NYC is teetering on the edge of fiscal cliffs – New York Daily News

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Cheerleading by Mayor Adams and CEOs for New Yorkers to return to their offices as COVID-19 ebbs says a lot about the serious risks to the city’s $101 billion budget if their calls to get workers out of their sweatpants and off Zoom fall on deaf ears.
With NYC office occupancy running well under 40% — more than 10 percentage points behind big cities in Texas — the city faces a bleak future of billions of dollars in lost commercial property tax revenues as companies downsize to meet the needs of employees who may prefer to work at home only a few days a week, or full-time. While the mayor on Tuesday told the New York State Financial Control Board — the panel set up to scrutinize city finances following its 1975 near-bankruptcy — that projected future deficits will be “manageable,” he and the City Council must recognize that fiscal cliffs are looming over New York and prepare for the possibility that a recession may make them a reality.
A fall in commercial property tax revenues is Cliff No. 1. High-end office towers, hotels, and retail properties account for 19% of all municipal revenue. While office building values have recovered somewhat since the worst of the pandemic, the uptick still trails those for hotel and retail properties, according to City Comptroller Brad Lander. He estimates that the weakness in office property values could cost the city as much as $600 million in the fiscal year ending June 30, 2023, alone.
Down the road, the losses may be even greater if the recent move by global accounting and consulting giant KPMG proves to be the future of office work. It is shrinking its U.S. headquarters footprint by 40% even as it moves in 2025 from Midtown to a Hudson Yards skyscraper under construction on the Far West Side. Why? Paul Knopp, KPMG U.S.’s chief executive, says the company is now opting for a hybrid strategy after permitting employees to work remotely for more than two years.
Mayor Eric Adams, right, presents New York City’s $98.5 billion Preliminary Budget for Fiscal Year (FY) 2023, at City Hall on Wednesday, Feb. 16, 2022. (Ed Reed/Mayoral Photography Office)
Cliff No. 2 is the expiration of some $7.3 billion in federal COVID-19 relief money mostly by the end of 2026. The Volcker Alliance has found that this is a challenge for many states, counties and cities receiving budget aid, especially if they applied one-time cash infusions under the American Rescue Plan Act of 2021 (ARPA) to continuing programs, such as education and public health and safety, that will still need support once federal dollars are spent.
In New York City, a principal victim of the lost federal cash allocated under ARPA and another pandemic aid measure in 2020 is the popular 3-K early education program for preschoolers. The program will absorb almost $1.6 billion of the city’s emergency U.S. budget aid in 2022-26, according to the nonpartisan Independent Budget Office. While “the full costs are likely to be borne solely by city funds in 2026 and beyond,” the IBO has said, it remains to be seen how the city will come up with the cash to keep 3-K alive.
An additional fiscal cliff that is largely out of its control, but no less worrisome, is the one threatening the state-run Metropolitan Transportation Authority. A healthy subway and bus network is vital to the city’s future, yet weekday subway ridership has been stuck around 60% of 2019 levels for months, with buses little better. While the MTA is counting on the advent of congestion pricing fees in Manhattan to bring $15 billion into its coffers, implementation of the fees is far from assured. After its federal pandemic aid is mostly spent by 2024, the MTA has warned of staggering annual budget deficits rising to as much as $2.75 billion by 2028. Many possible deficit-closing solutions, including steep fare hikes, service reductions, or cuts in maintenance and capital spending, would be a blow to New Yorkers — especially lower-income ones.
To be sure, New York City is not without resources to help avoid some of its own fiscal cliffs. The supercharged national economic recovery and Wall Street boom following the 2020 pandemic shutdowns swelled New York’s tax revenue, leaving it with a $6.1 billion surplus. That enabled the city to build its rainy day fund to $1.9 billion. But the city needs to put aside more to help manage the $11.9 billion in projected budget deficits the mayor estimates for fiscal 2024-26.
To avoid crippling tax hikes painful reductions in programs aiding minorities and the poor, or draconian cuts in the 312,000-person municipal workforce, such as those in the 1970s, when a fifth of city employees were laid off, New York City’s leaders must consider the fiscal cliffs they face and take assertive actions to avoid them before it’s too late.
Glasgall is senior director, public finance, at the Volcker Alliance, a nonpartisan nonprofit organization founded by former Federal Reserve Board Chairman Paul A. Volcker. Ravitch is a former New York State lieutenant governor and member of the Volcker Alliance board of directors.
Copyright © 2022, New York Daily News
Copyright © 2022, New York Daily News

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