Democratic socialist Zohran Mamdani made headlines around the world on June 24 when he got the most votes in the Democratic Party’s mayoral primary in New York City (NYC) and was confirmed as the winner on July 1. The potential impact of a Mamdani mayoralty on the city and its finances has already generated concern among municipal bond investors.
In our view, investors may take some comfort that NYC should maintain its credit rating and the ability to service its general obligation bonds—no matter who becomes the next mayor. Let’s look at how NYC is governed, review why the 1975 fiscal crisis helped underpin its strong financial position today and consider what Mamdani is proposing and whether he would have the power to do it. Here’s our reminder that the more things change, the more they stay the same.
Setting the stage: Civics lesson on NYC’s governance structure
The NYC metropolitan area is the largest in the United States, with a GDP of almost $2.3 trillion according to the St Louis Federal Reserve Bank. Multiple sources also rank NYC number one among metro areas globally. GDP per capita (GDP/population) at roughly $115,000 compares quite favorably to the GDP per capita of many states—for example, Texas at $69,425 and Florida at $57,317. According to Forbes, NYC is home to 123 billionaires, more than any other city and well ahead of second place Moscow with 90.
In NYC, the mayor manages the executive branch, which develops annual expense, revenue and capital budget proposals and implements adopted budgets. The legislative branch is the 51 member City Council, which reviews proposed budgets, negotiates with the mayor, adopts budgets and accepts or rejects any modifications during the year in response to changing conditions. Let’s review why the budget must be balanced every year.
Enforcing discipline: History lesson on the 1975 fiscal crisis
Almost half a century ago, on October 29, 1975, the Daily News ran a famous headline: “Ford to City: Drop Dead”—referring to President Gerald Ford’s refusal to bail out NYC on the brink of bankruptcy.
The culmination of several factors ranging from demographic shifts and an economic downturn to fiscal mismanagement, the 1975 fiscal crisis resulted in a state takeover of the city’s finances in June. The New York State legislature passed the Financial Emergency Act (FEA) and created the Financial Control Board (FCB) in September. Despite the October headline, the federal government agreed to guarantee the state plan in December.
Here are the FEA’s salient provisions:
• The City budget must be balanced each fiscal year, according to Generally Accepted Accounting Principles (GAAP).
• The City must prepare and update quarterly a four-year Financial Plan for revenues, spending and borrowing. The current fiscal year budget and, starting with the Financial Plan in January, the following fiscal year budget must be balanced according to GAAP.
• Bonds may only be issued for capital costs (not operating costs), and the City faces stricter limits for the amount and term of short-term notes for cash flow needs than what’s allowed for other municipalities by the New York State Local Finance Law.
• Before accruing to the City’s General Fund, property tax receipts are retained by the State Comptroller in a General Debt Service Fund (GDSF) for paying the debt service on the City’s General Obligation bonds.
The FEA remains in effect until November 2037. Ballot referendums in 2005 incorporated the first three points permanently into the City Charter. The FCB continues to exert oversight.
Today, NYC’s fiscal position is strong, and management controls are sound. The FY 2025 projected budget of $112 billion is larger than all but a handful of state budgets—and it’s balanced, as required. FY 2024 was the second consecutive operating surplus for the city. Reserves totaling $8.5 billion are at record levels, including the General Fund Reserve of $1.2 billion, Rainy Day Fund of $2 billion, Retiree Health Benefits Trust of $5 billion and Capital Stabilization Reserve of $250 million.
Looking ahead: What could NYC’s next mayor do?
As a candidate, Mamdani has proposed freezing the rent for tenants in rent stabilized buildings, eliminating fares on buses, providing free childcare from 6 weeks to 5 years old, creating a network of city-owned grocery stores and spending an additional $70 billion over 10 years to build 200,000 units of affordable housing. To help pay for these initiatives, he has proposed increasing corporate and personal income taxes by roughly $9 billion annually.
In general, primary voters tend to be further from center than the overall electorate, so Mamdani’s support may not carry over to the general election on November 4. Current mayor Eric Adams is running as an independent, and other challengers may emerge in what might become a crowded field. A Mamdani victory isn’t assured. Even if he becomes the next mayor, an office with considerable influence, here’s why we doubt he would be able to unilaterally implement most of his proposals:
The mayor does control the Rent Guidelines Board, so a stabilized rent freeze may be likely. The MTA runs the buses, however, and the NYC mayor recommends only four of its 23 board members, so we view free buses as unlikely. Any tax increases would require not only winning a majority of votes on the City Council but also specific approval from the state legislature. Likewise, spending proposals on grocery stores and childcare require City Council approval and would be constrained by the need to balance the budget. Last but not least, we view the political and legal obstacles to his affordable housing plan as significant.
The bottom line
The election of a democratic socialist as the next mayor of NYC isn’t a sure thing, but were that to happen, significant checks and balances are in place to prevent the implementation of what many view as unconventional and fiscally irresponsible policies. We’ve observed that most campaign promises go unmet, and we anticipate that a Mamdani mayoralty would be typical in that way at least.
We believe budget discipline would be maintained, the city would endure and no rating changes would occur. Yet even the perception of a leftward shift in government could have longer-term negative consequences if businesses and high income taxpayers found NYC’s environment becoming less friendly. After all, when choosing a city to live in, billionaires do have some options.
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07.01.2026 | RO 4618915
