Since the Covid-19 pandemic, New York City has experienced a noticeable slowdown in its economic growth, allowing rival cities to gain ground. Exorbitant housing costs, a declining quality of life, and high tax rates are contributing factors that make it increasingly difficult for both residents and businesses to thrive in the city. As the next mayor prepares to take office, addressing these challenges will be crucial for retaining residents and fostering economic growth.
New York City’s economic vitality is not just vital for its own future but also for the state of New York. Approximately 70 percent of New York State’s income taxes are collected from city and downstate suburban residents, underscoring the importance of Gotham’s economy in supporting state revenues. With the city contributing about 40 percent of the state’s income, the pressures on its economic landscape could have far-reaching implications.
In recent years, the state’s operating funds budget has grown significantly, rising from $111 billion in fiscal year 2022 to forecasted expenditures of $146 billion by 2026, much of which is attributed to Medicaid and education expenses. While Governor Kathy Hochul has assured residents that income taxes will not see an increase, hidden payroll taxes have already risen, putting further stress on businesses and inhibiting competitiveness with states in the Sun Belt, known for their more favorable tax climates.
The private workforce in New York City saw a modest growth of 3 percent since January 2020, as reported by a recent Citizens Budget Commission dashboard. However, this increase has been largely concentrated in lower-wage jobs, preserving a weak addition to the city’s income-tax base. The health care and social assistance sectors, while growing rapidly by about 225,000 jobs or 27 percent over five years, delivered significantly lower combined wages compared to traditionally stronger sectors like finance and insurance. High earners, who contribute massively to the city and state revenues, are increasingly becoming scarce, prompting concern among officials dependent on their fiscal contributions.
Recent reports show that from 2010 to 2021, New York added the least percentage of millionaires compared to other states while the share of millionaires in the city has declined from 12.7 percent to 8.7 percent. Such a downward trend raises alarms for policymakers with expanded budgets, as the dwindling wealthy class directly impacts funding for essential public services.
The housing market also presents a considerable challenge as high rents and the increasing cost of living are driving down birth rates and forcing families to leave the city. Notably, annual births have halved from 68,000 in 2011 to approximately 35,000 in 2024. Families who departed the city in 2023, featuring a median income of $140,000, underline the fact that even middle-to-upper-middle-class households find the current living situation untenable.
An uptick in the city’s population during 2023 and 2024 primarily stemmed from an influx of international migrants, attracted by the federal government’s border policies. However, many of these new residents face work restrictions unless granted specific designations, complicating their capacity to contribute to the local economy.
The city’s migrant crisis has further stressed its fiscal resources, with New York City reportedly spending over $7 billion on shelter and services for migrants since 2022, most of which comes from city funds. Recent efforts to mitigate this crisis have seen the migrant population in shelters decrease from a peak of nearly 70,000 to about 43,000 today, aided by stricter border policies instituted under previous administrations. The mayor announced plans to shut down a central migrant intake center, signaling a shift in the city’s approach to migrant accommodations.
As the next mayor steps into office, there’s an opportunity to rethink resource allocation by canceling costly hotel-to-shelter contracts that were established on an emergency basis. A focused effort could prioritize the termination of higher cost contracts to relieve budget pressures, while merging migrant and homeless shelters could yield a more efficient use of resources in the long run.
Improving the functioning of city government is paramount if the city is to present a more attractive environment for both residents and businesses. The next mayor should mandate enhancements in public productivity through the adoption of automation and AI technologies and consider reducing workforce size where feasible. Savings achieved from these initiatives can be redirected toward enhancing the quality of life in the city.
Additionally, bolstering the NYPD through the hiring of more detectives could prove essential in combatting declining public safety perceptions, while an effective anti-graffiti strategy by sanitation could help revitalize visibly popular public spaces. Small gestures like these can dramatically restore confidence in city governance and rejuvenate the tourism sector.
Another important fiscal measure for the incoming mayor will be to enhance contributions to the Rainy Day Fund. The 2022 city comptroller’s office recommended maintaining reserves equal to 16 percent of tax revenues, equating to roughly $12.7 billion. Currently, the city holds about $8.5 billion in reserves but only $2 billion is allocated to the Rainy Day Fund. Instituting a rule requiring robust contributions during periods of revenue growth can help the city weather future economic downturns without having to impose cuts on essential services.
To further solidify its attractiveness for families and businesses, city officials must prioritize the construction of new housing units. Creating diverse housing configurations and styles would directly address affordability issues while fostering a more competitive atmosphere for businesses struggling with payroll costs in high living expenses regions. By doing so, the city can offer younger generations opportunities for homeownership beyond the confines of exorbitantly priced properties, paving the way for more upward mobility.
The right policies and effective governance could transform New York City into a place where families, young professionals, and businesses do not seek to flee but rather aspire to remain and thrive.
image source from：https://www.city-journal.org/article/new-york-city-economy-mayor-costs-migrant-crisis
