For all of Mayor de Blasio’s gushing last Thursday over “very good news . . . really good breaking news” concerning the city’s $95.5 billion budget for the next fiscal year, which starts in July, the real news came during the question-and-answer session. To wit, Gotham’s commercial-property values have declined by double digits. New York hasn’t seen a real-estate crash like this in decades — and the implications for the Big Apple’s future outweigh any nice surprises.
The nice surprise: President-elect Joe Biden will reimburse the city for 100 percent of its $6 billion in COVID-19-related costs, rather than the 75 percent reimbursement Trump was doing. “That’s going to mean about a billion dollars,” de Blasio boasted.
That’s good, but it’s eclipsed by the bad surprise: Property-tax revenues will fall short of what was expected, by $2.5 billion, including an outright drop in revenues of $1.3 billion between 2021 (the current fiscal year) and 2022 (the next one).
Any fall is alarming. Property taxes make up half of the city’s $61.1 billion in annual tax revenue; the rest of the $95.5 billion comes from state and federal grants. And compared to income and sales taxes, which are far more volatile, property taxes are usually stable.
Between 2007 and 2009, during the global financial crisis, the city’s property-tax receipts didn’t fall at all; they grew to $14.3 billion from $13 billion. The last time the city’s property taxes fell was between 1993 and 1998, when they fell by 11.3 percent at their low, the delayed result of the 1990 recession.
Today’s drop is only 4 percent of revenues. Meaning, if things get as bad as they did after 1990, the city could lose $3.5 billion in annual revenues — and not recover the revenue for years.
This time, the decline in property values is driven entirely by a 15.6 percent decline in the commercial market: office and retail.
That portends poorly for those other taxes, income and sales. For the moment, personal-income taxes are expected to grow 6 percent, to $13.5 billion, back to pre-pandemic levels. After 2008, they shrunk by 24 percent in a year.
Income taxes are up not just because the “rich got richer,” as Hizzoner notes. They’re also up because of Midtown’s ghost workers: people who haven’t been to their offices in nearly a year but, if they live in the city, continue to pay income taxes to City Hall, as if they were commuting daily.
Declines in office values indicate that the market doesn’t think people will return to five-day-a-week work. That means high earners don’t need to live near their offices, and many will leave.
Sales taxes? Declines in the value of retail space indicate that the market thinks Manhattan will generate fewer sales per square foot, meaning falls in sales-tax revenue.
The risk, in other words, isn’t about the next couple of years. It’s that the city is undergoing a big long-term change, like it did in the 1960s and ’70s, when factory jobs left and big corporations transferred their white-collar headquarters out of town.
That means whatever rescue aid New York gets from the Biden administration buys only time, even if Team Biden accedes to de Blasio’s demand to “make us whole” from our COVID-19 and lockdown losses.
De Blasio is leaving any longer-term budget cuts to his successor. In fact, despite all the tax-revenue losses, city-funded spending is going up $2.5 billion between 2020 and 2022, or 3.5 percent.
For the most part, the federal government already has made us whole, through extraordinary unemployment aid and stimulus checks, all of which trickles up into tax revenue. It isn’t enough.
The only concession de Blasio is making to reality is a slushy hiring freeze. For every three workers who leave, city government will hire only one.
Whatever math the mayor is doing here doesn’t add up. Official headcount projections show the city workforce at 326,717 people by next June, up more than 1,000 from this year, and up by 25,000 since the mayor took office.
For more than six years, until the pandemic hit, de Blasio’s maintained a “What, me worry?” approach to the city budget. Thanks to the Biden win, he can stretch it through his final year — but his successor is going to face, as mayoral candidate Kathryn Garcia put it, using a technical budgeting term, a “s - - tshow.”
This piece originally appeared at the New York Post
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Nicole Gelinas is a senior fellow at the Manhattan Institute and contributing editor at City Journal. Follow her on Twitter here.
This piece originally appeared in New York Post