New York Can Come Back to Life the Same Way It Always Does
(Bloomberg Opinion) -- The great big city’s a wondrous toy
Just made for a girl and boy —
We’ll turn Manhattan
Into an isle of joy.
— Lorenz Hart
This is the second of two columns. The first can be found here.
A great American city is in peril, and not just any city. It’s the most populous city in the U.S. It’s one of the cultural, financial and media capitals of the world. It boasts the largest subway system on the planet, with close to 500 stations. It’s the centerpiece of a metropolitan region that’s home to more restaurants, theaters, colleges and universities, and Fortune 500 companies than anyplace else in the U.S. And it accounts for more than 8% of the country’s economic output, nearly double the second most productive city.
When Covid-19 struck in March, much of that activity came to a halt. The nearly two million visitors and commuters who once poured into the city every day vanished, and residents took cover. Some fled. Businesses lost their patrons, and City Hall lost crucial tax revenue to pay for essential services. All this is taking a noticeable, possibly escalating, toll on the economy and quality of life across the five boroughs.
It also exposes a delicate dance between government and business that’s ordinarily easy to overlook. Companies depend on a complex web of stakeholders that includes customers, suppliers, workers and communities, all of whom rely on essential government services. At the same time, much of the revenue that pays for those services comes from property, income and sales taxes, which rely on a robust private sector and financially secure New Yorkers.
The longer the city is forced to cut essential services, the more extreme the suffering and lost opportunities for workers, residents, institutions and businesses — particularly the most vulnerable among them. The longer workers and tourists avoid the city, the deeper its revenue shortfall.
So New York urgently needs funding to restore essential services. With Congress deadlocked over another round of bailouts, New York can’t count on a federal rescue. And with the city already facing a fiscal abyss, turning to debt markets could be prohibitively expensive. Private investors may not be inclined to lend to the city at all.
We propose a middle ground, one that will be familiar to anyone who has watched New York survive and flourish over the decades: a new agency rooted in a public-private partnership that will channel funds into the hands of the people, institutions and services that make the city an engine of economic growth and a magnet for creative and hardworking strivers. The agency would be authorized to issue bonds — guaranteed by the Federal Reserve, much as some student loans are guaranteed by their parents. This will allow New York to sidestep inertia in Congress while also convincing investors that they aren’t pitching their money into a bonfire.
The federal government already guarantees a variety of loans, such as those to farmers, homeowners and small businesses. And more recently, the Federal Reserve has said it will stand behind the debts of companies and municipalities by lending them as much money as they need to avoid defaulting on their existing debts. Those guarantees give borrowers the financial credibility they need to access loans, while keeping a lid on their interest rates.
All of this echoes the Municipal Assistance Corporation, which was established in 1975 to help New York City remap its finances amid a wrenching fiscal crisis. MAC closed its doors in 2008 after successfully selling billions in bonds (backed by a state guarantee and a claim on the city’s sales and stock transfer taxes). The Regional Plan Association is a century-old nonprofit organization that studies ways to improve economic, health, environmental and other issues in the metropolitan New York region. Its “Fourth Regional Plan,” published in 2017, well before the pandemic arrived, called for, among many other innovative and practical measures, reshaping one of the region’s major transportation commissions, the Port Authority of New York and New Jersey, as an infrastructure bank dedicated to overhauling and updating local transit systems and airports. The Partnership for New York City, a business-oriented civic advocacy group, has recommended a series of public-private collaborations that tackle income inequality, affordable housing, more robust public health services, economic innovation and job growth.
Two of the most powerful politicians in the state have mapped out their aspirations for New York’s next act. Governor Andrew Cuomo’s administration has put out a wide-ranging plan, “New York Forward,” that offers guidance on reopening the state and providing an economic boost, such as loan assistance to small businesses located in New York City and elsewhere in the state. A nine-volume plan that New York Mayor Bill de Blasio’s administration released last year, OneNYC2050, envisions a future for the city in which economic equity, green energy and other priorities are realized. For all the good intentions behind these visions, they won’t be set in motion without funding.
With a guarantee from the federal government, New York should have little trouble turning to debt markets for the money it needs. The stimulus unleashed by Congress and the Fed in response to Covid-19 has produced a record supply of money. And with fewer opportunities to spend, Americans are saving money at a record pace and need a safe place to stash it. Enter New York, hat in hand, with Uncle Sam’s seal of approval.
Someone will have to decide how the funds raised by a new MAC-like agency are allocated. A board should be established to oversee spending and periodically report to lenders and the public about its priorities and portfolio. This board should be comprised of stakeholders representing federal, state and local governments, City Hall, the city’s most significant public agencies, as well labor, business and civic groups. Its initial priorities should be health care, education, transportation, housing and public safety.
New York isn’t the only city worthy of a bailout. But it’s a good place to start because the coronavirus hit there early and the hardest. It’s also a large, complex and diverse metropolis, so if the loan program we envision can be done there, it can be done anywhere. Using New York’s experience as a model, federal loan guarantees should be made available to every city and municipality in the country, with accompanying governing boards.
The idea should appeal to Congress. It would facilitate the funding to cities and municipalities that Democrats favor. At the same time, given that municipal defaults are rare, the federal government would probably be called on to pay only a small fraction of outstanding loans. That should please Republicans who oppose handing federal money to state and local governments.
Perhaps the greatest virtue of such a program is that it might dispel the notion that government or business alone can solve New York’s or any other city’s problems. Many Americans are deeply skeptical about the efficacy of government, and others are deeply suspicious about the intentions of business. The reality is that public-private partnerships have enabled the success of America’s cities, and that continued partnership will be key to their revival after Covid-19. New York City can lead the way.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.
Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.
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