As New York City officials struggle to control the coronavirus this summer, it’s becoming clear that the economic downturn will last much longer: city property tax revenues are expected to decline by $ 2.5 billion next year, the biggest drop in at least three decades.
The predicted deficit, which Mayor Bill de Blasio announced on Thursday, is largely driven by a sharp decline in the value of office buildings and hotel properties, which have practically emptied since the pandemic began.
City officials said the market value of the tax class that includes hotels, retailers and offices has fallen by 15.8 percent, putting the city’s budget in a precarious position for the foreseeable future: approximately half of the city’s tax revenue comes from real estate.
For now, the city will partially compensate for the loss by increasing the income tax collection: the “rich have become richer”, according to the mayor’s presentation.
But the city will still have to cut spending substantially, although officials have given no clear indication of what services may be at risk. De Blasio said that, since last January, the city has cut 7,000 jobs through attrition and hiring freezes; he now plans to reduce the number of city employees by another 5,000.
“This is just a total economic shift for certain industries,” said the mayor. “We have never seen anything like what happened to the hotel industry. We never saw Midtown in the situation it is in now. “
New York was devastated by the two pathways of the pandemic’s destruction: the virus killed almost 26,000 people in the city, while hundreds of thousands of jobs and billions of dollars in taxes were lost.
At the height of the pandemic, unemployment exceeded 20%; today, half a million New Yorkers remain unemployed. And while some businesses remain open, many workers are staying at home instead of using public transportation to move to densely packed office buildings in Midtown and Lower Manhattan.
Mr. de Blasio and Governor Andrew M. Cuomo, who fought with the Trump administration for more federal aid, expressed optimism that President-elect Joseph R. Biden Jr., along with a Democratic-led Congress, will bring substantial assistance.
In fact, just before de Blasio’s announcement, the new Senate majority leader, Chuck Schumer, said that he and Biden had reached an agreement for the federal government to cover the total cost of state and municipal expenses related to a declaration of disaster last March, when the virus was first discovered in New York. The city was committed to 25 percent of eligible expenses for federal emergency reimbursement.
The move is expected to save the state and city about $ 2 billion, money that Schumer’s office said could be used to “address Covid-related budget gaps”.
On Thursday, Schumer was promising more to come.
“This is just the prelude to better days leaving Washington for New York,” he said. “With Biden as president and me as the majority leader, things are going to get better.”
A $ 1.9 trillion proposal released on Thursday by the president-elect contains $ 350 billion to help state and local governments. Even so, few expect the federal government to be able to fully meet their budgetary needs, especially with the economy in this flow.
In November, the city projected that the budget for the next fiscal year, which begins in July, would include $ 31.8 billion in property tax revenue. On Thursday, the city said it was recalibrating those expectations down to $ 2.5 billion.
“This is an unprecedented drop,” said Thomas P. DiNapoli, the controller of the state of New York. “We have not seen property tax collection decrease in more than 20 years and never at these levels.”
Even if normal economic activity resumes in New York City, it will not necessarily result in the large-scale return of office workers to office buildings, now that so many have become accustomed to working at home.
In early January, only 29% of Manhattan hotel rooms were occupied, compared with 69% the previous year. More than 230 hotels in Manhattan closed, at least temporarily, during the pandemic.
The Manhattan retail sector, which was being hit by e-commerce before the pandemic began, continues to suffer as well, with rents falling and vacant shop windows increasing.
In 2020, tenants rented just 20.5 million square feet of office space in Manhattan, the lowest level in at least 20 years, according to a recent report by Savills, a real estate services company.
“It will still take several quarters before workers return to the real office and the whole implication of changes in demand due to work at home or new location strategies can be seen,” notes the recent Savills report.
The owners responded by adopting unconventional ideas, such as converting large underused office areas in Midtown into apartments, an idea recently adopted by Cuomo.
The agreement with the Biden government to pay 100% of the coronavirus-related emergency expenses – similar to what New York did with the Obama administration after superstorm Sandy – will mean about $ 1 billion for the state and city each, Mr. Schumer said.
The Trump administration had previously committed to such an arrangement, said the senator, but never really acted, leaving the city and state to cover 25 percent of those costs.
“I asked Trump personally two or three times,” said Schumer. “He said yes and he never did that.”
Thanks to the arrival of more aid, the city will be able to postpone nearly $ 200 million in cuts in education funding, including a cut of $ 44 million for the expansion of the mayor’s “3-K for all” preschool program.
Earlier this week, Cuomo announced that the state government was facing a $ 15 billion deficit, which he characterized as the largest in the state’s history, something he also said he hoped the federal government would help fill.
“We expect basic justice from Washington,” he said on Monday. “Finally.”
Schumer said he spoke with President-elect and Nancy Pelosi, the mayor, about the need for direct assistance to state and local governments – something that was omitted in a coronavirus relief bill in December – and both leaders were committed to providing it.
But as to whether this means a full bailout for New York, Schumer was more cautious.
“We will do everything in our power to get all the money we need from the state,” he said.