New York City faces a financial abyss
NEW YORK — The unemployment rate in New York City is 16%, twice as high as the rest of the country. Personal income tax revenue is expected to drop by $2 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 Gov. 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.
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. So far, the state has resisted.
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 and thinks this crisis is worse. “I don’t know what’s going to happen to the city.”
The city has taken steps to address its existing $9 billion, two-year revenue shortfall, although Mr. 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 $14.5 billion revenue shortfall, is in no position to help. Mr. Cuomo warned that without federal assistance, he would consider all options: “Taxes, cuts, borrowing, early retirement, all of the above,” he said earlier this month. “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% of its jobs, with a devastating effect on the city’s tax revenue.
“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% in the second quarter and 15% year to date.
Along Manhattan’s major retail corridors, which once thrived on business from tourists and office workers, 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% of hotel rooms were occupied in the second week of September compared with 90% in the same period of 2019, according to STR, a hospitality analytics firm.
In Manhattan, the apartment vacancy rate in August rose above 5% 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. Reliable vacancy numbers for the other boroughs were not available.
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% 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 labor commissioner.