Budget Dilemmas in NYC

Budgets typically reflect choices, but Mayor Mamdani’s proposed budget for fiscal year 2027 leaves Governor Hochul and state lawmakers with just two options. They can either accept the tax hikes suggested by the governor or ask the City Council to implement a painful property tax increase of nearly 10%.

The mayor expressed some support for the conservative spending approach of the Adams administration. If the city is in a genuine financial “crisis,” then a strategic response seems necessary.

Yet, the mayor hasn’t even taken basic steps to stabilize the situation.

The appointed “chief spending officers” tasked with cutting costs have not presented a viable plan, and there’s been no talk of a hiring freeze.

Instead, property owners are facing a looming 9.5% property tax hike.

Numerous factors have contributed to the current financial turmoil.

Education Sector Issues

The Department of Education (DOE) exemplifies the city’s financial struggles.

It accounts for the largest portion of the budget, with Mamdani expecting it to spend an additional $2.8 billion next year. However, the city is seeing a decline in student enrollment due to population shifts and lower birth rates. Ten years ago, there were over 87,000 first-year students in public schools, but now that number has dropped to about 70,000, many of whom opt for charter schools as parents lose faith in the public education system.

The DOE has lost about 118,000 students, yet many schools remain underpopulated.

As noted by Daniela Souza Egorov from the Manhattan Institute, there are 112 public schools with fewer than 150 students enrolled, despite the city borrowing funds to build new facilities. Last year, low-enrollment schools received $250 million in tax exemptions.

Mayors should be consolidating and closing these underutilized schools while adjusting budgets to ensure consistent spending per student. The potential savings here could be substantial, likely reaching billions over time.

Another significant cost driver in education is the rise in “due process” lawsuits. These arise when the DOE fails to meet special education requirements, prompting parents, often wealthy and well-connected, to place their children in private schools and sue for tuition reimbursement.

Data from May 2025 shows that the average litigation settlement per student was around $101,757, according to research by MI Fellow Jennifer Webber.

In fiscal year 2019, these reimbursements cost the city approximately $500 million. Mamdani has now allocated $1.55 billion for next year—a threefold increase.

The mayor could contain this growth by reversing a previous policy of not contesting reimbursement claims from prior years, which obligates parents to sue annually to recover costs.

He might also consider delaying a state mandate to reduce class sizes in public schools, potentially saving about $600 million. It’s debated, but studies suggest that improving instruction quality is more beneficial than simply reducing class sizes.

Homeless Services Challenges

The Department of Homeless Services (DHS) has also seen significant budget increases. Between fiscal year 2019 and 2027, its budget surged by 120%, climbing from $2.1 billion to $4.6 billion.

Mamdani recently revised projections, estimating that shelter spending will exceed previous expectations by $1 billion next year.

This spike in costs was influenced by the decision to accommodate and provide for all immigrants arriving in the city. However, Mamdani is now criticized for revoking evacuation restrictions that were previously negotiated, allowing immigrants to stay longer in shelters along with the existing homeless population.

By late November, approximately 31,629 migrants were in shelters, and as of last month, that number remained fairly constant at 30,813. The turnover rate has noticeably slowed.

Social Welfare Budget Issues

A couple of areas causing budget revisions come from the Department of Social Services (DSS), which administers public aid programs. Since 2019, its budget has experienced a 44% increase, reaching $14.6 billion.

Mamdani alleges that the current administration is falling over $1 billion short on the rent subsidy budget due to an expansion of eligibility for CityFHEPS in 2023, a city-funded housing voucher program.

This expansion occurred without proper fiscal planning, leading to concerns of an unsustainable burden estimated at $17 billion over five years, which was vetoed by Adams but overridden by the City Council.

Mamdani had promised to enforce the law but is now looking for ways to resolve the lawsuit without fully expanding CityFHEPS.

It’s notable that while the program cost only $25 million in 2019, it’s projected to balloon to $2.2 billion next year.

The mayor should seek to temporarily scale back the program to realize some savings.

Another factor contributing to DSS’s growth is cash assistance, intensified by the city’s support for a withdrawal from work-based welfare reform.

While it may seem unlikely, Mamdani could potentially rein in this spending by emphasizing work over benefits.

High operating costs across city agencies partly stem from the absence of employee contributions to health insurance premiums. The budget anticipates a 14% rise in these costs, which taxpayers will bear in full.

If New York state employees were to contribute a reasonable percentage to their health insurance, it could save taxpayers up to $675 million annually.

As a mayor elected with a promise of affordability, Mr. Mamdani should be aiming to control government spending instead of imposing heavier burdens on struggling property owners.