AMU Homeland Security Opinion Original

Austerity Measures Alone Won’t Solve New York’s Many Crises

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By James J. Barney
Professor of Legal Studies, School of Security and Global Studies, American Military University

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Note: The opinions and comments stated in the following article do not represent the views of American Military University, American Public University System, its management, or its employees. This blog article, written by a licensed lawyer, is intended solely for educational purposes, not to provide any legal advice or to solicit clients in any U.S. or foreign jurisdiction. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state or locality.

In early July, I penned an article about New York City’s future. Since I wrote it, a lively and rich debate over New York City’s future has emerged in the media. In recent weeks, everyone from famed New York-born comedian Jerry Seinfeld to comedy club owner and former hedge fund manager James Altucher has opined about the fate of Gotham.

“New York City is Dead” makes for provocative headlines. However, those who argue that New York is dead or on life-support misunderstand the city’s current predicament. New York City is not dead. Instead, it is going through a once in a generation transition like the one that started in the late 1960s and ended in the early 1990s. During that time, New York City transitioned from an industrial to a service economy. The birthing process from one economy to another is a painful one, and leaders must take bold and creative action to mitigate the adverse side effects of the transition.

While New York City of the pre-COVID era may not return (and this might be a good thing), the Big Apple will likely do what it has always done, re-create itself and adjust to the new realities. However, the pandemic is a once in a century event. COVID-19 represents a human and personal tragedy and no one can mitigate the human loss or the impact on the lives of millions of New Yorkers. The battle against the pandemic also represents an opportunity for the city to emerge from the crisis radically changed and to forge a future that is more just and more inclusive.

Rather than re-create the flawed pre-COVID reality that favored the affluent at the expense of the city’s working class and minority communities, bold city leaders must aim to create a more inclusive New York that embraces its working-class roots and seeks to eradicate generations of racial, religious, class, and ethnic divisions.

COVID-19 Represents a Turning Point in New York City’s History

For a time earlier in the year, New York City was the epicenter of the COVID-19 crisis, resulting in the deaths of about 37,000 New Yorkers. In addition, the crisis and the months-long shutdowns of businesses in the nation’s commerce center sparked a fiscal crisis that threatened the vitality of one of the world’s greatest cities. There is a growing fear of a return to the so-called “bad old days” of the 1970s and early 1980s when high crime rates and lawlessness often made New York City a dangerous place.

What is happening in New York today is especially relevant because these events may foretell the fate of other American cities as they struggle to deal with the deadly coronavirus pandemic and social justice issues for minorities.

New York is slowly returning to an altered life, but the long-term damage to the city’s finances and reputation could potentially cripple it for a generation. Recently, Mayor Bill de Blasio announced a wave of layoffs of city workers. Previously Governor Andrew Cuomo had warned that, without a massive federal financial bailout, prolonged austerity measures were likely. Austerity measures have the potential to set back the city’s re-urbanization trends that began in the 1990s.

New York City Faces Its Greatest Crisis Since the Fiscal Recession of the 1970s

As New York City faces its greatest crisis since the fiscal meltdown of the 1970s, it is time to start a serious conversation about the nature of the city’s post-COVID-19 future and whether the financial effects of the often fatal respiratory disease pose an existential threat to the city.

Those who expect a return to “normalcy” and point to the city’s rebounds after 9/11 and the Great Recession of 2008 fail to appreciate the long-term damage that has been done to the city’s key industries, tax base, and reputation.

The COVID-19 Crisis Exposed but Did Not Create, Long Inequalities in the City

Even before COVID-19, several trends over the past two decades worked in combination to harden divisions based on religion, race, class, and ethnicity. The city’s pre-COVID-19 economy depended upon high net worth residents, tourism, real estate speculation, and the service and entertainment industries.

Real estate developers loved New York in the pre-COVID-19 era, as multi-million-dollar condos sprang up across Manhattan and became the modern-day equivalent of gold used by the rich as a value store. As in London and Dubai, the New York condo market became a haven for overseas investors looking to squirrel away – or launder – their money.

As a result, soaring real estate prices priced out middle-class residents, trapping the working-class and working poor alike. These sky-high prices drove off thousands of citizens who wanted to live and work in Manhattan but could not afford to do so. Many of them were people of color and recent immigrants trapped into de facto segregation in the outer boroughs or in Manhattan’s complex web of dwindling subsidized housing.

New York City Faces Its Greatest Crisis Since the 1970s

New York faces billions of dollars in lost revenue, a declining tax base, and a potential mass exodus. The crisis is similar in many ways to the late 1960s when the city faced a mass exodus driven primarily by deindustrialization and the forced austerity of that era. As Kim Phillips-Fein notes in her 2017 book, Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, deindustrialization was the product of several factors, including a generation of government policies that supported suburbanization and the relocation of New York’s great industrial base.

New York then faced a generation of decline that led to high crime rates and the financial crisis of the 1970s that brought the city to the edge of bankruptcy. The New York Daily News on October 30, 1975, captured the essence of the times with its classic front-page headline encapsulating the President’s position vis-à-vis the city’s fiscal crisis: Ford To City: Drop Dead, Vows He’ll Veto Any Bailout.

The city’s current boosters mostly lack a collective understanding of its troubled past or they simply opt to ignore it. If the COVID-19 crisis parallels the experience of the deindustrialization crisis that was also largely the product of a generation of flawed governmental policy, hopes for a quick recovery like that experienced after 9/11 and the Great Recession may be misplaced.

The COVID-19 crisis has exposed in vivid detail the unacceptable levels of income inequality, racial discrimination, and an extremely fragile economy. New York’s economy depends on tourism, entertainment, consumerism, and industries including law, advertising, and finance.

No One Should Expect Tourism to Return to Pre-COVID Levels for Years

However, the COVID-19 pandemic has demonstrated that many high-worth earners can work satisfactorily from their suburban homes. And no one should expect tourism to return to pre-COVID levels for years, especially with possible travel bans on entry from other states and other restrictions aimed at stemming the spread of the highly contagious and all-too-often fatal disease.

Without tourism and the return of high net-worth earners, other industries, including the city’s robust entertainment and restaurant businesses, are left vulnerable. Many of New York’s bars, restaurants, theaters and cultural institutions that employed thousands of workers were already surviving precariously in the pre-COVID era. The pandemic-induced closures could force many of these businesses over the edge and exacerbate the existing divide between the rich and the working poor who are highly dependent on the very industries harmed by the COVID crisis.

New York City needs creative political leadership to address the current crisis; No federal bailout can redress the structural damage caused by COVID-19. Instead of bold initiatives, however, Albany and City Hall have proposed a series of Band-Aid solutions, including over $9 billion in across-the-board cuts in services and the restructuring of municipal department budgets. A July 1, 2020, New York Times article describes how the recent 11% budget cuts in services are likely the first in a series of more cuts and other austerity measures.

Not unexpectedly, leaders in Albany and Manhattan are already blaming Washington for the economic damage caused by COVID-19 while at the same time, looking to the federal government for a lifeline in the form of a financial bailout. The exact amount needed to prevent further massive cuts in services is unknown; estimates range from around $25 billion to more than $100 billion.

In May, Gov. Cuomo said New York State needed at least $61 billion in federal aid in the next stimulus round. Since then, estimates have only increased as the business recovery has been much slower than anticipated. Some in the media, including a recent Crain’s New York Business article, argue that without a massive federal bailout, the city’s economy faces collapse. Regrettably, this is an accurate assessment.

A federal bailout might meet New York City’s immediate budgetary needs and allow state and local leaders to escape responsibility for their role in creating an unsustainable economy – an economy built on a prolonged and unhealthy real estate bubble, tourist dollars, and reliance on service industries that cannot convert to remote work quickly.

More importantly, municipal leaders do not seem to acknowledge that without structural changes in the economy, they will become dependent on federal subsidies for a long time.

Private and Public Partnerships and New Migration Are Needed to Rebuild New York City

Instead of a one-time tax-based proposal or several, the city must re-create itself and do so quickly or face a generation of decline. As a first step, New York could relax the host of barriers that make it burdensome and difficult to do business there. For example, to form a limited liability corporation (LLC) in New York, entrepreneurs must navigate a byzantine maze of regulations, publication requirements and licensing that make the start-up costs prohibitively expensive.

Only a year ago, a group of municipal politicians scared off Amazon and its thousands of promised jobs and billions of dollars of investment. Rather than establish a huge Amazon second headquarters in a working-class neighborhood of the city as planned, the mail-order giant opted to go elsewhere. Now, New York must do everything it can to attract highly skilled workers and companies to relocate in large numbers to replace those lost Amazon jobs.

Most importantly, in the post-COVID era, the city must address the inequalities vividly exposed to the world by the current crisis. The state and city need to invest in those neighborhoods in the outer boroughs and in the millions of New Yorkers who never thoroughly enjoyed the pre-COVID era’s prosperity before they experienced its brutal and deadly brunt.

Rather than solely looking to the federal government for a lifeline, public officials must also work with the private sector to form partnerships to invest in innovative projects that will transform the city.

For example, the Partnership for New York City, a not-for-profit entity, recently proposed a deeper relationship between business interests and government. In an extensive and provocative report, the organization announced a collection of innovative ideas. Mayor de Blasio has largely rebuffed them, favoring a federal bailout instead.

However, innovative public/private projects offer the possibility of development and investment in new affordable housing that will provide working-class people with an ownership interest in their communities. They will then be able to aid in the creation of a new generation of entrepreneurs and workers for the 21st century.

A Bet on New York City’s Rebound Is No Sure Thing This Time

In the past, those who bet against a New York City revival have always lost. Unfortunately, New York and its leaders currently face a unique challenge for which they do not seem capable of handling. So now a once-safe bet is a bit risker.

With New York facing a tremendous budget deficit, state and local politicians and civic leaders must act boldly and quickly to attract newcomers to replace the thousands of people who have left for the surrounding suburbs and places further afield and are unlikely to return.

Moreover, these leaders must forge multitude private/public partnerships to make massive investments in the city’s underserved communities of color to help repair the damage of the past seven months and the city’s long-standing income inequality and de facto segregation.

Only if New York City charts a new path forward will it survive and thrive in the 21st century.

About the Author

James Barney is a Professor of Legal Studies in the School of Security and Global Studies. In addition to possessing a J.D., James possesses several master’s degrees, including one in U.S. foreign policy. He is currently completing his Ph.D. in History. James serves as one of the faculty advisors of the Phi Alpha Delta law fraternity as well as the Model United Nations Club and is the pre-law advisor at AMU.

James Barney is a Professor of Legal Studies in the School of Security and Global Studies. In addition to possessing a J.D., James possesses several master’s degrees, including one in U.S. foreign policy. He is currently completing his Ph.D. in History. James serves as one of the faculty advisors of the Phi Alpha Delta law fraternity as well as the Model United Nations Club and is the pre-law advisor at AMU.

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