The Post-Quarantine City
What New York can do to ensure a sturdy recovery from Covid-19
By mid-March, New York City had become a global hotspot for the coronavirus, with 3 percent of global cases, despite having less than one-tenth of 1 percent of the world’s population. This outcome is no surprise. Covid-19 spreads through close human contact, and the entire purpose of New York City is to facilitate personal interactions.
Yet, though its human toll will be significant, this pandemic won’t last forever, and it won’t spell the end of dense cities such as New York. For the moment, no one knows how long the crisis phase will last in New York, or what the total economic, fiscal, and social damage will be. The city also doesn’t know how much money it will get from the federal government to recover. But city government can start taking key steps now to ensure that, when recovery does come, it will be strong.
New York has seen sudden, massive crises before—twice already in the new century. On September 11, 2001, of course, Gotham suffered an unprecedented physical attack. Islamist terrorists killed 2,753 people in lower Manhattan and destroyed 16 acres of commercial real estate as well as critical subway infrastructure. Then, in 2008, New York experienced a crisis of capitalism. The fall of Lehman Brothers investment bank that September ravaged the city’s core industry: finance.
Both traumas harmed the city’s economy. Before September 11, New York began the new millennium with nearly 3.2 million private-sector jobs. The city had recovered stirringly from the urban afflictions of the 1960s, 1970s, and 1980s. After rebuilding its transit infrastructure and tax base in the 1980s and slashing crime in the 1990s, New York offered employment to all comers, from seven-figure investment bankers to low-five-figure dishwashers. By the summer of 2001, though, the bursting of the late-1990s tech bubble was already shrinking the job market, with 15,600 positions lost by August. September 11 accelerated the decline. By the summer of 2003, two years after the attacks, New York City reached its modern low point in jobs, having lost 183,000 positions since the summer of 2000, or nearly 6 percent of the total. It took the city until 2007 to surpass its turn-of-the-century employment.
That year marked the eve of another crisis— one with no direct toll on human life but that caused nearly as devastating an impact on New York’s economy as September 11. In the summer of 2008, New York’s private-sector firms employed nearly 3.3 million people from around the region. Over the course of the next year, as the financial meltdown occurred, New York would bleed nearly 179,000 jobs, or 5 percent of its total employment. Though New York hit bottom in the summer of 2009, it would take two more years for the city to get back to and surpass its 2007 jobs peak.
Every disaster is unique, and New York’s recovery was faster than it otherwise would have been because of the special attributes of each catastrophe. After September 11, New York lost jobs at a far sharper rate than the country as a whole, with more than twice as many losses as a share of the overall economy. The terror-wrought destruction required tens of billions of dollars of demolition and rebuilding, much of it paid for with federal disaster-recovery dollars. The construction industry wound up losing fewer jobs on average than the broader economy. Tourists, too, returned quickly. Though the city experienced a steep drop-off in international visitors, it set a then-record for domestic visits in 2002, as patriotic Americans flocked to New York. New York also continued to benefit from what was then a 20-year trend of coming-of-age millennials and working-age immigrants wanting to move to the city, attracted by its robust public safety, cultural amenities, and job opportunities.
After 2008, New York benefited from federal bailouts. The global credit crisis started in Manhattan, after banks and investment firms, fueled by a loose-money policy from Washington, made unwise decisions about lending to home buyers. As the mortgage meltdown extended across other markets, potentially cutting off credit to blue-chip companies as well as small businesses that had acted responsibly with debt, Washington decided to end the crisis in Manhattan. Wall Street firms received trillions of dollars’ worth of direct and indirect government stimulus, and they bounced back to record profitability in 2010.
In recovering from the financial meltdown, New York again was strengthened by other trends. In the rest of the country, hard-hit homeowners sharply curtailed consumer spending, harming restaurants and retail stores. In New York, by contrast, millions of theatergoers, diners, and shoppers from China, Latin America, and the Middle East—where the recession had been milder—flooded into the city. American millennials were still arriving by the planeload, as well—some not just to visit, but to stay. The city’s crime rate fell to new lows. New York’s long-nascent tech industry had finally blossomed, with technology giants such as Google, Facebook, Uber, and Airbnb creating thousands of high-wage jobs, supporting an ecosystem of smaller tech firms.
Unprecedented tax revenues fueled a public-infrastructure binge that produced tens of thousands of jobs, with the state-run Metropolitan Transportation Authority and the bistate Port Authority either continuing or launching a number of major construction projects, all ultimately dependent on tax revenues or tourist dollars generated in the five boroughs. All-time low municipal-bond interest rates encouraged this investment. For all these reasons, New York City recovered its jobs three years faster than the country as a whole.
This time, it’s different, as the saying goes. It may be hard to appreciate the scale of what is happening—or what is about to happen—without looking at New York City’s immediately pre-coronavirus jobs picture.
In January 2020, New York had topped 4 million private-sector jobs. Nearly 450,000 of those positions—or more than 10 percent—were in “leisure and hospitality,” everything from “arts, entertainment, and recreation” (85,000), which includes Broadway dancers and museum curators, to “accommodation and food services” (360,000), which includes hotels and restaurants. An additional 343,000 people worked in retail trade. That figure, in total, is nearly 800,000 jobs, and—save for a portion of grocery, pharmacy, and food-preparation and delivery workers in businesses regarded as essential and permitted to continue operating— these jobs, effective with the federal government’s order to shut the borders and the state government’s order to cease all nonessential activities, are now gone. A loss of half a million jobs would be a conservative estimate.
Yet job losses will not be limited to traditional blue-collar work. New York has nearly half a million financial-industry workers. Finance has never gone through a bear market and a credit crunch—both now under way—without tens of thousands of layoffs. Another 800,000 New Yorkers work in “professional and business” services, including much of the tech industry. But the tech industry, already under pressure from growing investor skepticism over persistent losses at companies such as Uber and WeWork, is unlikely to survive this without tens of thousands of job cuts. New York, then, could easily lose more than 1 million private-sector jobs, or a full quarter of its total, and not gradually—over the course of two years, as happened after 9/11, or over the course of one year, as happened over 2008—but within weeks.
Though no one wants to hit the city government while it’s down, it’s a grim fact that New York is not entering this crisis from an optimal position. Mayor Bill de Blasio, until now, was the luckiest New York mayor in modern history. His six immediate predecessors entered office during times of crisis: John Lindsay, in the 1960s, as racial strife was tearing apart New York; Abe Beame, in the mid-1970s, as municipal bankruptcy threatened; Ed Koch, in the late 1970s, facing the lingering effects of severe cuts in public services; David Dinkins, in 1990, with the city’s crime soaring to all-time highs; Rudy Giuliani, in 1994, tackling the crime problem that Dinkins hadn’t vanquished; and Michael Bloomberg, in 2002, inaugurated as the remains of the Twin Towers smoldered at Ground Zero.
Now, in his seventh year in office, de Blasio has finally got his crisis, and—with his dithering instructions on public health and his last-minute chauffeured trip to the gym in mid-March as New Yorkers waited in supermarket lines, preparing to hunker down in their apartments for the coming weeks or months—he has yet to rise to the occasion. Nevertheless, he’s the mayor we’re stuck with for the next 20 months.
Partly because of de Blasio’s weak leadership—though New York’s fiscal profligacy goes back decades—the city enters this crisis with only a thin budgetary cushion. In 2014, in the last Bloomberg-approved city budget, government expenses totaled $78 billion (after adjusting for inflation). By 2019, they had reached nearly $101 billion—a 29 percent increase. The city now has nearly 335,000 employees, up from 302,000 when de Blasio took office. Crime has begun to tick up: before the coronavirus spread, New York saw a double-digit increase in robbery, grand larceny, and burglary for the first nine weeks of the year, as a new state bail-reform law took effect.
Broad trends and unique aspects of the crisis aren’t working in New York’s favor this time. The city’s population may have peaked two years ago. Millennials, now well into their mid-thirties, are following the long tradition of moving to the suburbs when they start families. Immigration has fallen. A surge in global tourism is unlikely to save New York again, since the unpredictable course of the coronavirus may dampen global tourism—and global income— for months or even years. And Covid-19 has caused no physical destruction, so there’s nothing physical to rebuild, as there was after 9/11. The era of super-low municipal bond rates has ended; short-term bond rates more than quintupled over two weeks in March, as investors fear that states, cities, and public authorities will default on their existing debt.
To cite such facts isn’t to wallow in pessimism but simply to lay out what New York City faces. Of a projected $66 billion in tax revenue for the upcoming fiscal year, which starts July 1, the city, based on job and income losses, is likely to see a loss of more than $10 billion, twice as bad as after the financial crisis, even after accounting for inflation. (The remainder of the city budget is funded by state and federal grants.) And that’s not a worst-case scenario. Though the city’s projected $8.6 billion in sales taxes, $600 million in hotel taxes, and $13.8 billion in personal income taxes are likely to plummet first, even the city’s traditionally stable $31 billion in annual property-tax intake could shrink, as property owners ask for reassessments in light of the cessation of substantial economic activity. After September 11 and again after 2008, the city raised taxes—an option off the table now, simply because businesses and taxpayers have no money.
So what should the city do? First, the city council and the mayor should announce a sales-tax holiday through the end of the 2020 calendar year; the state should follow. In doing so, the city and state will forfeit revenue, yes. But they will also send a signal to businesses of all sizes: once New York is open again, diners and shoppers will enjoy a nearly 9 percent discount on their purchases.
Second, the city should eliminate its tax on commercial rent, too, and forfeit another theoretical $1 billion. The city’s retailers and restaurateurs can’t afford this burden right now. Third, New York’s government should also establish a private-public commission to rule on requested rent forgiveness and decreases for retail and restaurant tenants. Property owners, particularly larger ones, would do well to be proactive here; they cannot expect to be held harmless when their tenants will lose weeks or months of income that enables them to pay the rent.
Fourth, lawmakers must rethink the city’s five-year, $79 billion capital budget. It is highly unlikely that New York can move forward with its ambitious plan to build four new jails in four separate boroughs at a cost of nearly $9 billion, for example. Rebuilding existing jails on Rikers Island would be cheaper and faster, and also doable—and more humane for inmates.
Fifth, New York must freeze public-sector wages. The wage bill, pre-Covid-19, was slated to rise from $30.1 billion for the current fiscal year to $32.3 billion by 2024. New York can no longer afford such increases. Municipal workers, though just as hardworking as their private-sector counterparts, can’t expect to be spared the carnage that the rest of the economy is suffering. The city likely will not avoid layoffs and cuts to public services. But it must be sure to maintain basic public services to the maximum extent possible.
Finally, using money freed up by wage freezes, the city must maintain public order and basic public infrastructure. With foot traffic likely to remain sparse for months, would-be criminals could be tempted to target the fewer pedestrians out and about, as well as the empty stores. Returning New Yorkers, workers, and visitors must feel safe. As coronavirus swamped New York, the Legal Aid Society called for a moratorium on all arrests. This attitude has it precisely backward: anyone who would target a New Yorker in such a vulnerable time should face increased criminal penalties.
None of these actions will solve the enormous problems that New York now faces: a truly unprecedented catastrophe that calls for unprecedented action. New York’s leaders, including its congressional delegation, must make clear that the city cannot recover quickly from the pandemic without tens of billions more dollars of no-strings-attached grants and aid to its affected residents, businesses, and government. The $180 billion for states, cities, and school districts passed in Congress’s CARES Act in late March, which likely will allocate less than $2 billion to New York City directly, will not be enough.
The longer Congress hesitates on additional aid, the more likely it is that New York would have to make the hardest decision of all: defaulting on its $7.5 billion worth of annual debt payments. If the choice is between maintaining basic public services and infrastructure or keeping current on debt payments, the answer is obvious. In the long term, New York cannot pay its debt without a functioning city tax base, which, in turn, depends on keeping the streets safe and the garbage picked up.
As for those who wonder whether New York and other cities are worth saving, when the Covid-19 pandemic is most virulent in cities: the current near-shutdown of the global economy should remind us just how critical human interactions in dense urban environments are—and will remain.
Top Photo: Times Square: March 23, 2020 (Angela Weiss/AFP/Getty Images)
City Journal is a publication of the Manhattan Institute for Policy Research (MI), a leading free-market think tank. Are you interested in supporting the magazine? As a 501(c)(3) nonprofit, donations in support of MI and City Journal are fully tax-deductible as provided by law (EIN #13-2912529).