Photographer: Ron Antonelli/Bloomberg

There Are Signs That New York City’s Economy Is Slowing

  • Economists say the U.S. and the city may see a slump in 2020
  • Trump tax plan and reduced federal aid will pose challenges

New York Mayor Bill de Blasio’s ambitious goals to create affordable housing and fight income inequality will be tested by slowing economic growth, crimping his plans to win influence in the next presidential election.

Private jobs in the biggest U.S. city grew by 56,000 last year after gaining more than 100,000 annually since 2012. Tax revenue also climbed at a slower pace. Budget monitors and credit analysts expect a deeper slowdown in 2020, with increasing risks of recession. At the same time, the city’s four-year budget calls for spending to rise 13 percent by then to $96 billion.

After winning re-election Nov. 8 by one of the largest margins in city history, de Blasio, 56, promised billions to address homelessness, affordable housing, a prison overhaul and struggling public hospitals. He must also negotiate contracts for 328,000 workers and deal with the prospect of less state and federal aid.

“This is the time when you start to get anxious,” said Preston Niblack, deputy city comptroller for budget and accountancy. “We may be approaching an inflection point, and when you have revenues slowing down, you have to be more worried. You have to get more aggressive about managing the budget.”

Updated Numbers

Already, signs of a slowdown show. On Tuesday, de Blasio presented an updated financial plan, saying tax collections for the fiscal year to date were $207 million less than expected when the budget was adopted in June.

The administration has taken a cautious approach to apportioning its money, and can change the spending plan as required, said Budget Director Dean Fuleihan.

“The budget is about priorities, and part of that is putting money away in reserve but we also have to make investments we need to succeed in public safety, education, affordable housing and human services,” he said.

The fiscal blueprint anticipates a 12 percent increase in salaries, pensions and benefits between 2018 and 2021, and a $2.3 billion deficit in that final year. De Blasio’s budget for the current year stashed a record $5.25 billion in reserves. Comptroller Scott Stringer, a group of city council members and others had urged him to put away even more. 

“We should be getting ready for tougher times,” said Carol Kellermann, president of the Citizens Budget Commission, a business-supported watchdog group.  

Budget Risks

A “garden-variety recession” with a 2 percent drop in economic activity could cause a significant dent in the $67 billion in taxes and fees the city expects to collect in 2020, according to Adam Kamins, a senior economist at Moody’s Analytics’ 

“The expansion is over eight years old at this point, so a recession is certainly possible,” he said.

Kamins said the risks include a falling stock market and an end to several boom years of construction. At the same time, much of the employment growth has happened in low- and mid-salary jobs such as home-health care, retail and hotel and restaurant gigs, he said

Tourism, a source of about 385,000 jobs, broke another record last year with 60.5 million visitors, and NYC & Company, the city’s marketing agency, expects more this year. Yet the increase will come with about 100,000 fewer from abroad, the first such decline since 2009.

Tourists Welcome

Chris Heywood, the agency’s spokesman, said President Donald Trump’s immigration policies and unpopularity abroad contributed to the decrease. International travelers spend about four times more than domestic visitors, he said.

“The president’s America-first rhetoric and lack of a welcome message on behalf of the nation could be a pitfall for the nation’s tourism industry,” Heywood said.

De Blasio’s election year included trips throughout the U.S. in an effort to raise his national profile, and he plans a trip to Iowa next month. He has vowed to oppose Trump on immigration, taxes, health care and aid cuts.

Howard Cure, director of municipal research for Evercore Wealth Management LLC, expects Trump’s policies to hurt the city’s economy and finances, not only by making it a less popular destination for college students and tourists, but by reducing federal aid for housing, mass transit and Medicaid, and by enacting a tax plan that harms New Yorkers. 

New York’s potential difficulties could make it more expensive to borrow the billions of dollars it needs to finance school construction, bridge and road repairs and de Blasio’s goal of building or preserving 300,000 units of affordable housing by 2026, Cure said.

“The city has been expanding its budget, hiring a lot of people, and these expenses are tough to get rid of if revenue starts to fall,” Cure said. “He hasn’t really had to make any tough decisions, because the revenue has always been there.”

— With assistance by Martin Z Braun

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