There’s little doubt either Trump or Biden will push through some relief package after Election Day. What do we know about what either candidate’s strategy will mean for New York City?
In September, Governor Cuomo and Mayor De Blasio put forward competing plans to address the city’s budget shortfall and reinvigorate its economy. But both leaders have acknowledged that the city and state’s hopes of a strong economic recovery are slim without additional federal aid.
“Everyone is still in this kind of holding pattern with the federal government and what kind of covid aid package is going to materialize,” says Ron Deutsch, Director of the Fiscal Policy Institute, a New York City-based think tank that has called for higher taxes on those making over $5 million to close budget gaps.. “I think there’s going to be a significant gap in terms of what we get and how our revenue needs are right now.”
The city’s situation has been uniquely grim compared to the rest of the country: New York’s unemployment rate is 16 percent as of August 2020 according to the state’s Department of Labor, compared to the state’s rate of 12.5 percent and overall US unemployment rate of 7.9 percent as of September. And experts say those numbers are undercounts, as they do not factor in people who have dropped out of the work force.
Experts say the only way to plug the city’s revenue gaps and reinvigorate the economy is with substantial stimulus funding from the federal government. But with a uniquely combative federal administration and stalled pandemic aid talks, elected officials appear to be resigned to the fact that the November 3rd election will play a large role in determining how quickly that aid arrives and how substantial it will be.
Massive gaps loom
Job losses—including 44 percent in the city’s hospitality sector—and drastic reductions in tourism have led to a huge hit to city’s tax revenue. The city had a two-year, $10.4 billion budget gap for fiscal years 2020 and 2021 that needed to be addressed when the City Council and mayor negotiated the 2021 budget. That gap stemmed from a combination of tax revenue declines at the city level and a reduction in aid from the state, which was facing budget issues even before the pandemic.
According to George Sweeting Deputy Director of the city’s Independent Budget Office, the city was able to draw on its reserves and cut spending to manage much of that gap.But declines in tax revenue are expected in fiscal years 2022-2024 in the amount of $6 billion a year, according to a July analysis from Citizen’s Budget Commission, and neither the city or state have a plan to deal with it without federal aid.
“Even if they bring the current fiscal year to balance, there’s deficits for the next few fiscal years. Federal relief would make that easier to deal with,” Sweeting says.
Sweeting says this is similar to the budget gap the city faced after September 11. But the additional concern this year stems from the fact that the state was already in bad fiscal shape before the recession, and the governor has signaled that he may balance the budget at the expense of the city if it does not get federal funding.
Banking on federal aid
On September 24, the de Blasio administration put forward a plan for economic recovery that emphasized more rapid testing, making New York City a hub for public-health research, and addressing inequity in public transportation and public spaces.
The plan was light on details and did not address how initiatives would be funded. De Blasio has sought to address upcoming revenue shortfalls by requesting $5 billion in borrowing capacity from the state, which has not been granted. Additionally, the mayor expects $1 billion in recurring savings resulting from upcoming negotiations with labor unions and said there would be layoffs of 22,000 city employees if those savings are not achieved.
Earlier in September, the mayor had expressed bewilderment at a lack of additional federal aid to NYC. “Here we are in the middle of September. I couldn’t have imagined no action by Washington, D. C. up to this point,” he said. The Mayor also said there was no indication that another stimulus was on its way by year’s end, but added, “I still believe that can happen and hopefully very soon.”
On September 29, Cuomo announced his own recovery plan for the city. The governor, too, believed the city and state had a slimmer chance of mounting a recovery without federal help. “You would have to raise taxes… you’d have to cut the budget and cut expenses, and you would have to borrow. You would have to do all three. None of them positive for the economy,” he said, buttressed by his now recognizable blue power-point slides.
But he proclaimed it wouldn’t come to that, as he lay the responsibility at the feet of the federal government. “I’m not picking up the check because I don’t accept or assume any liability. It’s all Washington,” he said.
Cuomo also said any locality that borrows from the state would have to do so through a state financial control board, an entity which hasn’t controlled the city’s finances since his father was the governor and which was criticized for instituting brutal austerity measures.
Experts who spoke with City Limits expected some level of federal funding to arrive under either a Biden administration or second Trump term, because the need is so urgent and because New York state is vital to the country’s economy.
“It’s traditional for there to be a stepped-up federal response to offset economic slow-downs, with an understanding that the federal government has the capacity to respond to a recession that’s different from state and local governments,” Sweeting says. The federal government can borrow more money than state and local governments, and it has the capacity to print money, whereas the state and city must maintain a balanced budget.
The governor’s and the mayor’s seeming hesitance to enact more drastic spending cuts has drawn criticism from budget watchdogs. But it comes from a calculation based on the city’s dire need and the federal government’s interventions in past downturns, according to James Parrott, Director of Economic and Fiscal Policies at the Center for New York City Affairs.
“The expectation that that relief has to be provided is a pretty compelling one, and that’s holding back the governor from making drastic budget cuts and laying people off,” Parrott says. “There has to be federal relief otherwise the whole country is sunk.”
“The city has even less options than the state,” says Randy Peers, President of the Brooklyn Chamber of Commerce. “The city doesn’t have a lot of tools to work with when it comes to this economic recovery. It all has to be authorized at the state level, so I don’t know what the city could or should be doing other than thoughtfully looking ahead to the next budget cycle and trying to figure out what’s the next worst-case scenario.”
But Deutsch, with the Fiscal Policy Institute, says the governor doesn’t want to jeopardize additional federal funding by enacting drastic cuts or raising taxes on the wealthy, signaling to the feds that the state does not need additional aid.
“He’s very nervous about doing anything in the interim that would perhaps make Washington provide us with less than they have,” he says. Deutsch adds, however, that the governor should instead be raising taxes on the wealthy right now, as advocates have been calling for, rather than waiting on federal aid
“Two things that seem to be going up are the stock market and hunger,” Deutsch says. “The governor seems to be the outlier here in asking the wealthy to make a contribution under the notion of shared sacrifice,” Deutsch says, pointing out that NY’s 118 billionaires have seen their wealth increase by $77 billion between March and July.
The federal government has stepped up when it comes to Medicaid, Sweeting says. After September, the federal government chipped in to cover a larger percentage of the state’s share of Medicaid. In 2001, the feds took care of 50 percent of the state’s share. This time, through the changes in the Federal Medical Assistance Percentages (FMAP) in the federal CARES Act, the government has chipped in 56.5 percent, Sweeting says.
Because the Trump administration has made repeated funding threats to New York City, and because the administration has not expressed urgency around another relief package, some of the city’s business leaders believe that new federal stimulus would be more generous under a Biden administration.
Peers projected that a Biden administration would move forward with an aid package faster than the current administration.
“Hopefully a Biden administration will end the logjam in congress with respect to the aid package itself,” Peers says.
Sweeting, with the IBO, says there are other factors that would determine the arrival of this funding, like who is elected to congress on November 3, the spread of COVID-19 and the overall success of the economy.
Biden’s economic recovery plan is broad, with an emphasis on getting the virus under control through public-health measures by improving testing and tracing. The plan would also send $377 billion to small businesses, and ban stock buybacks and executive raises, a nod to the problems produced by the stimulus relief sent out when he was vice president.
The Trump campaign has not released any formal economic recovery plans, nor has the administration released a country-wide pandemic plan.
Biden has also released a tax policy plan, calling for tax increases on individuals making more than $400,000 a year. He also proposes raising the corporate tax rate to 28 percent and introducing a tax penalty on corporations shipping jobs overseas.
One question is what that combination of policies would mean for the city. Sweeting says that it can be hard to trace a connection between federal income tax and the city’s economic performance.
“In many cases it doesn’t have a direct link you can find to the local economy,” Sweeting says, adding that the exception is the State and Local Tax, or SALT deductions.
While the Trump administration has not released a formal tax plan, the president has floated that he may lower the capital gains tax rate and that he would extend the provisions of the 2017 federal tax law which are set to expire in the next four years. That includes the cap on state and local tax (SALT) deductions that have led New York State to take the federal government to court, contending that it would result in billions of dollars of lost revenue. Notably, while many Democratic candidates at the congressional level have talked about repealing the cap on SALT deductions, Biden did not include anything about it in his formal tax plan.
In an analysis of the Biden and Trump economic plans, Moody’s Analytics was heavily favorable to the Biden plan. (The analysis notes that “Quantifying the economic impact of Trump’s policies is complicated by their lack of transparency and specificity.”) Moody’s projected that an unlikely Democratic sweep in the general election – with the Senate and House going blue, as well as the presidency – would result in the creation of 18.6 million jobs and average income rising by $4800.
The limit of plans
While the city has been adding jobs during its tiered reopening, the city’s Independent Budget Office estimates it will have lost 564,200 jobs by year’s end.
Peers, who works with small businesses at the Brooklyn Chamber of Commerce, says that some jobs have already started coming back and some businesses are doing well during the pandemic. He cites high-tech infrastructure, wi-fi and high-speed internet companies and the tech sector in general as areas of growth. Janitorial services and building cleaners are also being hired as companies begin to bring their spaces on line and adhere to more stringent cleaning regulations.
Peers says businesses he speaks with are asking for the same things; citing most of all grants rather than loans for relief, as well as commercial rent relief. Some areas, including boardwalk businesses, will need extra relief: Peers points out that Coney Island lost 80-90 percent of its business this season as the amusement park never reopened.
Sweeting says that the city’s economic recovery may not be determined by policy plans of the two candidates and may have more to do with day to day handling of the virus, as well as the arrival of a vaccine.
“An awful lot of this depends on less on specific policies and more on what happens with the pandemic, if there’s a vaccine, and if people become more comfortable being in crowds, on subways, in theaters and restaurants. That’s going to go a long way towards helping the city recovery,” Sweeting says.