New York City Mayor Bill de Blasio said the city's revised estimates of tax revenue emphasize that the city needs financial help from the federal government. (AP)
The fiscal note's economic forecast, which the office said is pared down because the office does not have all the information necessary to estimate city tax revenue, assumes the local economy will lose 475,000 jobs in the 12 months from the second quarter of 2020 through the first quarter of 2021. It predicts that the economy will slowly begin to add jobs in the second quarter of 2021 but that job growth will remain slow through 2022.
"Given the staggering job losses, IBO assumes that the U.S. economy has entered a recession, even if not yet captured in the official statistics," the report said. "As the economy contracts, tax revenues will follow suit, particularly economically sensitive revenue sources such as income and sales taxes."
The IBO said the projected shortfalls would leave the city with essentially no growth in tax revenue for 2020 and a 4.2% decline for 2021 compared with 2020. And the projected job loss, 475,000, would be the worst the city has faced since the early 1970s, the IBO said.
The IBO further projects in 2022 that the city's tax revenue will come in $4.4 billion below baseline projections.
In particular, the IBO said sales and use tax will drop from January projections by $1.1 billion in 2020, a decrease of 13.1%, and by $3.1 billion in 2021, a drop of 36.4%. Industries including sports and entertainment, accommodations and bars and restaurants account for 21.6% of all sales subject to sales and use tax in the city, while retail other than food, groceries and alcohol accounts for 28.5%, the IBO said.
"Two sectors of the economy — leisure and hospitality and retail businesses other than food and groceries — that have been particularly hard hit by government orders to close or greatly restrict their operations comprise about half of the sales tax base," the report said.
The city's hotel tax is also going to take a big hit, the IBO said. In one estimate, revenue will come in $127 million below January projections for 2020, a 19.8% reduction. For 2021, projections show shortfalls of $530 million from previous estimates, an 82% reduction, the IBO said.
"The number of tourists visiting the city has fallen dramatically and convention business has largely been suspended due to public health edicts," the report said. "With greatly reduced hotel occupancy rates — below 20% during the second half of March — and room rates adjusting to the lower demand, hotel tax revenue is expected to fall precipitously."
The city's personal income tax revenue is also expected to take a hit to the tune of $1.4 billion below projections, a 10.4% drop, in 2020. Projections show the revenue shortfall in 2021 would be $1.2 billion and $1.5 billion in 2022.
"PIT revenue is particularly sensitive to employment and earnings, as well as capital gains realizations — all of which are now expected to be much lower than we assumed just a few months ago," the report said.
Installment payments for personal income tax, made by those with capital gains and other nonwage income, are expected to fall by 50% in the April-to-June quarter, the IBO said.
As for the city's business taxes, the IBO said, the effects of businesses shutting down will mostly be felt in the 2021 fiscal year. The city's general corporation tax in 2021 is expected to fall $724 million, a 17.9% decrease from earlier projections, and $521 million in 2022, a 12.5% decrease from earlier projections. Unincorporated business tax, paid by partnerships and proprietorships, is expected to decrease by $406 million in 2021, a decrease of 19.6% from projections, and $292 million in 2022, a decrease of 13.5%.
Juan Soto, a spokesman for Council Speaker Corey Johnson, said in a statement that the council will hold hearings to adopt "a fiscally responsible budget" that aims to strengthen the city's social safety net.
"Our fiscal outlook would look less grim if the federal government stepped in with increased funds to help us cover for COVID-19-related expenses and revenue losses," Soto said.
Speaking Wednesday on the CNN program "New Day," Mayor Bill de Blasio said the economic outlook for the city meant the federal government should step in and help. He called on Congress to provide a stimulus package that helps cities, states and others.
"If you're just talking about the money we've lost because our revenue is gone, our tax base is gone, our economy is gone, 5 to 10 billion is the amount of money we've lost that we would normally use to be able to support our first responders, our basic services, everything that keeps the biggest city in America going, and we're one of the economic engines of the country," de Blasio said.
Taking questions from reporters later in the day, de Blasio emphasized that a federal stimulus package was necessary to help the city recover.
"There's no way to balance this budget with cuts alone," de Blasio said. "It's impossible unless we're talking about not providing basic services to New Yorkers. And if we're not providing basic services, then you can kiss your recovery goodbye."
In mid-March, New York City Comptroller Scott Stringer's office estimated the city could lose at least $3.2 billion in tax revenue over the next six months because of COVID-19, the respiratory disease caused by the virus, and public health measures. This week, New York City business groups asked New York leaders to allow businesses to keep sales taxes as grants and permit property tax deductions for landlords providing rent concessions as relief from the novel coronavirus pandemic.
The state, meanwhile, is facing $10 billion to $15 billion in tax revenue shortfalls from previous estimates, Democratic Gov. Andrew Cuomo has said.
Cuomo has called on Congress to appropriate an additional $500 billion specifically for states and territories to help them with budgetary shortfalls caused by the pandemic and measures to stop its spread. Cuomo, who is also vice chairman of the National Governors Association, made the call Saturday with Maryland Gov. Larry Hogan, a Republican and the chairman of the association.
Asked about the $500 billion proposal by a reporter Tuesday, President Donald Trump, a Republican, said the issue of addressing state budget shortfalls was being looked at as part of a fourth stimulus bill.
"They're talking about states who have been battered, and they're also talking about hospitals. And we're certainly willing to look at that," Trump said.
In a statement, Rep. Nita M. Lowey, D-N.Y., told Law360 the latest report backs up why some lawmakers are fighting for a larger relief fund for states and cities in an interim package. Lowey is the House Appropriations Committee chairwoman.
"These are common-sense policies that everyone can get behind, and I hope that Republicans will come to their senses and move this interim package at once," Lowey said.
Rep. Tom Reed, R-N.Y., also told Law360 he supported the package.
"We care about communities of all sizes, which is why I am working with my colleagues in New York to support funding for local and state governments," Reed said.
The offices of the White House and Senate Majority Leader Mitch McConnell, R-Ky., didn't immediately respond to requests for comment Wednesday. Cuomo's office and the offices of the state Senate and Assembly leaders didn't respond to requests for comment.
Michael Zona, communications director for Sen. Chuck Grassley, R-Iowa, did not immediately respond to requests for comment Wednesday evening.
--Editing by John Oudens.
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