New York City’s golden goose isn’t just losing its feathers, it’s coughing up blood, and the whole structure of government will need to adjust.
Per the city Finance Department, the total value of Gotham’s commercial real estate — offices, stores and hotels — is nearly $9 billion short of its most recent high. And it’s likely headed down more, as companies downsize their office footprints and stores across the city close.
One of the city’s real-estate giants, Vornado, just got demoted from the S&P 500.
As Finance Commissioner Preston Niblack notes, “The decline in office occupancy continues to impact retail stores and hotels in the city contributing to the sector’s slow recovery.”
It’s not just a drop in the property-tax take: The Finance Department projects revenue from taxes on commercial transactions to fall nearly 43% this fiscal year — about $465 million. The take from residential transfer taxes will drop 27.3% — down hundreds of millions more.
Real-estate taxes are the biggest contributor to New York City’s coffers, covering a third its $106.4 billion budget. Expected future property taxes are also the main backing for Gotham’s $40 billion or so in general-obligation bonds.
The loss of office workers that’s driving this also bodes grim for the city’s retail, hospitality and construction sectors, all of which got slammed during the pandemic. That hurts the city (and state) income and sales-tax take, as well.
City and state politicians have come to expect ever-more cash to spend. (Heck, real estate also gives them a ton of campaign donations.) If the real-estate collapse proves more than temporary (and the rise of remote work alone is a game-changer), all their long-term expectations have to change.
That means far more than dropping leftover Bill de Blasio dreams like universal 3K, or fat-trimming like Mayor Eric Adams’ recent cuts to the city-employee headcount. Every special interest that feeds off New York City’s obscenely large government is going to find its cheese is moving, perhaps even taken away.
This means brutal political warfare over a suddenly-shrunken pie, possible public-worker strikes and a potential new fiscal crisis.
All the usual suspects will blame Adams, but the math gives the mayor no choice but to keep on cutting.
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