New York Daily News
New York is emerging from the pandemic and the mood in much of the city feels celebratory. Our recovery may be short-lived, however, if our political leaders underestimate the fiscal and competitive challenges that lie ahead.
For now, with the virus in retreat and 77% of adults fully vaccinated, there is reason for optimism. By January, employers expect that 76% of Manhattan office workers will return to the workplace at least for part of the week, which will help revive the central business district.
The re-opening of Broadway has affirmed the resilience of New York’s arts and cultural scene, and the return of tourists will not be far behind. Outdoor dining continues to enliven our streets and sidewalks and the charity circuit of in-person, evening galas is revving up.
Financial and professional services and information technology — the largest contributors to New York’s tax base — moved seamlessly to remote operations and powered through the pandemic with unprecedented growth and profitability. Through much of the pandemic, consumer spending was buoyant and the stock market reached new heights. As a result, overall economic output fell less than 5% in 2020. This allowed city and state governments to enact the largest budgets in their history, increasing spending by more than 12% and 9.7%, respectively.
Today, thanks to strong income tax revenues and more than $20 billion in federal aid, New York City government is awash in cash and spending freely on a potpourri of programs and interventions that range from important to frivolous. But this cannot last. Within two years, the federal aid that is currently covering over some of the damage inflicted by the pandemic will be exhausted. Multi-billion-dollar city budget deficits are anticipated as early as 2023. Already, the state comptroller projects that falling values of commercial properties in Manhattan cost the city more than $800 million in annual real estate tax revenues starting in 2022.
Our “brick and mortar” sectors — retail and entertainment, food service and accommodations, arts, culture and fitness — are still struggling and may never return to pre-pandemic levels of employment. Pre-pandemic, these sectors represented only 9% of the city’s economy but accounted for 20% of our jobs. Despite benefiting from massive federal and state relief, the business and nonprofit organizations in these sectors experienced Depression-era losses and it will take a while before we know how many will survive.
What are the key challenges facing the incoming mayor? The top three will be restoring a sense of public safety, getting almost half a million New Yorkers who have lost their jobs during the pandemic back to work, and making it attractive and affordable for businesses and top talent to continue to live, work and invest in the city.
Newcomers to the city who have only experienced the relative prosperity and growth of the past two decades may not appreciate our vulnerability to forces unleashed by the pandemic. Today, every company that has operated remotely for the past 18 months is re-evaluating its New York operations based on new demands from its professional workforce and a political, regulatory and litigation climate that has become increasingly hostile to business in recent years. Those industries and individuals that we depend on most as job creators and taxpayers are being courted by mayors and governors from other regions that offer lower taxes, cheaper housing and easier commutes.
During the 1970s, the city lost almost a million residents and half our Fortune 500 companies as manufacturing moved offshore and office operations relocated to the suburbs. Local government failed to respond quickly and effectively to rising crime and unemployment, deteriorating municipal services and plummeting tax rolls. It took more than 30 years for the city to fully recover.
The engine of the city’s growth in the post-pandemic economy will be the technology sector, ranging from e-commerce and life sciences to fintech and everything in between. The restrictive immigration policies put in place during the Trump administration will make it more important than ever to prepare New Yorkers for jobs in the digital economy and for the city to provide affordable housing and amenities needed to encourage in-migration of domestic talent. We will also need to reverse the anti-big tech politics that drove Amazon’s East Coast headquarters away.
It will help if the warring factions in Washington agree on some big investments in infrastructure, both physical and social, and restore the deductibility of state and local taxes so that New York can continue to fund education, mass transit, affordable housing and other programs that are essential to sustaining the economy of our diverse city and state. If these federal initiatives fail, local challenges will loom even larger.
As we celebrate emergence from COVID-19, New Yorkers must prepare for big changes in the economic and competitive landscape. Fresh leadership is promising but will need room to make hard decisions.