NYC Mayor Mamdani Pulls Plug on “Disastrous” AI Chatbot That Encouraged Small Businesses to Break the Law

In a stunning move that signals a new era of tech accountability in municipal governance, New York City Mayor Zohran Mamdani has officially decommissioned the city’s problematic AI chatbot system—just weeks after taking office.

A Half-Million Dollar Mistake Exposed

During a budget-focused press conference last week, the newly-elected mayor didn’t mince words when addressing one of his predecessor’s most controversial tech initiatives. The MyCity chatbot, launched under former Mayor Eric Adams in late 2023, was described by Mamdani as “functionally unusable” and a prime example of wasteful government spending.

“The previous administration had an AI chatbot that was functionally unusable,” Mamdani stated bluntly. “It was costing the administration around half a million dollars. That, in and of itself, is not something that can bridge this kind of a gap, but it’s an indication of the ways in which money has been spent while refusing to account for the actual costs of what these programs are.”

The timing couldn’t be more significant. Mamdani is currently grappling with a staggering $12 billion budget deficit, and every dollar counts. The chatbot, which reportedly cost over $600,000 to develop and implement, was powered by Microsoft’s Azure AI system and designed to assist small business owners in navigating New York City’s notoriously complex regulatory landscape.

When AI Gives Illegal Advice

The chatbot’s fundamental flaw wasn’t just technical incompetence—it was actively harmful. An investigation by The Markup revealed that the MyCity system was dispensing legal advice that directly contradicted actual city and state laws.

In one particularly egregious example, when small business owners asked whether they could take a cut of their workers’ tips, the chatbot responded affirmatively: “Yes, you can take a cut of your worker’s tips.” This advice flies in the face of established labor laws designed to protect service workers’ earnings.

The chatbot’s contradictory nature was especially concerning. While it could accurately recite certain regulations—correctly stating that employers must report tips when employees receive $20 or more monthly—it would then draw dangerously incorrect conclusions. After properly citing tip-reporting requirements, it would bizarrely conclude that “as an employer, you are allowed to take a portion of your worker’s tips.”

Other instances of legally dubious guidance included advising business owners that they could operate “cashless” stores in New York City, completely ignoring a 2020 law that explicitly bans cashless establishments across the five boroughs.

The Broader Implications

The MyCity chatbot debacle represents more than just a technological failure—it’s a cautionary tale about the rush to implement AI solutions without proper oversight, testing, or consideration of real-world consequences.

For small business owners already navigating one of the most challenging regulatory environments in the country, receiving incorrect legal advice from an official government source could have resulted in costly fines, legal battles, and potentially business closures.

The scale of potential damage was enormous. From funeral home pricing regulations to worker protection laws to housing policies, the chatbot was positioned to provide guidance across virtually every aspect of New York City’s small business ecosystem.

A New Chapter in Tech Governance

Mayor Mamdani’s decisive action sends a clear message: technological innovation in government must be accompanied by rigorous testing, accountability, and most importantly, accuracy. The chatbot’s termination represents not just cost-cutting, but a commitment to responsible AI implementation.

This move aligns with Mamdani’s broader agenda of rooting out inefficiencies and ensuring that taxpayer dollars are spent wisely. Just days before addressing the chatbot issue, he announced executive orders to establish citywide rental “ripoff” hearings, targeting predatory landlords and housing violations.

The MyCity chatbot’s failure raises important questions about the rush to implement AI solutions in government settings. While artificial intelligence promises efficiency and accessibility, this case demonstrates that when deployed without adequate safeguards, such systems can cause real harm to the very constituents they’re meant to serve.

As other cities and municipalities watch New York’s experience closely, the lesson is clear: in the realm of public service, accuracy cannot be sacrificed for the sake of innovation. Mayor Mamdani’s swift action may well serve as a model for how to handle AI implementation failures in the public sector.

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