NYC’s Revenue Loss Less Than Feared as Property Taxes Gain

New York City’s tax revenue from March through August fell by $1.2 billion, or 3.5%, from a year earlier, a smaller decline than expected, as property tax growth helped offset a sharp decline in sales-tax receipts because of the coronavirus pandemic.

Property taxes, the city’s largest single revenue source, rose 3.9% to $16.3 billion, according to a weekly economic and fiscal outlook from city Comptroller Scott Stringer. Sales taxes plummeted 23.2%, or $918 million, after the coronavirus shuttered thousands of shops, restaurants and dimmed the lights on Broadway. Personal income tax, the city’s second biggest revenue generator, fell by almost $500 million, or 7.2%.

“Given the lagged nature of changes in assessments, the impact of the pandemic on property taxes will likely only occur in future years,” the report said. “Overall, however, the loss in revenue has been more contained than initially expected.”

Property taxes have traditionally been a stable and predictable source of revenue for local governments, tempering the volatility of sales and income taxes that are more sensitive to the economy. During the Great Recession, which was precipitated by the housing market crash, U.S. property tax collections declined in only one year, 2011, and by just 1.4%, or $6.8 billion, according to Census Bureau data. New York City property tax collections didn’t fall during the Great Recession, according to city’s financial reports.

New York City, the epicenter of the pandemic’s first wave, had its credit rating lowered one level by Moody’s Investors Service on Oct. 1. The downgrade reflected the severity of the pandemic’s impact on the economy of the most-populous U.S. city and the expectation it will take longer to recover than most other major cities, the rating company said. Still, tax collections exceeded estimates by both the city’s Office of Management and Budget and the comptroller’s office by about $1 billion, for the fiscal year ending June 30, the comptroller said.

Although millions of Americans are unemployed and homeowners and small business can’t pay their mortgages, Fitch Ratings doesn’t expect property collections this fiscal year to be “meaningfully affected,” by mortgage forbearance programs and delinquencies, the rating company said Sept. 29. Servicers for mortgages pooled into bonds must advance property taxes to local governments when borrowers don’t pay, Fitch said. The share of residential mortgages in forbearance was 6.32% as of Oct. 12, according to the Mortgage Bankers Association.

“It’s in their interest to keep paying because they have a lien on the property,” said Amy Laskey, a Fitch analyst. “If the property has any value it will eventually get sold and someone will eventually pay the taxes. It just may be delayed.”

Without more federal aid, mortgage delinquencies may increase, placing greater pressure on mortgage servicers, Fitch said. Delinquencies on property-tax bills for the first two months of New York City’s fiscal year, totaled $646 million, a $122 million increase, from the same period last year.

Real estate transaction taxes and hotel occupancy taxes had the largest percentage declines, 41.5% and 52.9%, respectively. Unsold listings of Manhattan homes have surged to more than 9,300, a level not seen since the global financial crisis. Travel restrictions have crushed New York’s tourism industry.

One bright spot: Wall Street. The Standard & Poor’s 500 Index is up almost 9% this year and investment-bank revenue jumped 32%, hitting an eight-year high in the first half of 2020, as companies raced to raise cash in the bond market and trading soared, according to research firm Coalition.

“The strong performance of the stock markets and Wall Street firms has so far defied most expectations at the onset of the pandemic and the experience of prior recessions,” the comptroller’s report said.

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