Mayor Zohran Mamdani’s strategy to navigate New York City’s fiscal challenges through increased taxation is encountering an unexpected adversary: artificial intelligence, as highlighted by key financial experts.
Recent reports indicate a growing reluctance among investors to purchase city bonds. This hesitation stems from concerns that Mamdani’s fiscal projections might be flawed, prompting many to either offload city debt in secondary markets or avoid new bond offerings altogether.
The crux of the issue is that New York City’s $127 billion budget is still grappling with a $5.4 billion deficit. Critics argue that Mamdani’s proposed tax hikes, particularly on the workforce, could aggravate the problem by driving more residents away from a city already notorious for high taxes.
Even if Mamdani successfully balances the budget for fiscal year 2027, investors are wary. They point out that future budgets will still need balancing, potentially with a dwindling taxpayer base.
While the exodus of affluent individuals to states with lower taxes, such as Florida, remains a significant concern, another issue looms large. Investors are increasingly worried about the potential impact of AI-driven job losses on the city’s economic prospects and municipal bonds.
Richard Farley, a seasoned corporate finance lawyer with Herbert Smith Freehills Kramer and author of a compelling book on New York City’s financial crisis of the 1970s, shares these concerns. His work, “Drop Dead: How a Coterie of Corrupt Politicians, Bankers, Lawyers, Spinmeisters, and Mobsters Bankrupted New York, Got Bailed Out, Blamed the President, and Went Back to Business as Usual (And It Might Be Happening Again),” draws parallels to the current fiscal situation.
Farley says AI job losses in software development, financial services and legal services will only accelerate, and those industries “account for a huge percentage of the high-paying jobs in NYCâs tax base.”
“The AI-based layoffs and hiring freezes are already happening albeit quietly and they will decimate the NYC tax base. Itâs not just a flight of earners to Florida and Texas,” Farley adds.
Wall Street is still a massive presence in New York, even as firms like JPMorgan and Goldman Sachs start moving employees to places like Texas and Utah. It covers as many as 1 out of every 10 jobs.
It has also been automating for years, and AI could accelerate that process because it can easily eliminate various back office functions. Why do you need an analyst to write a research report on a stock when AI can deliver it in a fraction of the time and cost?
New York is also home to some of the nation’s largest law firms â tens of thousands of jobs, and it’s more than just high-end litigators and deal specialists. The reason law is so susceptible to AI is because lower-level associates — who can make pretty good coin â have until recently spent countless hours on research and writing that can now be done by AI.
When you think of tech you usually think of Silicon Valley, but NYC has experienced significant tech sector growth in so-called Silicon Alley in recent years. A couple of hundred thousand well-paid software developers now reside in the city, and they are maybe the ripest jobs to be eliminated by AI.
None of this seems to hold much weight with our mayor, of course, who is looking to turn the city into a worker paradise. The problem is, there may not be enough workers to pay the bills.
