"By virtually every measure, our economy is firing on all cylinders, " Mayor Michael Bloomberg recently told the State Financial Control Board, which has overseen city finances since the 1970s fiscal crisis. Certainly, the city's "fiscal economy" is in peak form, boosting tax revenues by $16 billion, or 75 percent, in the last five years -- most of that the result of economic growth. This has enabled the city’s budget to go from a $5 billion deficit in 2003 to a $5 billion surplus in the fiscal year that ended June 30.
While the city’s fiscal economy roars, what is the state of the “neighborhood economy” -- the factors that determine the well-being and living standards of the average New York family? Strong job, wage and income growth help both the fiscal economy and the neighborhood economy, but in other areas, what bodes well for the fiscal economy can cause hardship in many city neighborhoods.
DRIVING THE FISCAL ECONOMY
Self-Sufficient in New York
An income of $50,000 barely enables a family of four to be economically self-sufficient in New York City. The Women's Center for Education and Career Advancement has calculated how much a family would need to pay for such necessities as housing, child care, food, transportation, and health care without public or private subsidies. To be "self-sufficient," a Brooklyn family with two adults, an infant and a preschooler would need an income of over $50,000. The "self-sufficiency" level is not exactly a princely living standard, but, even so, half of New York's families are below that. One City, Two Economies
The booming real estate market and the resurgence on Wall Street have fueled the surging fiscal economy and the record tax revenues. Very low interest rates from 2003 to 2005 helped spur a robust market in residential real estate and an unprecedented wave of mortgage refinancing. The city’s commercial real estate market rebounded surprisingly quickly after 9/11 and has been hotter than ever in the past two years. Collections from two real estate transaction taxes -- the real property transfer tax and the mortgage recording tax -- have more than tripled since 2003, increasing by a total of more than $2 billion.
Wall Street’s resurgence since 2003 has also contributed to the health of the fiscal economy. Near record profits, record bonuses and payouts to hedge fund operators have contributed to city tax revenues. Realized capital gains, pumped up by rising prices for both stocks and real estate, are projected to be 40 percent higher for the 2004 to 2007 period than they were during the boom years of 1998 through 2000.
Wall Street wages (including bonuses) and capital gains account for 45 percent of the growth in the state’s income tax base since 2003 and an even higher percentage in New York City. At the same time, profits from real estate and Wall Street account for much of the $4.5 billion increase in New York City business income taxes -- a rise of 165 percent.
There is concern, however, that the good times cannot last forever. In looking ahead, city budget makers and monitors all expect some moderation. The mayor's budget office predicts tax revenues will fall slightly in the current fiscal year, the result of fewer real estate transactions, declining home prices, less job growth and declining Wall Street profits.
THE NEIGHBORHOOD ECONOMY
Even as the fiscal economy may begin to recede slightly from its pinnacle, the last few years have been favorable ones. Have conditions been as good in the neighborhood economy?
Certainly, the strong job growth in health, education, social services and tourism-related activities has boosted the employment of city residents and total incomes in the boroughs outside of Manhattan. These developments have contributed to the growth in personal income and sales tax collections, and, in the case of tourism, increased hotel tax payments to the city treasury.
But other aspects of the neighborhood economy have not fared so well. Indicators of a strong neighborhood economy include plentiful middle-income jobs, steady wage gains, affordable housing and a reasonable balance between family incomes and the cost of necessities, such as childcare, healthcare and utilities.
While the number of jobs in the city has increased over the past four years, this increase was needed to re-coup the jobs New York City lost during the 2001 to 2003 downturn. In addition, much of the recent job growth has occurred in relatively low-paying industries, such as home health care, restaurants and educational services. There has been a huge surge since 2000 in the number of people in New York City categorized as “self-employed,” a condition that often means low earnings and no fringe benefits. So, while more city residents may have jobs today, which helps explain the city’s low unemployment rate, there is an increase in the ranks of the working poor. Not enough of the new jobs provide a middle-class standard of living or even a path to the middle class.
News reports frequently tout the high and rising average wages in the city. However, such averages are skewed by the very high wages and sometimes-stratospheric bonuses paid in finance, media and professional services. For example, the state Labor Department reports that the average yearly wage in New York City was $73,259 in 2006, but in Manhattan, the average wage was an eye-popping $91,648 while for the other boroughs average annual wages were roughly $40,000. According to the Census Bureau, half of New York City families have incomes under $50,000.
While the growth in wages for the typical worker started to outpace inflation in 2006, the median hourly wage of $15.40 is still below what it was in 2002 and considerably lower than the wages of the early 1990s. In the late 1990s, productivity and wages rose together. After both slowed early in this decade, productivity began to increase in 2003. Wages, on the other hand, have grown at only a fraction of the pace of productivity. This accounts for the much faster growth in profits than in wages.
Perhaps no area represents the dichotomy between the fiscal and the neighborhood economy more than real estate. The rapid rise in housing prices over the last few years has intensified a crisis for first-time buyers and renters seeking homes they can afford. Exemplifying these contradictory forces, the sale by the Metropolitan Life Insurance Company of the 11,250 unit Stuyvesant Town-Peter Cooper Village housing complex last year was a record-setting $5.4 billion real estate transaction. Although the sale boosted city tax receipts, it also meant a significant reduction in the city's supply of middle-income housing as the new owners sought higher market prices in a climate of rapidly escalating real estate values. One particularly disturbing consequence of the city's hot real estate market may be an increase in homelessness, which is now higher than it has been since the early 1980s.
While the neighborhood economy shows many healthy signs, it is not, to borrow the mayor’s phrase, firing on all cylinders. That would take improvement in the quality of jobs and sustained wage growth that outpaces the rise in the cost of necessities. Some city policies, such as the new childcare tax credit for low- and moderate-income families and the mayor's impressive plan to provide 165,000 additional affordable homes over the next ten years, should improve the neighborhood economy. State policies such as the three-stage increase in the minimum wage have helped, and a newly energized state labor department has pledged to make government again an effective enforcer against irresponsible employment practices.
New York has a dynamic and productive economy. The city and the state need to do more to make sure that the local economy provides benefits from a neighborhood perspective as well as from a fiscal point of view.