve and is stronger than the national average. Older office buildings that struggled to attract tenants are being converted to residential properties in a redevelopment boom made possible by zoning and permitting changes. Tourism is another bright spot, and the City is on track to surpass pre-pandemic visitor levels in 2025. Increasing economic activity has contributed to revenue growth. In fiscal year 2025, tax collections were 10% higher than the previous year with notable strength in property tax and income tax collections (supported by Wall Street bonuses from a strong 2024), though revenue growth is expected to moderate.

Lessons from the Fiscal Crisis of 1975

In the late 1960s and early 1970s, deindustrialization, weak financial markets, and population loss from suburbanization led to a severe economic downturn. The City also faced acute financial distress due to years of uncontrolled cost growth, imprudent practices like borrowing for operating deficits, and opaque financial disclosure. In April 1975, the State stepped in, advancing funds to the City in exchange for financial oversight. Later that year, state legislature enacted fiscal reforms with the passage of the Financial Emergency Act (FEA). Key measures include: the balanced budget requirement which prohibits deficit spending, financial planning and reporting requirements (to this day, the city submits a budget and a four-year financial plan to the state), restrictions on taxation, and the elimination of borrowing for operating purposes. The reforms implemented during this time period were critical to the rebound of the city’s credit profile in the decade that followed and remain core strengths.

Mamdani’s Platform: the Road to Implementation

The FEA’s legacy of fiscal discipline and State oversight has implications for the Democratic candidate’s policy proposals, should he win the election. While there is some low-hanging fruit, we believe that many initiatives are not viable in their current form. From most likely to least likely:

1. With mayor’s authority to appoint members to the Rent Guidelines Board and no direct cost to the city, freezing rent on rent controlled apartments may be the lowest hanging fruit.
2. City-owned grocery stores are also feasible, with a relatively low estimated cost of $60 million compared to the city’s $116 billion fiscal year 2026 budget.
3. Eliminating bus fares is less certain due to the need for State approval, particularly as the $800 million revenue loss would add to the Metropolitan Transportation Authority’s (MTA) pre-existing funding challenges.
4. Affordable housing investments financed by $70 billion in bonds appear unlikely as the amount exceeds the State-imposed debt limit. Smaller investments could be possible.
5. Free childcare for New Yorkers under the age of five is the most ambitious, although it has Governor Hochul’s support. Given the $6 billion price tag, we expect a phased in approach.

Funding remains the core constraint. The mayor, with Council approval, has the authority to increase property taxes, but increases are subject to assessment caps and extended phase-in periods. Mamdani’s suggested increases to the corporate tax rate and the surtax on personal incomes over $1 million would generate $9 billion in aggregate but require State authorization, which does not appear to be forthcoming given the rising risk of outmigration to lower tax states, the upcoming gubernatorial election in 2026, and the state’s own fiscal pressures.

Bottom Line: Regardless of the outcome, we take comfort in New York City’s positive economic trajectory and the fiscal guardrails that have institutionalized financial discipline. We continue to see value in the New York municipal market for city and state residents, and in some cases for national buyers, as after tax yields are attractive.