The golden goose of New York City is not only losing feathers; it is now spitting blood, necessitating changes to the entire structure of government.
According to the municipal finance department, the overall value of the commercial real estate in Gotham, including offices, shops, and hotels, is almost $9 billion less than its most recent high. As businesses reduce the size of their offices and close stores all around the city, it will probably fall even further.
Vornado, one of the largest real estate companies in the city, was recently dropped from the S&P 500. “The fall in office occupancy continues to harm retail establishments and hotels in the city adding to the sector’s gradual recovery,” writes Finance Commissioner Preston Niblack.
Not only has the revenue from property taxes decreased: The Finance Department expects the $465 million in taxes on business transactions to generate less than 43% of total income this fiscal year. Residential transfer taxes revenue will decrease by 27.3%, or hundreds of millions more.
Real estate taxes are the largest source of revenue for New York City, accounting for a third of its $106.4 billion budget. The $40 billion or more in general obligation bonds issued by Gotham are also primarily backed by anticipated future property taxes.
The city’s retail, hotel, and construction industries, all of which were severely impacted by the epidemic, are also in for a rough time as a result of the loss of office workers that are driving this. The revenue from sales and income taxes for the city (and state) is also harmed.
Politicians in the city and state have grown to expect a never-ending supply of money. They receive a lot of campaign cash from real estate, in fact. All of their long-term expectations will need to adjust if the real estate crisis is not a passing fad (and the rise of remote work alone is a game-changer).
That entails far more than abandoning lingering Bill de Blasio ideals like universal 3K or “fat-trimming,” as demonstrated by Mayor Eric Adams’ recent reductions in city employees.
Every special interest that relies on the absurdly huge government of New York City will see their piece of the cheese shifting, if not being taken away.
This might lead to public worker strikes, severe political conflict over a drastically smaller pie, and a new economic catastrophe. The usual culprits will all point the finger at Adams, but the math forces the mayor to continue making cuts.