The Big Dip

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The news headlines this fall and winter have been foreboding: 100,000 Jobs Lost! $4 Billion Budget Shortfall! Long Lines at Soup Kitchens! Then, on November 26, official word came from the National Bureau of Economic Research: America is in a recession.

Broadly defined as prolonged periods during which economic activity shrinks, recessions are nothing new to New York. The city has experienced two significant ones in the past 20 years, lasting roughly from 1980 to 1983 and 1989 to 1993. How long and how severe the dip of 2001 will be is anybody’s guess, but some economists say the nation could be in for a recession as crippling as that of the early 1990s, which devastated New York City. They point to bad signs like the all-time high levels of personal debt and bankruptcies caused by consumers over-borrowing and defaulting on their credit cards, loans and home mortgages. As jobs and wages disappear, bankruptcy and foreclosure rates could jump further, restricting consumer spending–which accounts for more than two-thirds of the economy–and deepening the recession.

Of course, some analysts do see a silver lining. Bush administration chief economist Glenn Hubbard, for one, points to the stock market’s relatively quick recovery in the months after September 11 and argues that the nation’s economy is fundamentally sound. Other optimists contend that despite the loss of 100,000 jobs in New York City since the World Trade Center attacks, the Big Apple’s unemployment rate was still only at 6.3 percent in October, more than 5 percent lower than the previous recessions’ highs.

But even if the city’s economic foundations–like a skilled labor force and immediate access to capital–are solid enough to encourage employment-generating investments, the recession might deepen because of what some are calling “the post-traumatic stress economy.”

“The turning point locally and nationally depends more than anything else on the psychological outlook that people and businesses have,” says James Parrott, deputy director at the Fiscal Policy Institute. “Those things, like fear of terrorism and anthrax, have subsided somewhat since September 11, but they’re still there.”

No matter how long the recession lasts, there will be concrete consequences. A look at the effects of previous recessions clearly foreshadows some of what New Yorkers and their neighborhoods are likely to experience during these tough times. In the spirit of educated prognostication, we offer you the first (and hopefully the last) City Limits Recession Preview:

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As tenants lose wages, they can’t pay as much rent. When landlords bring in less cash, they spend less on maintaining their properties, which is what caused housing conditions to deteriorate during both of the city’s previous recessions, according to the Census Bureau’s Housing and Vacancy Surveys (HVS). For example, from 1990 to 1992, the average income of renting households dropped from $23,442 to $20,545. Landlords had trouble finding tenants who could pay higher prices, so they lowered the rents slightly, from an average of $540 in 1991 to $530 in 1993.

Over time, tenants discovered the new bargain to be a Faustian one: The frequency of cold radiators, cracked walls and peeling paint rose quickly as rents inched down. Between 1991 and 1993, the number of properties in Manhattan that the HVS classified as “dilapidated” rose from 1.5 percent to 2.2 percent. Rats didn’t seem to mind the changing conditions, though–their numbers jumped, from being reported in 26.5 percent of apartments in 1987 to 32.4 percent in 1991.

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As of 2000, about 21 percent of New York City residents, or 1.7 million people, did not have health coverage. As the number of unemployed grows, so too will the number of uninsured. From 1989 to 1994, as a recession deepened, the number of New Yorkers statewide without health benefits grew from 11.8 percent to 16 percent.

When companies lay off employees, they often offer coverage through the Consolidated Omnibus Budget Reconciliation Act, a.k.a. COBRA. But, given the average $260-a-month premiums for an individual and $985 to cover a family, only about 20 percent of workers typically take advantage of that offer, according to Charles D. Spencer & Associates, a firm that analyzes employee benefits. While it is hard to predict how many people will lose insurance in the coming months, a 1999 study by Emory University professor Kenneth Thorpe found that for each half-percent increase in the unemployment rate nationwide, an estimated 1 million workers and their dependents lose their health coverage. Apply that to New York City, where the unemployment rate jumped from 4.9 percent in April to 6.3 percent in October, and about 80,000 people lost insurance during those months. (Some of them have qualified for Disaster Relief Medicaid since late September, but at press time that program was scheduled to last each recipient for only four months.)

A side effect of diminished health coverage is the increased strain it will put on the hospital system. The city Health and Hospitals Corporation, whose hospitals and clinics serve most of the city’s uninsured, slashed its staff by about 25 percent to make up for Mayor Giuliani’s $300 million cut to the agency in 1994. Despite that, HHC currently claims a deficit of about $250 million.

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It’s no shock that welfare rolls increase with unemployment rates. Between July 1989 and March 1995, for example, the number of recipients rose from about 800,000 to over 1.1 million.

When times get tough, it’s the low-wage workers living on the edge, making just enough to get by, who are most likely to tip into the welfare system–and those same workers have been disproportionately hurt by the terrorist attacks as their industries, from restaurants and hotels to tourism and garment manufacturing, suffer severe losses. Sixty percent of the New Yorkers laid off since September 11 make, on average, $11 an hour, according to the Fiscal Policy Institute. With 45 percent of the city’s job market in relatively low-wage service sector jobs, compared to 39 percent 10 years ago, a larger chunk of workers are expected to be hit by this recession.

Enter public assistance. How Mayor Mike Bloomberg will handle a rising demand for benefits remains to be seen, as he takes over from an administration that perfected the policy of “diversion” to shrink the rolls–and welfare budgets–to their lowest levels in decades. For a mayor facing a $4 billion budget deficit, a rise in the rolls will be hard to fund: Months before the recession was even declared, the city’s Independent Budget Office predicted a $57 million shortfall in funding for the welfare program in 2003 thanks to the five-year time limit on federal benefits, which requires local governments to chip in more to cover the costs of extended benefits.

“We don’t know whether the new mayor will accept the inevitability of a rising caseload,” says Mark Levitan, a senior policy analyst with the Community Service Society. “At this moment we have a known set of economic pressures, but we have a totally unknown set of policy variables.”

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All of this prospective doom and gloom is not inevitable. Many nonprofit groups, while struggling to survive in light of pending state and city budget cuts, are calling for new government programs like public works job programs, expanded health care and more and better job training to soften the blow on low-income New Yorkers.

“The business community has moved quickly to assert its needs since this recession became evident,” observes Levitan. “Now it’s time to push the conversation on to what we should be doing for poor people.”