At the end of April, New York City Mayor Zohran Mamdani proposed delaying pension plan contributions to help close the Big Apple’s budget deficit.
The problem is that while delaying pension payments could free up $1 billion in the short term, the budget gap is $5.4 billion. This flawed strategy highlights a much larger problem: the Big Apple’s biggest budget pains are self-inflicted.
Kicking the can down the road on mandatory pension contributions still leaves a massive hole in the budget while hurting public employees (many of whom helped propel Mamdani into office) and placing greater burdens on New York’s shrinking tax base.
If Mamdani does not make the spending fixes on his own terms, markets will force him to do it when the City can no longer find willing investors.
Why Pensions Matter
A pension liability represents a financial retirement benefit promised to a public employee. Unlike Social Security, these benefits are prefunded: when a public employee retires, the plan should have on hand the total amount needed to purchase a lifetime annuity on that employee’s behalf.
Pensions are funded through contributions from public employees and taxpayers, as well as investment returns. Public employee contributions are tied to a fixed percentage of payroll, so when investment returns come up short, taxpayers are compelled to cover funding gaps. These benefits are calculated using a formula, including a public employee’s final average salary.
In most states, including New York, public employees can also use overtime and unused sick days to increase their final average salary. This practice, known as pension spiking, often results in pension payments that exceed the salaries public employees received while working.
Publicly promised benefits have legal protections that vary state to state. New York guarantees public pension benefits through the New York State Constitution, as well as other state statutes and legal precedents that include pensions as part of a contractual relationship between employers and employees. Benefits can only be revoked if a potential beneficiary is convicted of a felony.
In other words, these promises are rock-solid. The strength of those promises, however, also means that spending on pensions gets priority over other expenditures, including other public services that are deemed “core government functions.” That means taxpayers see higher tax burdens while the government becomes more bloated and ineffective.
The only way New York State can change pension benefits without a constitutional amendment is by changing the benefits offered to future hires, which gave rise to the tier system. One’s tier is determined by when one was hired. The more recent the hire, the more the employee must pay into the system and the later they can retire.
This has not stopped unfunded liabilities from growing. Public pension liabilities matter because they are one of the largest sources of long-term debt that state and municipal governments face. Massive pension liabilities are a leading contributor to recent fiscal crises, including those experienced by Detroit, Puerto Rico, and municipal bankruptcies across California.
Currently, New York City owes over $40 billion in pension benefits not covered by current assets. That is just under $4,600 per person and a larger liability than the Empire State’s aggregated average of $2,681 per person and the national average of $1,475 per person.
That burden will fall on a shrinking number of taxpayers, who cannot seem to escape New York fast enough. The city lost thousands of residents across all income levels in 2025, and New York State is on track to have a decade of population decline.
Now, public employees throughout the Empire State are pressuring state officials to roll back the Tier 6 reforms in 2012, which would promise greater benefits from a city that is increasingly unprepared to pay for them.
Back to the 70s? A Familiar Fiscal Pattern
In late April, Mamdani declared a fiscal emergency due to structural budget deficits. While his administration inherited a fiscal mess, his own ambitious spending plans only dig New York deeper into the fiscal hole.
Many are quick to compare Mamdani’s New York to Mayor John Lindsay, whose similar spendthrift approach led to the 1975 fiscal crisis under his successor, former city controller Abraham Beame.
While New York City is not currently in 1975, it may be in 1965. Much like Mayor Mamdani, Mayor Lindsay positioned himself as an outside urban reformer who grew government during a period of rising welfare costs, labor pressure, middle-class flight, crime, and weakening fiscal discipline. He also blamed his predecessor, Mayor Robert Wagner, for leaving him with massive budget deficits.
Much like today, markets were skeptical of New York City’s ability to pay its debts. Unlike today, however, the Big Apple does not appear to be as dependent on short-term bonds as it was before the 1975 crisis. The recent pension contribution deferment, however, resembles the same attitude of short-term debt to cover current spending. This time, however, the city is effectively borrowing against the retirement security of public employees (who were, again, among Mamdani’s top campaign supporters) while leaving the bill to future taxpayers.
Economist John Phelan notes that the crisis occurred when the city could not find a willing underwriter, a securities broker or dealer that purchases bonds to resell to investors, for its bonds. This is because news emerged that the city did not have the tax receipts necessary to cover the proposed debt.
The Municipal Assistance Corporation (MAC) was created in 1975 after New York City lost access to credit markets. It served as an emergency financing vehicle, issuing bonds backed by state-controlled revenue streams to help the city meet obligations while forcing budget discipline. MAC also helped shift control away from ordinary city politics and toward state-supervised fiscal management. Although MAC itself was dissolved after its bonds were retired, its legacy remains.
New York’s post-crisis guardrails now include the Financial Control Board, balanced-budget rules, limits on short-term borrowing, quarterly monitoring, and four-year financial plans. Those guardrails are weaker than direct crisis control, but they can still tighten if conditions deteriorate.
Mayor Mamdani has already shown a willingness to pressure Albany for additional taxing authority. He pounced on the governor’s approved pied-à-terre tax on secondary residences, prompting the departure of Ken Griffin and other business-owners from New York. The recent budget deal reached in Albany further highlights the city’s ability to bully the rest of the Empire State into going along with the city’s desired policies.
While Mamdani’s New York still has willing investors, the past still provides a stark warning. If these recurring promises grow faster than revenues and if higher taxes accelerate outmigration of businesses and high-income residents, today’s structural gaps could harden into a deeper fiscal crisis.
Has the Big Apple Gone Rotten?
New York City still has much to recommend it to residents and investors, but the warning signs are increasingly difficult to ignore. New York’s future depends on whether its leaders can impose discipline before markets do it for them. If officials continue to squeeze a shrinking tax base, rely on pension gimmicks, and use short-term fixes to close long-term gaps, the city risks repeating the very mistakes that once pushed it to the brink of collapse.
