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Dear New Yorkers,
Like our smoke-filled skies last week, the economic indicators – at both national and local levels – are pretty murky. There are signs of both strength and weakness in the economy, and some things (like the divergence of New York City and New York State personal income tax receipts that we explore below) that are just plain weird.
If you’re looking for a good conversation about the volatility in the post-pandemic economy, I enjoyed Chris Hayes’ recent podcast with Felix Salmon on the “new not normal.” (Chris and I talked earlier this year about trends in New York and other cities.)
One trend that’s important but challenging to predict is the impact of hybrid work on the NYC commercial office market – and consequently on the City’s property tax revenues. In this month’s spotlight, we look at a range of scenarios. We find that the overall impact on City tax revenues is not likely to be large, and almost certainly not catastrophic. Even in the “doomsday” scenario we consider, which envisions property values falling 40% from pre-pandemic levels, we find that the estimated revenue shortfall could be $1.1 billion in FY 2027, a manageable 1.0% of the City’s total budget that year.
Meanwhile, we find that payments to the City from Hudson Yards are coming in higher than budgeted (about $200 million above projections annually, taking into account increases to the amount of tax revenue the City transfers to Hudson Yards each year as well), a bright spot in the commercial real estate sector. (This is an area where the data could lead me to adjust my prior thinking: I had doubts about the financing approach the Bloomberg Administration utilized).
That doesn’t mean everything is hunky-dory, of course. As a recent New York Times analysis showed, coastal cities including NYC – which have long been too expensive for low-income and working class families – are now pricing out college graduates as well. So it’s especially distressing that Albany failed to take any action on housing in the legislative session that concluded this weekend.
Volatile times call for humility, honest assessment of the data, new strategies where old ones won’t work (e.g. props to our public finance team on the innovative tender offer they executed earlier this month, which contributed to saving the City over $100 million, at a time when rising interest rates make straight refinancing less attractive), and adaptive capacity to face changing winds.
We’ll keep watching the numbers, even when they aren’t as clear as we might like.
Sincerely,
Brad Lander
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