Mayor Zohran Mamdani on Tuesday outlined two options to close a $5.4 billion gap in the city’s budget, warning that a 9.5% property tax increase may be necessary if his plan to raise taxes on high earners and corporations fails.

The deadline for a preliminary balanced Fiscal Year 2027 budget arrived Tuesday. The proposal totals a historic $127 billion, with about 40% allocated to the Department of Education.

Mamdani’s preferred option is a 2% tax increase on the city’s top earners and corporations to address what he describes as an “imbalance” between the city and the state. If that plan is unsuccessful, he said he would turn to a property tax hike and a drawdown of the city’s rainy-day fund — a move opposed by some members of the City Council.

“I agree that this is not something that should be on the table,” Mamdani said. “We are looking at every which way we can to bridge a $5.4 billion deficit.”

The budget gap had initially been estimated at more than $12 billion over two years. During a budget hearing in Albany last week, the mayor said the estimate dropped by $5 billion due to updated economic forecasts that included Wall Street bonuses and about $1 billion in savings from ineffective programs.

“New Yorkers voted for bold change and competent leadership. We will deliver both, and we look forward to partnering with Albany to protect working New Yorkers,” Mamdani said.

Gov. Kathy Hochul has agreed to allocate $1.5 billion in additional funding over the next two years but maintains her opposition to raising taxes on the wealthy.

“Across the State of New York, mayors are having to do what they have to do,” Hochul said at an unrelated press conference Tuesday. “I’m not supportive of property tax increases. I don’t know that that’s necessary, but let’s find out what is really necessary for him to close that gap.”

The mayor has also established a Chief Savings Officer in each city agency to identify recurring savings through efficiencies and program consolidation, including eliminating or sunsetting programs by March 20.

“To rely on a property tax increase and a significant drawdown of reserves to close our gap would have dire consequences,” Comptroller Mark Levine said. “Our property tax system is profoundly unfair and inconsistent, and an across-the-board increase in this tax would be regressive. Drawing down reserves during a period of economic growth would leave us vulnerable to economic turbulence next year.”

The comptroller’s office plans to release an updated analysis of the city’s financial health on March 11.