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Grim Future of Cities: State’s Growing Budget Hole Threatens New York City Jobs, Services

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Grim Future of Cities: State’s Growing Budget Hole Threatens New York City Jobs, Services

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Yves here. A post below from the enterprising independent news site, The City, provides an update on the increasingly wobbly condition of New York City finances, in large measure because the state has cut back on “city aid” without clarifying the ultimate source of those funds.

Interestingly, the budget shortfalls for New York City and New York state result from a sharp decline in sales tax revenues, while income taxes have held up, somewhat countering the notion that people are decamping New York City in droves. Nevertheless, the article below gives an idea of the magnitude of budget and headcount cuts that are coming, even in the face of increased demand for some services, making the fiscal squeeze even worse. This general pattern will be replicated, with varying degrees of severity, all across major and even some smaller US cities.

Another article, by James Altucher, claims that NYC is Dead Forever. Perhaps his NYC, and the NYC many people loved, is dead and not coming back. I have trouble with this theory generally because world cities tend not to die, even if they go through reversals. Rome survived the Visigoths and the fall of the Roman Empire, for instance. And frankly, the NYC I liked best, of the mid 1980s to the mid 1990s, was already dead due to the Disney-fication of the city. So what, or more precisely whose, New York City are we talking about?

Altucher tries arguing that New York City has suffered a more serious and lasting blow than it did during its fiscal crisis. Even though he points to falling rents and sales prices, even with the Covid-19 exodus, New York City isn’t having co-ops sell for $1 and proof that you could pay the maintenance. While even then, New York City was the place to be for the entertainment, publishing and advertising industries, along with Wall Street, Wall Street, which was the biggest economic engine for the city, was in a deep and expended decline, due to the one-two punch of the deregulation of stock commissions, the deep equity bear market, and stagflation also trashing bonds. Big company execs who had headquarters in Manhattan were alarmed at the decline in services; many were contemplating and some did relocate their offices out of the city.

Even in its grubby and crime-ridden state, New York City was still expensive. New MBAs on top investment banker pay had to live with a roommate. Altucher talks about the food being a big draw for the city, but when I was young, yes, there were excellent restaurants (and frankly the best of the 1980s were better than any time after that) but regularly eating out well was limited to food columnists and those on expense accounts. In fact, if you worked in Wall Street, you were in a food desert. The options were few and not very good.

But “expensive” for a young person then paled compared to what was coming. When I was young, there was still a class of moderately affluent people who worked regular hours (think employees of the auction houses who might have a modest trust fund, established doctors) who would go regularly to theater or the symphony. By contrast, the young professional strivers worked like fiends because that was what they had signed up for, so partaking of the cultural life of the city was a non-starter (if you bought tickets to a show, the odds were greater than 50/50 you’d give them away). Over time, the ranks of the local theater-goers has thinned and Broadway and off-Broadway became more dependent on tourists.

And did he forget about the crime back then? I was never worried about my personal safety (although denizens practiced basic city smarts, like avoiding empty blocks late at night) but having my wallet lifted was a too-frequent experience. You never pulled out your wallet on the street, which meant if you made a purchase in cash, you needed to put the change in your wallet and put the wallet in your pocket or bag before leaving a store. If you went out in the evening, you carried a $20 in your pocket as “mugger money”. Some friends in non-doorman buildings suffered break-ins. You didn’t take the subway if you had the time or income not to, and women on the trains never wore decent or “could be mistaken for decent” jewelry. Women sporting gold chains would have them snapped off their necks.

One effect of the crime level was only the very well off (or middle/lower income parents who had bargain apartments) raised their kids in Manhattan; middle and even a fair number of upper middle class earners would move to the ‘burbs sometime in their child’s toddlerhood if they could snag a decent house or mansionette.

And the homeless were part of daily life. When I was able to afford living in a townhouse off Madison, I would be the first up and out in the morning. The building had an outer door, a tiny vestibule, and then the inner door, which had the buzzers for the apartments next to it. The outer door was always unlocked. In the colder months, I step carefully over the homeless man who slept in our vestibule so as not to wake him up. I was never sure if I succeeded in my effort to avoid rousing him, but he was polite enough not to move if so.

Similarly, when I would walk down Madison to midtown in the very early morning (before 6 AM to get to my gym, natch), there was at least one homeless person, per side of the street, per block, sleeping in the doorways of the boutiques.

So when I read this section of the Altucher piece, I marvel at how much expectations have changed:

One friend of mine, Derek Halpern, was convinced he’d stay. He put up a Facebook post the other day saying he might be changing his mind. Derek wrote:

In the last week:

• I watched a homeless person lose his mind and start attacking random pedestrians. Including spitting on, throwing stuff at, and swatting.
• I’ve seen several single parents with a child asking for money for food. And then, when someone gave them food, tossed the food right back at them.
• I watched a man yell racist slurs at every single race of people while charging, then stopping before going too far.

And worse.

I’ve been living in New York City for about 10 years. It has definitely gotten worse and there’s no end in sight.

Mind you, I am not saying this is swell. But these all amount to lifestyle indignities. I’ve seen homeless people go crazy in public too; this was not hugely unusual until Giuliani largely drove them out of Manhattan…no questions asked as to where.

The point is in the last 20 years, New York City has seen so much gentrification and lifestyle policing that it as a long way to go before it gets to 1970s level conditions. Yet rents have already dropped a lot.

Now in fairness, reader jr who lives what I infer is (or was) a very nice area of the West Village, reports that the cute store have significantly emptied out and the hookers and drug dealing, which used to be concentrated on Christopher Street, appears to have spread in combination with a marked increase in violent crime. So pockets of the city are already getting rough.

The health industry was the biggest employer in Manhattan in the early 1990s, and Manhattan is still full of top MDs and teaching hospitals. The big reason I still go to New York City is my doctors. Similarly, traders do need to work together to be effective, and having back offices not too remote makes sense, so a core of finance is very unlikely to leave.

If rents fall enough, and they ought to, you’ll see bohemians and artists come back into Manhattan, which might lead to the hollowing out of Brooklyn, and funkification eventually leads to gentrification. I don’t see New York City losing all that much of its food vibrancy, but it won’t be mid and upper tier restaurants, which are dying all over the US; the days of plentiful and varied dining out may be over for good and New York City isn’t alone in losing out. But there’s great ethnic cuisine in Queens, so it’s not as if there won’t still be thrilling food, it just won’t be as convenient or necessarily in prettified settings.

Finally, for what it’s worth, Amazon doesn’t think cities are dead: Amazon Bets on Office-Based Work With Expansion in Major Cities. Not that I like viewing them as an authority, but they presumably have some data and analysis to back this contrarian view.

By Greg David (gdavid@thecity.nyc). Originally published at THE CITY on August 17, 2020

With Congress essentially gone until Labor Day and a dire fiscal update from Albany, Gov. Andrew Cuomo and Mayor Bill de Blasio are running out of time to deal with budget crises that just took another $1 billion hit.

In the short term, the state is withholding 20% of city aid and de Blasio says up to 22,000 municipal layoffs loom. In the long term, the city and state face extended problems from the pandemic-created recession that require permanent reductions in spending, fiscal experts say.

“Little to no progress is being made in closing the gaps,” said Maria Doulis, vice president of the Citizens Budget Commission. “Federal aid appears increasingly distant, and it will be harmful to wait too long to act. The governor should develop and make public a plan to close state budget gaps.”

The budget squeeze intensified when the Cuomo administration announced last Thursday that revenues had fallen $1 billion more than expected — mostly due to a decline in sales tax collections but also because of weakness in some business taxes as well as taxes and fees from motor vehicles. (The one piece of good news is that income tax collections, including 2019 payments deferred from April to July, had met projections.)

In response, the Cuomo administration has begun withholding one dollar out of every five in local aid while it sees whether federal funds will be forthcoming. For New York City, that amount would grow to $3 billion for the fiscal year that began July 1.

A spokesperson for de Blasio said, “With stimulus talks in Washington stalled, we need borrowing authority from Albany as soon as possible to avert drastic cuts and layoffs.” City Comptroller Scott Stringer did not respond to a request for comment on the withholding of aid, primarily earmarked for education, and its impact on the budget.

Jobs Threatened

The mayor has set October as the date for implementing his threatened 22,000 layoffs if he cannot reach a deal with the city’s unions to reduce labor costs by $1 billion, in the absence of outside aid.

There is little doubt budget cuts will mean a major loss of jobs. State and city jobs in New York City fell by 19,000 in June compared with last year, a little more a third of them in education.

Statewide, the drop in government positions is 90,000, with two-thirds of them in education, and the national figure is 1.3 million. Moody’s Analytics estimates the national number would double without federal money.

The job cuts are likely to grow and be more severe in New York than elsewhere. When the pandemic hit, the municipal bond-rating firm Moody’s Analytics said the budget problem New York State faced was the third worst in the country, with only New Jersey and Louisiana facing a more difficult situation.

Federal Help Calls Grow

In the meantime, some programs will require more money.

For example, with unemployment resulting in the loss of health care coverage, the total of those enrolled in Medicaid statewide has increased 264,000 since February, two-thirds of them in the city. The state pays about a third of the cost of Medicaid, with localities chipping in another 17%. The program spending this year is expected to reach $83 billion.

The drumbeat for federal aid, meanwhile, grows louder and the pressure on Washington to act will increase.

In a webinar Friday by the union-based Economic Policy Institute, economists ranging from George W. Bush economic advisor Glenn Hubbard to Barack Obama economic advisor Jason Furman said money from Washington was crucial to avoiding worsening the economic meltdown.

“We just went off the fiscal cliff” for states and cities, said Mark Zandi, chief economist of Moody’s Analytics. “And there is going to be real damage to the economy.”

But aid from Washington appears unlikely to solve the long-term problems for the state and the city. Over the next four years, the Cuomo Administration estimated last week, the state faces a loss of $62 billion in revenue from what it expected before the pandemic.

“The biggest problem for the state is the enormous, recurring structural budget gap starting next year and into the future,” said E.J. McMahon of the conservative-leaning Empire Center. “Cuomo clearly hopes that starting in 2021, (Democratic presidential candidate Joseph) Biden and a Democratic Congress will provide states and local government a couple of year’s worth of added stimulus.

“But even a foreseeable Biden package won’t fully close future New York State budget gaps,” he added.

Grim Future of Cities: State’s Growing Budget Hole Threatens New York City Jobs, Services 2

This story was originally published by THE CITY, an independent, nonprofit news organization dedicated to hard-hitting reporting that serves the people of New York.

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