The New York City Comptroller projected a $10.4 billion budget gap for fiscal year 2027 in January of this year. He stated the cause clearly: "This wasn't caused by a bad economy. It's the result of budgeting decisions from the previous administration."

New York City's fiscal crisis isn’t primarily a revenue problem. The economy has been growing. Tourism, Broadway, commercial leasing, and Wall Street bonuses have all been strong. Tax revenues have increased nominally year over year.

The crisis is a spending problem. Specifically, it's the accumulated result of three compounding failures over six years, and understanding them is essential when evaluating whether any proposed solution, including the pied-à-terre tax, meaningfully reduces the budget shortfall.

Failure One: Temporary Money, Permanent Programs

Between 2020 and 2022, Congress passed three major COVID relief packages. The largest, the American Rescue Plan Act of 2021, delivered $350 billion to state and local governments nationwide. New York State received $12.75 billion. New York City received billions more in education-specific aid.

The money was explicitly temporary and non-recurring. The Citizens Budget Commission warned as early as May 2021 that the city's planned uses of federal aid would widen future budget gaps because the de Blasio administration was using at least $1.3 billion in annual recurring programs funded by one-time money.

The most visible example: roughly $1 billion in federal pandemic aid was used to expand the city's 3-K early education program. When the federal funding expired in FY2024, the city backfilled the spending from its own budget rather than scaling the program back. The annual cost of 3-K and Pre-K combined now runs approximately $1.63 billion. That obligation didn't exist in 2019.

The same pattern repeated across child care vouchers, subsidized slots, and several social services programs. The federal money ran out on schedule, exactly as predicted, yet the programs remained.

The Bet Had Precedent

De Blasio had personal precedent powering his commitment to 3-K expansion. In 2014, he launched universal Pre-K using a combination of state money and city funds that weren't guaranteed to be permanent, and it worked. The program became so politically entrenched that permanent funding followed. When federal COVID money arrived in 2021, the Pre-K playbook was the obvious template: build the program, demonstrate its value, and the funding will follow.

What de Blasio underestimated was a fundamental difference in leverage: a president who controls federal tax policy can build a program and then fund it. A mayor can only build it and hope.

Failure Two: Deliberate Underbudgeting

The Adams administration inherited this problem and made it worse by presenting budgets that knowingly understated the cost of existing programs.

Prior administrations exceeded preliminary budget projections by an average of 3.5%. Under Adams, the city overspent projected budgets by an average of 10%, concentrated in social services, housing vouchers, shelter costs, and education mandates.

Adams budgeted $860 million for cash assistance in FY2026. Actual projected costs were almost double: nearly $1.7 billion. Rental assistance and shelter were similarly underfunded by billions. 

The Citizens Budget Commission identified at least $4 billion per year in chronic underbudgeting across five program areas alone: CityFHEPS housing vouchers ($515 million), public assistance ($467 million), MTA subsidies ($268 million), special education due process cases ($131 million), and uniformed overtime ($682 million).

Underbudgeting was a choice. A budget that knowingly presents $860 million for a program that costs $1.7 billion is a gap that defers the reckoning to the next administration. Both the City and State Comptrollers formally agreed that the Adams administration had substantially underbudgeted core city services and obligations, increasing budget gaps to more than $12 billion.

Not Entirely

Not quite everything in Adams's budget gap was a choice. Of the 100,000 migrants Texas transported out of state between 2022 and 2024, 83,600 were sent to three cities: New York, Chicago, and Denver. Texas spent $86 million doing it. New York City spent approximately $6 billion responding. NYC spent roughly $35,000 to $45,000 per person annually, compared to the $1,650 per person Texas spent putting them on a bus.

NYC's Right to Shelter consent decree, dating to a 1981 lawsuit, legally obligated the city to provide shelter to anyone who requested it. No other American city operates under the same mandate at the same scale. Chicago spent roughly $400 million on the same crisis. Denver spent less than $340 million. New York spent ten to fifteen times more than either because a legal obligation that exists nowhere else was deliberately exploited by governors in other states who bore approximately 1.4% of the cost their strategy imposed.

The $6 billion in asylum seeker costs belongs in a different category from the chronic underbudgeting of cash assistance or the CityFHEPS expansion. One was done to the city. The others were done by the city. A diagnosis that conflates them isn't completely accurate.

Failure Three: CityFHEPS

CityFHEPS (City Fighting Homelessness and Eviction Prevention Supplement) deserves its own category because the scale of its growth is in a class by itself.

The program launched in 2019 with a budget of $25 million. It now costs $1.2 billion annually, a 4,700% increase in just six years.

Three decisions in particular drove the explosion. The de Blasio administration removed the program's time limit in 2021, converting what was designed as a transitional bridge into a permanent entitlement. The City Council then raised the maximum voucher value to the federal Fair Market Rent benchmark, substantially increasing the per-unit cost. Federal COVID money covered nearly half of CityFHEPS costs in FY2021 and FY2022. The program's true recurring cost was exposed once the federal money ran out.

The program also isn’t working as designed. There are now 52,000 active voucher households, and that number hasn't come down in any meaningful way. After roughly two years, the voucher costs more than shelter. By year five, CityFHEPS costs the city 27% more than shelter for the typical single adult and 64% more for families.

A pending City Council expansion of CityFHEPS eligibility, currently in litigation, could add an additional $6 to $22 billion over its first five years of implementation. The Comptroller's office has flagged this as the single largest unquantified risk in the city's financial plan.

How the Numbers Add Up

The FY2027 gap of $10.4 billion, before the CityFHEPS expansion risk is counted, breaks down roughly as follows. 

• Permanent programs funded with temporary COVID money account for an estimated $3 to $4 billion in annual spending above pre-pandemic levels. 

• Chronic underbudgeting of known recurring costs accounts for at least $4 billion more per year. CityFHEPS alone is underbudgeted by $515 million annually and growing.

• Against that backdrop, the pied-à-terre tax projects $500 million in annual revenue. That's one-twentieth of the gap.

Mayor Mamdani has made progress. His FY2027 Executive Budget was presented as balanced, achieved through a combination of $8 billion in additional state aid, the pied-à-terre tax, identified savings in shelter costs, CityFHEPS, special education, and a restructured debt payment schedule. The Comptroller's office has noted, however, that several of those savings targets remain unspecified or unsubstantiated, and that the pending CityFHEPS expansion litigation represents a risk that dwarfs every other number in the plan.

Predictable, Predicted, and Ignored

None of this happened because New York City's economy failed. It happened because the city built a higher spending baseline on temporary money, presented budgets that deliberately concealed the true cost of ongoing programs, and expanded entitlements without permanent funding mechanisms – all while warning signs were documented, published, and ignored.

The pied-à-terre tax is indeed a revenue contribution. So is the additional state aid Mamdani secured. But neither addresses the underlying dynamic: a city that consistently spends more than it acknowledges, funds permanent commitments with temporary money, and addresses demand-side crises with open-ended subsidies instead of supply-side solutions.

Which brings us to the question this series has been building toward: what would it take to fix New York City's finances — not patch them, but fix them? 

That'll be the next post.

Brandon Mason is a residential real estate broker at Douglas Elliman, working across Manhattan and Brooklyn. What began as a closer look at the pieds-à-terre tax has become a series on New York City's fiscal crisis and what it means for the city's future.