Eric Adams’ first budget is almost here
Mayor Eric Adams speaks about public safety during a press conference at City Hall, January 24, 2022. Photo by Ben Fractenberg/THE CITY
This article was originally published on through THE CITY.
As Mayor Eric Adams was due to present his first budget this week, a surprisingly strong rebound in property values offered him up to $1 billion in windfall tax dollars to help him weather the end of the federal pandemic aid.
That’s based on its tax collectors’ assessment that real estate in New York City is worth $1.4 trillion in total, or 2% more than before the COVID hit.
But tax watchdogs warn that the Finance Ministry’s apparent increase in property tax revenue could disappear by the time the final budget is passed in late June. Meanwhile, Adams must make a series of other tough calls about how the coronavirus will affect the city’s economy and the taxes it generates.
Whatever the final numbers, the budget the new mayor will unveil for the fiscal year beginning July 1 will outline his priorities both for spending this year and for his first term more generally.
“The budget will be the fuel that powers much of what the administration hopes to accomplish,” said Ana Champeny, deputy director of research at the Citizens Budget Commission. “It will manifest Mayor Adams’ programmatic priorities, his approach to relief and recovery, his commitment to efficiency and quality, and how willing he is to help protect New Yorkers from future fiscal threats.”
Adams took office Jan. 1 with benefits already in place. The boom in the stock market and low interest rates have reduced the payments the city has to make to its pension plans and bondholders. Wall Street, which recorded its second-best year for profits in 2021, also boosted income tax collections.
In his last budget update in November, his predecessor, Bill de Blasio, used those revenue increases to cut the budget shortfalls Adams faces in his first term by a third, to $8 billion. De Blasio said the city would spend $102 billion in the current year ending June 30, projecting a slight reduction of about $1 billion for the year beginning in July.
Since then, the city has released its interim property tax assessments for the upcoming fiscal year. They believe the city has more than recovered from the drop in values resulting from the myriad impacts of the pandemic, from business closures to widespread relocations of residents who could afford to leave.
City Comptroller Brad Lander, in a detailed analysis released last week, projected that the new tax assessments will generate $1 billion more in revenue than expected for the coming year, and an undetermined amount for the rest of the year. term of the mayor.
“Residential properties posted solid gains, with tax gains for single-family homes surpassing 2020 levels, and commercial properties are rebounding, which bodes well for our city’s economy and budget,” said Lander in a statement to THE CITY.
While the Adams Department of Finance saw an overall 2% increase in values to $1.4 trillion, those gains are unevenly distributed — and may not be entirely reliable.
Single-family homes and other residences are now worth 8% more than before the pandemic. Although the increases are smaller for condos, co-ops and apartment buildings, they are also worth more than they were in 2019.
For example, the median rent after landlord concessions reached $3,467 in Manhattan, the second highest on record in January. Staten Island, mostly residential, is also booming, with values now 10% higher than before the pandemic.
More problematic is the city’s projection that commercial real estate has also rebounded to around 92% of what it was worth in 2019. Experts agree that values have risen for top office buildings, commonly referred to as class spaces A, because large corporations and professional services companies that occupy these buildings continued to pay rent even though their employees were working remotely.
But the city projects the same gains for less sophisticated Class B and Class C buildings, whose tenants have been hit harder by the pandemic and are expected to have a harder time staying rented as tenants move to Class A buildings. to attract workers who have become accustomed to being distant.
Virtually every owner of an office building in New York will file a legal challenge to their valuation this year on the grounds that the city failed to assess the impact of COVID on their finances, says an attorney who works on tax issues who asked not to be named.
They probably won’t be the only ones complaining about tension. Inequities in the city’s property tax system mean New York levies relatively low property taxes on single-family homes, while sticking rental properties with bills that now average about 30% of their operating income , putting upward pressure on rents.
The system also keeps tax bills low in areas where values rise sharply, such as Brownstone Brooklyn, while charging property owners further out in the boroughs significantly more.
A commission appointed by de Blasio released a report in December with reforms that would end inequality, but the resulting tax hike for many homeowners has made politicians hesitant to implement changes.
Adams called the system “totally unfair” and said during his campaign, “We need to shift the tax burden from tenants and landlords in less affluent areas to expensive apartment owners in affluent areas.”
Still, the system is largely controlled at the state level, and Adams did not mention property taxes in his budget testimony in Albany last week.
In his budget, Adams will also have to present a rear-view mirror picture of the ups and downs the city’s economy has endured over the past year due to the Delta and Omicron variants.
In November, de Blasio lowered the city’s estimate of jobs the city added in 2021, but did not lower the taxes he believed the city would collect. Nor did he release the actual economic assumptions he made.
And while income tax collections have been much stronger than expected over the past two years, many of the factors that have supported them are fading.
The stock market faltered and interest rates rose, darkening the outlook for Wall Street, which accounts for 10% of the city’s tax revenue. COVID aid has also bolstered residents’ incomes through extended unemployment benefits and stimulus checks, while PPP loans have bolstered employee and homeowner payrolls.
De Blasio was already forecasting lower income tax revenue for the current year, but the city may have to make further cuts due to uncertainties, said Champeny of the Citizens Budget Commission.
“Personal income depends on jobs coming back, job and wage growth in high-paying jobs, and continued growth on Wall Street,” she said. “And we don’t know the scale of emigration or the long-term impact of remote work.”
The revenue issue is crucial because de Blasio’s November update funded more than $1.3 billion in spending with federal assistance — including for popular programs like Pre-K for Kids 3 years, which will run out towards the end of Adams’ term. If revenue isn’t enough to cover the gap, the city will have to cut programs or raise taxes to maintain them.
Tax experts will also be watching how Adams delivers on his promise to make the city more efficient by forcing agencies to cut planned spending by 3% — and whether he does so through consolidation, the use of technology or simply pressure on all agencies.
State Comptroller Thomas DiNapoli, meanwhile, called for an increase in city reserves to prepare for the next fiscal crisis. More immediately, the city also has no money for wage increases in contracts with city unions that begin to expire this year.
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