New York is a rotten city. That's one of the reasons I love it so. Half of Manhattan seems to be wrapped in scaffolding. The ornate facades of buildings are gently crumbling. Where there's paint, it's peeling. The subway, now gloriously safe and graffiti-free, still feels as though it's heaving its final death rattle.

The cliche of New York is that it's the world capital of everything modern. But that's to completely miss what's special about this place. Here the hyper modern sits cheek by jowl with the rusty and obsolete. This is a city of iPhones and bloggers, trendsetters and geeks. It's also a city of pot-holed cross-streets, rotting infrastructure (see the enormous steam pipe explosion near Grand Central on Wednesday) and deeply ingrained bureaucracy.

Most of the time I find this cohabitation of the brand new with the ancient and decaying utterly enrapturing. New York is like a Richard Rogers building - all its guts are on the outside. That's in part where its legendary energy comes from.

But there are moments when you have to fear for the health and sanity of this great city. This week has been one of them, with the news that Mayor Bloomberg's plan for a Manhattan congestion charge had hit the buffers.

You could say the Bloomberg plan for an $8 charge for cars beneath 86th Street was in itself a sign of how far behind the game New York has fallen. A city that prides itself on leading the world into the future has limply copied the prototype developed by Ken Livingstone four years ago. The community that should be leading America in the fight against global warming is also lagging far behind California.

But there's no doubt that action is desperately needed. Manhattan's avenues, the life-blood of the city with their breathtaking views sweeping up to mid-town, are now clogged with cars and trucks for fully 12 hours a day. That's a terrible burden on New York's economy, as well as a gross cause of greenhouse gas emissions.

Bloomberg, being the sensible, rock-solid politician that he is, produced a sensible, rock-solid plan that is neither groundbreaking nor radical. The response should have been equally low-key and matter of fact. And yet this week New York state senators, sitting in Albany 136 miles away from the city, took it upon themselves to block a request by the mayor for $500m towards the cost of the scheme. The money would have come from federal funds and wouldn't have cost the state government a cent.

Two days of hand ringing and finger pointing followed before Albany relented and, voting last night, gave Bloomberg what he wanted. But by the time the deal was done the deadline for federal money had already passed and now New York will have to plead with Washington for special dispensation. And an impression of inertia has been created that can only be damaging.

This is all far too heavy going. Modern cities shouldn't have to wade through treacle to achieve so little. It speaks to the growing fears here - articulated not least by Bloomberg himself - that the city is losing its flexibility and nimbleness of purpose. And there's only one beneficiary: New York's great rival - London.