I’ve worked in the financial services industry for over 43 years, and the fast-moving economic downturn is the worst I have witnessed during my career. Most economists say a recession is inevitable. I believe it has already arrived.
The impact the coronavirus crisis will have on New York’s economy, its citizens, and its state and local governments will be devastating. And every person and every business will feel the pain due to the spiraling effect of the economic slowdown and the decline in consumer spending.
Every small New York business — the backbone of our economy — is taking a major hit. Before long, owners will be unable to pay the rent on their facilities or to make interest and principal payments on their debt. Many may never reopen, compounding the rapidly growing unemployment crisis and the storefront commercial property vacancy problem.
The economic shutdown will also devastate state and local budgets.
On March 17, 2020, state Comptroller Thomas DiNapoli responded to a request from Gov. Cuomo to analyze the economic outlook for the current state fiscal year that ends on March 31 and for the next fiscal year that begins on April 1.
In that report, the comptroller declared, “Based on information as of March 13, 2020, the most optimistic revenue scenario is that All Funds tax revenues in state fiscal 2020-21 will be at least $4 billion below projections of $87.9 billion in the executive budget.
However, given deteriorating conditions and the potential likelihood of a deep recession in the coming fiscal year, one alternative scenario suggests tax revenues in SFY 2020-21 could be more than $7 billion below the executive budget forecast.”
Considering Cuomo was trying to fill a $6 billion deficit hole with higher taxes and fees, fiscal gimmicks and more debt — God only knows how he will handle a deficit that could easily expand to $13 billion.
The state’s Rainy Day Fund currently has about $2 billion and the state’s Division of Budget has identified about $890 “as being informally reserved for economic uncertainties.” Even if these reserves are expended there will still be a huge shortfall.
Then there will be the fiscal impact on local municipalities dependent on sales tax revenues.
Take, for example, New York’s tourist industry. Last year, more than 60 million tourists visited New York City. Spending by these visitors generated approximately $1.8 billion in state tax revenues and $4.2 billion for New York City’s coffers.
In Nassau, nearly 40 percent ($900 million) of the funding for the county budget comes from sales tax revenues. Even a modest 10 percent decline will cause fiscal angst for the county which has been under the control of the Nassau Interim Finance Authority for close to a decade.
How is the state handling the new economic reality? At month-end, Gov. Cuomo conceded last week that his budget “as we prepared it is possibly overly optimistic.” And his budget director said they will need “flexibility … to be able to make changes as you go.”
“Missing from those statements,” E.J. McMahon, of the Empire Center for Public Policy, observed, “was even the slightest hint of any specific steps the governor will take, or recommend taking, to cope with a massive revenue shortfall that is inevitable and unavoidable, given the stock market crash and broad shutdown of economic activity brought only ‘social distancing’ orders.”
How will the governor ultimately address the skyrocketing deficit?
My guess is he will persuade the Legislature to expand the borrowing capacity of the Local Government Assistance Corporation created by Gov. Mario Cuomo.
LGAC, a non-self-supporting corporate government agency, dependent on annual appropriations of state sales-tax revenue, was authorized in 1990 to bond out $4.7 billion of the state’s accumulated deficit.
Like New York’s 52nd governor, the 56th governor will probably burden future generations with paying off present-day expenditures.
Since we are experiencing a government-induced recession, the feds must provide liquidity to New York’s neediest and to its small businesses.
Billions of federal dollars should be sent to enhance the state unemployment insurance and Medicaid funds.
Small business loans — that could be turned into grants — should be readily available to help companies keep their workforces on the payroll.
The feds should also order banks to permit people to defer mortgage, student loan and credit card payments for several months.
Such measures, economists Betsy Steven and Justin Wolfers pointed out, “could prevent countless bankruptcies, forced home sales and defaults, potentially averting the vicious cycle of financial disruption, reduced incomes, and lower spending that made the 2008 recession so brutal.”
No doubt there will be difficult days ahead, particularly for those who live paycheck to paycheck. But we will endure. Why? Because we are New Yorkers!