The unemployment rate in New York City is 16 per cent, twice as high as the rest of the country. Personal income tax revenue is expected to drop by $US2 billion ($2.8 billion) this fiscal year. Only a third of hotel rooms are occupied, and apartment vacancies in Manhattan have hit a peak.
New York, more than any large city in the world, has been forced to grapple with the coronavirus outbreak’s dual paths of devastation: The virus has killed 24,000 people in the city and has sapped it of hundreds of thousands of jobs and billions of dollars in tax revenue.
And even as the city has contained the spread of the virus, it has been unable to exert control over its threat to the economy.
Numerous economic indicators suggest that New York City will face an extended financial crisis, the likes of which has not been seen since the 1970s.
The city has already slashed spending to make up for billions of dollars in lost tax revenue, but it may lose billions more.
Mayor Bill de Blasio and Governor Andrew M. Cuomo have repeatedly asked the Trump administration for help, but the president, a native New Yorker who openly scorns his city of birth, has instead threatened to cut its federal funding. Should he win reelection in November, it seems likely that the city will be forced to implement drastic layoffs and service cuts.
We’re on the verge of a tragedy. I don’t know what’s going to happen to the city.Richard Ravitch, the former state official who helped engineer the rescue of New York City’s finances in the 1970s
New York City may even be compelled to borrow just to keep everyday services running; the mayor has asked state leaders to grant the city the authority to do so.
Shootings are on the rise, some New Yorkers are fleeing for the suburbs, businesses are reconsidering their need for office space — structural changes reminiscent of those that preceded the city’s 1975 fiscal collapse, some budget hawks say.
“We’re on the verge of a tragedy,” said Richard Ravitch, the former state official who helped engineer the rescue of New York City’s finances in the 1970s. “I don’t know what’s going to happen to the city.”
The city has taken steps to address its existing $US9 billion, two-year revenue shortfall, although Ravitch questions whether leaders are underestimating the problem. He advocates significant cuts and the establishment of a financial control board in the 1970s model.
The state, facing its own $US14.5 billion revenue shortfall, is in no position to help. Cuomo warned that without federal assistance, he would consider all options: “Taxes, cuts, borrowing, early retirement, all of the above,” he said.
“And all of the above will not fill that hole,” he added.
The pandemic has forced New Yorkers to make fundamental changes in how and where they live and work and has deterred tourists from visiting the city, where many cultural and entertainment attractions remain closed. In the last year, the New York metropolitan region’s leisure and hospitality sector has lost 44 per cent of its jobs.
“It’s clear there are going to be hits for years to come, you can’t deny that,” said Bill Neidhardt, the mayor’s press secretary. “We’ve been calling for a stimulus, and Washington has done what they do, which is nothing.”
The three pillars of New York City’s revenue stream are sales, personal income and property taxes, and sales tax revenue was the first to show a concrete impact from the pandemic, dropping 35 per cent in the second quarter and 15 per cent year to date.
Along Manhattan’s major retail corridors, storefronts sit empty, as national chains abandon ship. Some New York retail institutions, like Brooks Brothers and Lord & Taylor, have declared bankruptcy; Century 21 was the latest to do so.
At the Flatiron Building, the landlord was so eager to keep a retail tenant in place that he offered the company free rent through the end of the year. The retailer, Estee Lauder’s MAC, declined, and the space is now empty.
Just 37 per cent of hotel rooms were occupied in the second week of September compared with 90 per cent in the same period of 2019, according to STR, a hospitality analytics firm.
In Manhattan, the apartment vacancy rate in August rose above 5 per cent for the first time, the highest it has been in at least 14 years, according to a monthly market report from the brokerage Douglas Elliman.
The city is also still paying down the more than $US2 billion in deficit spending the state authorised after September 11, to the tune of $US150 million a year.
With so many people unemployed or working remotely outside the city, many expect the city’s personal income tax to continue to wither in the coming months — a lagging indicator tied to quarterly tax filings.
Personal income tax withholding revenues have already taken a hit, dropping nearly 11 per cent in August compared with the year prior — the fifth straight month of declines.
No one knows when a coronavirus vaccine will arrive, or how quickly it can be distributed. “The problem that all the public sector has is a very substantial cash problem, this year and next year. After that year, the world may be back together again, assuming there’s a vaccine in half a year,” said Robert W. Linn, the city’s former labour commissioner.
If the Metropolitan Transportation Authority’s calamitous finances prompt it to cut subway and bus service by 40 per cent, workers will either have to endure painfully long waits for uncomfortably crowded subways and buses or, if they have the means, drive cars on the city’s already congested roads.
And it seems likely that the governor will inevitably start sending cuts down to the city. “Ultimately, the state’s fiscal problems are our fiscal problems, whether as individuals in the form of higher taxes, or municipalities in the form of smaller aid,” said Ronnie Lowenstein, the director of New York City’s Independent Budget Office.
Deficit spending remains verboten among fiscal watchdogs traumatised by its starring role in New York City’s financial collapse of the 1970s. The city is also still paying down the more than $US2 billion in deficit spending the state authorised after September 11, to the tune of $US150 million a year.
“Think of it as a narcotic,” said Stephen Berger, who served as executive director of the New York State Emergency Financial Control Board in the 1970s. “It makes you feel good for a long while before you crash.”
Nonetheless, de Blasio and his wife, Chirlane McCray, gathered five state senators at Gracie Mansion on August 20, and over Sicilian meatballs and polenta, the mayor urged them to help win state authorisation for up to $US5 billion in borrowing, to be repaid over 30 years.
Supporters of de Blasio’s plan noted that New York state has already granted deficit spending authority to itself and to the MTA, which it controls, suggesting that the state’s reluctance to give the city the same authority was hypocritical. Moreover, the deficit spending that culminated in the 1970s fiscal crisis took place over the course of years, at a time when City Hall didn’t abide by modern accounting practices.
But it’s unclear whether deficit spending will actually solve any of the city’s problems, or merely delay the inevitable — 22,000 potential layoffs — while burdening future generations with onerous debt service payments.
Andrew Rein, president of the Citizens Budget Commission, said that the mayor should have released far more detailed plans to address the looming budget nightmare by now.
“We’re not getting real about facing this crisis,” he said.
The Empire State Building has become a potent symbol of how the coronavirus pandemic has derailed the city’s economy.
From its brand-new observatory on the 102nd floor, breathtaking views of New York City abound, but visitors are few: On a recent weekday afternoon, the area was strangely abandoned, save for a lone, masked building worker.
The value of the company that owns the iconic skyscraper has fallen some 50 per cent since the start of the year. On a recent earnings call, the chief executive of Empire State Realty Trust, Anthony E. Malkin, summed up the company’s challenge ahead.
“We’re at war,” he said.
The New York Times
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