‘We are at war’: New York faces financial abyss

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The unemployment rate in New York is 16%, twice as high like the rest of the country. Personal income tax revenues are expected to fall by $ 2 billion in this fiscal year. Only a third of hotel rooms are occupied, and Manhattan apartment vacations have reached a Peak.

New York, more than any major city in the world, has been forced to tackle both avenues of devastation from the coronavirus epidemic: the virus has killed 24,000 people in the city and sapped hundreds of thousands of jobs and billions of dollars in tax revenues.

And even though the city has contained the spread of the virus, it has not been able to exercise control over its threat to the economy.

Numerous economic indicators suggest that New York City will face a protracted financial crisis, which has not been observed since the 1970s.

The city has already cut spending to make up for billions of dollars in lost tax revenue, but it stands to lose billions more.

Mayor Bill de Blasio and Governor Andrew M. Cuomo have repeatedly appealed to the Trump administration for help, but the president, a native New Yorker who openly despises his hometown, has instead threatened to cut his back. federal funding. If he were to be re-elected in November, it seems likely the city will be forced to implement drastic layoffs and service cuts.

New York City may even be forced to borrow simply to operate day-to-day services; the mayor called on state leaders to grant the city the power to do so. So far, the state has resisted.

Shootings are on the rise, some New Yorkers flee to the suburbs, businesses are reconsidering their need for office space – structural changes reminiscent of those that preceded the city’s 1975 budget collapse, according to some budget hawks.

“We are on the verge of a tragedy,” said Richard Ravitch, the former state official who helped organize the New York City financial bailout in the 1970s and believes this crisis is worse. . “I don’t know what will happen to the city.”

The city has taken steps to address its current shortfall of $ 9 billion over two years, though Mr Ravitch wonders if the leaders are underestimate the problem. He advocates major cuts and the establishment of a financial control board in the 1970s model.

The state, faced with its own shortfall of $ 14.5 billion, is unable to help. Governor Cuomo has warned that without federal help 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 their way of life and place of work and lifestyle and has deterred tourists from visiting the city, where many cultural and entertainment attractions remain closed. Over the past year, the New York metropolitan area’s leisure and hospitality industry has lost 44% of its jobs, with a devastating effect on the city’s tax revenues.

“It is clear that there will be successes in the years to come, you cannot deny that,” said Bill Neidhardt, the mayor’s press secretary. “We called for a revival, and Washington did what it does, which is nothing.”

the three pillars of New York City revenues are sales, personal income and property taxes, and sales tax revenues were the first to show concrete impact of the pandemic, declining 35 percent in the second quarter and 15% since the beginning of the year.

Along Manhattan’s main retail corridors, which once thrived on the business of tourists and office workers, storefronts are empty as national chains abandon ship. Some New York retail institutions, such as Brooks Brothers and Lord & Taylor, have declared bankruptcy; Century 21 was the last to do so.

At the Flatiron Building, the landlord was so keen to keep a commercial tenant in place that he offered the business free rent until the end of the year. The retailer, MAC d’Estée Lauder, declined and the space is now empty.

According to STR, a hotel analysis company, only 37% of hotel rooms were occupied in the second week of September, up from 90% during the same period in 2019.

In Manhattan, the apartment vacancy rate in August exceeded 5% for the first time, the highest in at least 14 years, according to a monthly market report from the brokerage firm Douglas Elliman. Reliable vacancy figures for the other districts were not available.

With so many people unemployed or working remotely outside the city, many expect the city’s personal income tax to continue falling in the coming months – a lagging indicator linked to tax returns. quarterly income.

Revenues from withholding personal income tax have already been hit, falling nearly 11% in August compared to the previous year – the fifth consecutive month of declines.

No one knows when a coronavirus vaccine will arrive, or how quickly it can be distributed. “The problem facing the whole public sector is a very big cash flow problem this year and next year. After this year, the world could come together again, assuming there is a vaccine in six months, ”said Robert W. Linn, the city’s former labor commissioner.

If the MTA’s calamitous finances prompt it to cut metro and bus services by 40%, workers will either have to endure painful long waits for uncomfortable subways and buses, or if they do. have the means, driving cars on the already congested roads of the city.

And it seems likely that the governor will inevitably start sending cuts to the city. “At the end of the day, the state’s budget problems are our fiscal problems, whether as individuals in the form of higher taxes, or as municipalities in the form of more modest aid,” said Ronnie Lowenstein, director of the Independent Budget Office in New York.

Deficit spending remains verboten among budget watchdogs traumatized by its leading role in New York’s financial collapse of the 1970s. The city also continues to repay deficit spending of more than $ 2 billion as it does. State authorized after 9/11 to the tune of $ 150 million per year, according to the office of city comptroller Scott M. Stringer.

“Think of it as a narcotic,” said Stephen Berger, who was executive director of the New York State Emergency Financial Control Board in the 1970s. “It makes you feel good for a long time to come. before you crash. “

Nonetheless, Mr de Blasio and his wife, Chirlane McCray, gathered five state senators at Gracie Mansion on August 20, and on Sicilian meatballs and polenta, the mayor urged them to help get clearance government for up to $ 5 billion in borrowing, to be repaid over 30 years.

For the first time, he told senators, he foresaw a united city front in the face of Albany’s intransigence: Corey Johnson, chairman of the New York City Council, and Mr Stringer would. signal Support.

Next week Mr Johnson co-authored a Daily News editorial pleading for Albany to allow deficit spending.

In a recent interview, Stringer said he also supported deficit spending, as long as it is part of a large-scale financial plan that includes efficiencies. He said that as the comptroller, he would only give formal approval to the loan if these conditions were met.

“I think there is a lot we can do to manage these savings, tap into the reserves and use the borrowing as a bridge to a stimulus package that will hopefully happen sooner rather than later,” said Mr Stringer, candidate. At the mayor. Next year.

Supporters of Mr. de Blasio’s plan noted that New York State has already granted itself and the MTA, which it controls, the power to spend the deficit, suggesting that reluctance of the state to give the city the same authority was hypocritical. Moreover, the deficit spending that culminated in the financial crisis of the 1970s took place over the years at a time when the town hall did not follow modern accounting practices.

But it’s unclear whether the deficit spending will actually solve one of the city’s problems, or simply delay the inevitable – 22,000 potential layoffs – while burdening future generations with onerous debt service payments.

Andrew Rein, chairman of the Citizens Budget Commission, said the mayor should have released much more detailed plans to deal with the looming budget nightmare.

“We are not getting real in the face of this crisis,” he said.

Of the three pillars of the source of income, the property tax is the most stable, with changes in property assessments being phased in over several years. The earliest the city is likely to see some kind of impact on these levies is next year, although overdue land is already up and homeowners are laying the groundwork for reducing payments by disputing their valuations.

What happens next is tied to unanswered questions: Will New York City receive federal aid? How many rich people will leave New York for good, taking their personal tax revenues with them?

What does the now proven success of teleworking for New York City offices and, by extension, its property tax revenues portend?

The return to office work still seems a long way off: only a quarter of large employers plan to bring back their employees by the end of the year, and a little more than half intend to return by next July, according to a new survey.

The Empire State Building has become a powerful symbol of how the coronavirus pandemic has derailed the city’s economy.

From its brand new 102nd-floor observatory, breathtaking views of New York abound, but visitors are few: on a recent weekday afternoon the area was strangely abandoned, save for one. construction worker isolated and masked.

The value of the company that owns the iconic skyscraper has fallen a bit 50 percent since the beginning of the year. In a recent earnings call, Empire State Realty Trust CEO Anthony E. Malkin summed up the company’s challenge.

“We are at war,” he said.



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