New York will need another federal bailout — and major belt-tightening
The 2008 financial meltdown, 9/11, the 1970s fiscal crisis — New York has seen catastrophe before, but nothing like now. Both Republicans, nationally, and local Democrats will have to adjust. Washington must send Gotham billions in direct aid — but our local pols also will have to do something that doesn’t come naturally: Spend it far more wisely to preserve basic services.
New York City, just like the country, measures its economic output every year; this is called “gross city product.” In 2018, the last year for which full data are available, that GCP was $941 billion — nearly 5 percent of the nation’s gross domestic product, even though the city has only 2.5 percent of the country’s population.
New York has seen its GCP shrink before. After 9/11 (and the bursting of the tech bubble the year before), the city’s economy shrank by 3 percent, and its number of private-sector jobs shrank by 5 percent. It took until 2007 to recover.
After the financial crisis in 2008, GCP fell by 6 percent, and the number of private jobs by 3 percent. It took until 2011 to recover.
But New York has never experienced what it’s going through today. Large swaths of the economy are shuttered. The likely best-case scenario is that the city’s economic output is cut in half for three months — meaning a 13 percent hit to GCP, Depression-era figures.
As for jobs: Looking at the city’s base of 4.1 million private-sector positions, it’s reasonable to predict a loss of about 1 million — or a quarter. Nearly a million people work in retail, leisure and hospitality and construction alone — a total that will almost certainly fall by three-fourths.
Real estate, payroll services, accounting — all more white-collar jobs, but at risk as demand plummets. Even in the ’70s, when people and businesses fled to the suburbs, the loss was gradual, not sudden.
The unknown question is: How fast do we recover? Thousands of higher-income taxpayers have fled to Florida and elsewhere; will they come back, and if so, how quickly? Will people be willing to crowd onto subways and elevators anytime soon?
With demand for office and market-rate residential space likely down, a surge in private-sector construction is unlikely to save the city this time, as it did after 9/11. Nor will global tourists save us soon.
Washington can’t help with those issues. But it can help with money. Gotham is likely to see a more-than-$10 billion drop in its projected $66 billion in tax revenues for next year — or more than 15 percent.
Yes, New York overspends, with city-funded spending up by nearly a third since Mayor Bill de Blasio took office, to $70.8 billion for the fiscal year that starts July 1.
And the mayor has added more than 30,000 people to the public payroll, for a total of more than 330,000.
But now is not the time for a lecture. New York will have trouble luring back people and employers wary of crowds. The city will have a worse time of it if it can’t provide basic policing, fire, sanitation and education. A crippled New York, in turn, harms federal tax revenues later.
Congress’ recently passed rescue law, then, falls short, even with $180 billion allocated for states and cities. It will pump $40 billion across New York state — spread over the public and the private sector, with just $7.5 billion for state and local governments.
Nor is a $2 trillion infrastructure plan — bandied about by both President Trump and House Speaker Nancy Pelosi — going to do the trick. Later, not now.
Before April is out, Washington likely will have to approve another rescue for states and cities — likely double the size of the previous $180 billion. It should earmark much of that money for core services, like picking up garbage.
But in convincing New Yorkers and visitors to return, “amenities,” too, will be critical. Why live here, if city-subsidized museums and libraries remain on skeleton hours — or if you can’t ride your bike safely to work, to avoid the subway for a while?
New York’s tax base is more fragile than it’s ever been, which also means the city must make choices. Some choices aren’t so hard: Why has New York added 2,000 administrative staff to the education department over four years?
For a while, Washington is going to have to spend more — and New York is going to have to learn to spend less.
Nicole Gelinas is a contributing editor to the Manhattan Institute’s City Journal.
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