Covid-19 pandemic lops US$2.5b in NYC property tax revenue

New York

AS New York City officials fight to control the coronavirus by this summer, it is becoming clear that the economic fallout will last far longer: The city's property tax revenues are projected to decline by US$2.5 billion next year, the largest such drop in at least three decades.

The anticipated shortfall, 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 all but emptied out since the pandemic began.

City Hall officials said that the market value of the tax class that includes hotel, retail and office properties has fallen by 15.8 per cent, putting the city's budget in a precarious position for the foreseeable future: Roughly half the city's tax revenue comes from real estate.

For now, the city will partially offset the loss with increased revenues from income taxes: The "rich got richer", showed a slide from the mayor's presentation.

But the city will still have to substantially cut spending, although officials gave no clear indication what services might be at risk. Mr De Blasio said that since last January, the city had already cut 7,000 jobs through attrition and a hiring freeze. He now plans to reduce the city's head count by another 5,000.

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"This is just a total economic dislocation for certain industries," he said. "We've never seen anything like what's happened to the hotel industry. We've never seen Midtown in the situation it is now."

New York has been devastated by the pandemic's dual paths of destruction: The virus has killed nearly 26,000 people in the city, while hundreds of thousands of jobs and billions of dollars in tax revenue have been lost.

At the height of the pandemic, unemployment exceeded 20 per cent. Today, a half million New Yorkers remain unemployed. And although some businesses remain open, many workers are staying at home rather than using mass transit to commute to densely packed office buildings in Midtown and Lower Manhattan.

Mr De Blasio and New York Governor Andrew Cuomo, who have battled with the Trump administration for more federal aid, have expressed optimism that US President-elect Joe Biden, together with a Democratic-led Congress, will bring substantial assistance.

Indeed, just before Mr de Blasio's announcement, the incoming Senate majority leader, Chuck Schumer, said that he and Mr Biden had reached a deal for the federal government to cover the full cost of state and city expenses related to a disaster declaration from last March, when the virus was first discovered in New York. The city had been on the hook for 25 per cent of the expenses eligible for federal emergency reimbursement.

The move is expected to save the state and city about US$2 billion, money that Mr Schumer's office said can be used to "tackle Covid-related budget gaps".

On Thursday, Mr Schumer was promising more to come. "This is just a prelude of better days ahead out of Washington for New York," he said. "With Biden as president and me as majority leader, it's going to get better."

A US$1.9 trillion proposal unveiled on Thursday by the president-elect contains US$350 billion to help state and local governments. Still, few expect the federal government to be able to fully meet their budgetary needs, especially with the economy in such flux.

In November, the city projected that the budget for the next fiscal year, which starts in July, would include US$31.8 billion in property tax revenue. On Thursday, the city said it was recalibrating those expectations downward by US$2.5 billion.

Thomas DiNapoli, the New York state comptroller, said: "This is an unprecedented drop. We have not seen property tax collections decline 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 full-scale return of office workers to office buildings, now that so many have become acclimated to working from home.

Early this month, only 29 per cent of Manhattan hotel rooms were occupied, compared with 69 per cent the year prior. More than 230 Manhattan hotels have closed, at least temporarily, during the pandemic.

The Manhattan retail sector, which was getting battered by e-commerce before the pandemic set in, continues to suffer, too, with rents declining and vacant storefronts increasing.

In 2020, tenants leased just 20.5 million square feet of office space in Manhattan, the lowest level in at least 20 years, said a recent report from Savills, a real estate services firm.

It "will still be several quarters before workers return to the office in earnest, and the full implication of demand shifts due to work-from-home or new location strategies can be seen", noted the report.

Landlords have responded by embracing unconventional ideas, like converting large swaths of underutilised Midtown office space into apartments, a notion recently embraced by Mr Cuomo.

The agreement with the Biden administration to pay 100 per cent of coronavirus-related emergency expenses - similar to one that New York had with the Obama administration in the wake of Superstorm Sandy - will mean about US$1 billion for the state and the city each, Mr Schumer said.

The Trump administration had previously committed to such an arrangement, the senator said, but had never actually acted on it, leaving the city and state to cover 25 per cent of those costs.

"I asked Trump for this personally two or three times," Mr Schumer said. "He said 'Yes', but he never did it."

Thanks to the arrival of more aid, the city will be able to put off nearly US$200 million in cuts to education funding, including a US$44 million cut to the expansion of the mayor's "3-K for All" preschool programme.

Earlier this week, Mr Cuomo announced that the state government was facing a US$15 billion shortfall, which he characterised as the largest in state history - something he, too, said he hoped the federal government would help backfill.

Mr Schumer said he had spoken to the president-elect and Nancy Pelosi, the speaker of the House, about the need for direct aid to state and local governments - something that was left out of a December coronavirus relief bill - and both leaders were committed to providing it.

But as to whether it means a complete bailout for New York, Mr Schumer was more circumspect.

"We're going to do everything we can to get the state all the money it needs," he said. NYTIMES