NEW YORK • The coronavirus pandemic has plunged New York City into its most dire fiscal crisis in generations.
More than 900,000 people have lost their jobs since February, and thousands of businesses have closed. Nearly 117,000 people filed new unemployment claims in the second week of May, a staggering 2,206 per cent jump from last year.
Tourism, which generates US$70 billion (S$98 billion) a year, has vanished. And people are not spending; sales tax revenue is seen to drop by US$1 billion – part of an anticipated US$9 billion shortfall in city tax revenue that could result in drastic cuts to essential city services.
The grim outlook has forced top officials to contemplate a manoeuvre that has been disparaged ever since it brought New York to the brink of bankruptcy in the 1970s: allowing the city to borrow billions to pay for its operating expenses.
Numerous fiscal experts and public officials, including Governor Andrew Cuomo, are leery of allowing the city to solve its budget problems by taking on big debts, sensitive to the reckless borrowing that began over 50 years ago.
Mayor Bill de Blasio, who has asked legislative leaders to permit him to issue bonds to cover the city’s operating costs, has said he would do so only as a “last resort”.
But doing so has become a real possibility: Legislative leaders, returning this week from a nearly two-month hiatus to vote on a raft of coronavirus-related Bills, are discussing the issue.
“What do you do if you don’t have the option of some amount of borrowing? You have to do massive cuts, massive cuts to all city agencies,” Mr de Blasio said.
“That will undermine any possibility of the right kind of restart and recovery,” he added.
Mr Cuomo, who prides himself on being fiscally conservative and would need to sign the legislation, referenced the 1970s nadir as he warned against granting New York City borrowing capacity.
“We don’t want to create a situation where the state or any local government borrows so much money that they can’t repay it, and then you have to start to cut service, and now you’re in that vicious downward spiral,” Mr Cuomo said. “New York City has been there before.”
Economists frown on borrowing to cover operating expenses, saying that debt should ideally be taken on only for large, long-term projects – such as those that generate income. Borrowing for short-term needs does nothing to fix the cause of the deficit, while shifting the debt to future generations.
City comptroller Scott Stringer said that if the city borrowed US$7 billion to cover current expenses, it would likely be on the hook for more than US$500 million a year in debt payments for the next 20 years. “That US$500 million means less for teachers, child care, and restricts our ability to borrow for needed infrastructure improvements,” he said.
But Mr de Blasio said he cannot make further reductions without leading the city to a “horrible place where we would be cutting back basic services, cutting back personnel… things that go against everything that we believe is right for New York City”.
State Senator Liz Krueger, chairman of the Senate Finance Committee and the person who introduced the borrowing Bill, said giving the city the authority to borrow up to US$8 billion “doesn’t mean they’re actually going to use it”, adding that it was “not an unreasonable ask for the city to make”.
Legislators do not plan to vote on the Bill this week, after failing to reach an agreement with the governor and city officials, but the proposal could be brought up for a vote in the coming weeks.
Both the mayor and the governor have said that without substantial federal recovery funds, essential city and state services such as policing, healthcare and education would be endangered.
But Republican resistance to additional financial support for the states has risen in Washington, particularly for Democrat-led states.
Republican Senator Mitch McConnell recently sparked a furious retort from Mr Cuomo after referring to possible additional federal funding for state and local governments as a “blue-state bailout”, chastising such states for past fiscal irresponsibility.
Progressive lawmakers have proposed another potential solution: a series of new taxes on the wealthy – from taxes on the super-rich and stock buybacks to a levy on pieds-a-terre or second homes – which activists say will raise billions of dollars in new revenue.
Those proposals, however, are not on the legislature’s agenda this week.