NYC Economic Recovery to Lag Until 2025 Despite Revenue Growth
(Bloomberg) -- New York City Mayor Eric Adams faces a longer-than-expected Covid recovery with a nearly $3 billion budget gap next year and a labor force that isn’t expected to reach pre-pandemic levels until 2025, the city’s Independent Budget Office said in its latest economic forecast released Tuesday.
Rising tax revenue could mitigate some of the pain but Adams will be forced to make tough choices over balancing the budget without the billions of federal aid that has masked much of the city’s underlying fiscal uncertainty, the IBO said.
While former Mayor Bill de Blasio’s administration managed to avoid tax hikes or service cuts because of the federal pandemic-related stimulus relief, Adams will have to contend with projected budget shortfalls amid a record level of Covid-19 cases. He’ll also have to negotiate new contracts with municipal workers and fund programs that may require new revenue sources.
“The increasingly unpredictable nature of the spread of Covid-19 variants continues to confound economic forecasts and will remain one of — if not the primary — risk to the stability of the city’s financial plan,” the IBO said.
While Wall Street profits and residential real estate sales have thrived, New York could face fiscal pressure as federal aid is drawn down and certain tax collections shrink.
Before the rise of new virus variant, the IBO had forecast that the city would reach pre-pandemic employment by the middle of 2024. Now, the IBO anticipates that the economic recovery in New York will continue to lag behind the rest of the nation with expectations that it will take until the end of 2025 for the city to rebuild its pre-pandemic labor force. It also anticipates real property tax, personal income tax collections, and corporate tax revenue to decline in 2022.
The outlook however is expected to improve in 2023 with the strongest rebounds anticipated with year-over-year tax revenue growth in sales, personal income, property tax, and hotel occupancy collections, according to the latest forecast.
The IBO predicted general sales tax revenue will be up $843 million, or 10.9%; personal income tax will rise by $1.2 billion, or 8.5%; property tax will gain $928 million, or 3.1%; and hotel occupancy tax will continue to expand on this year’s growth to $413 million. Major tax sources are also expected to grow in 2024, and again in 2025, if the city’s economy moves past the recession and rebounds to a more stable growth path.
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