New York State Governor Kathy Hochul speaks during a news conference during the first day of a partial U.S. government shutdown in New York City, New York, U.S., October 1, 2025. REUTERS/Brendan McDermid

By Jasper Ward

(Reuters) -New York Governor Kathy Hochul is considering increasing corporate taxes to close a potential budget shortfall amid federal cuts, but that no decision has been made, a source familiar with the matter said on Friday.

"The state is on strong financial footing today but much of the budget outcome at the start of next year is going to be largely dependent on what the federal government does and we're watching that closely and trying to plan accordingly," the source said.

The source did not say what new tax rate was under consideration by Hochul. New York City Mayor-elect Zohran Mamdani has advocated to increase the top corporate rate from 7.25% to 11.5%.

The issue of affordability was at the center of Mamdani's campaign with him promising to freeze rent and raise taxes on the rich.

A spokesperson for Mamdani's campaign did not immediately respond to a request for comment.

New York is facing a $34.3 billion budget shortfall through its 2029 fiscal year that begins April 1 and ends on March 31. Republican President Donald Trump, who endorsed former Democratic New York Governor Andrew Cuomo for mayor, has said he will likely not contribute federal funds to the city "other than the very minimum as required" as a result of Mamdani's election.

New York's State Comptroller has said the deficit, when coupled with recent federal actions, reached levels not seen since the 2009 economic crisis. Despite this, the state's budget director Blake Washington told reporters last week that New York was in "a good spot financially," adding that a tax increase was "the last thing on my mind."

New York's fiscal situation was among the issues discussed during a 90-minute meeting Hochul held with Mamdani on Thursday, according to a readout. It was their first meeting since Mamdani's electoral victory last week.

They also discussed ongoing attacks from Republicans in Washington, D.C., and how to protect New Yorkers amid escalating federal threats, the readout said.

"The Governor and the Mayor-elect discussed the possibility that the federal government would surge ICE and/or National Guard to New York City," the readout stated.

Hochul and the mayor-elect agreed that a federal surge would not improve public safety, according to the readout, which added that state officials provided an update on ongoing preparedness efforts should the federal government target New York.

(Reporting by Jasper Ward; Editing by Caitlin Webber and Diane Craft)