Not A Good Week For New York -- But It Could Have Been Worse

Sorry to disappear for the past week.  Sometimes they make me work hard around here.

While I've been tied up, new Mayor de Blasio has gotten started on launching his big initiatives.  The two big things last week were the new "housing plan" and the contract with the teachers' union.  The bad news is that this guy does not have a clue what he's doing.  The good news is that he seems to feel at least a little constrained by reality, so it's considerably less bad than it could have been.

"Affordable housing" -- particularly "affordable housing" in Manhattan -- has been nominated for "worst possible public policy" by the Manhattan Contrarian.  Of course, it's a signature initiative from de Blasio.  Here in New York City the politicians have been trying to make housing "affordable" by an endless series of initiatives tying up the housing market since about the time of World War II.  We have rent control, rent stabilization, and a dizzying array of housing subsidy programs -- low income projects, middle income projects, tax exempt bonds to subsidize housing, property tax exemptions of multiple sorts, zoning bonuses, and lots more that I can't even think of right now.  And the result, of course, is the most expensive housing in the country.  Meanwhile, plenty of other growing cities that meddle little or none in their housing markets (think Houston, Dallas, Atlanta, Phoenix) have far lower costs of housing. 

So the big new "plan," Housing New York, was released on May 1.  Of course, this being New York and de Blasio, the "plan" consists of doubling down on decades of failure.   More city-as-developer; more subsidies; more forcing (supposedly) private developers to include "affordable" housing in their developments as a condition for permission to build.  On the other hand, it's almost all platitudes, with very few specifics on how it's going to be implemented.  Go to the section on "implementing the Plan" (page 12) and you will find a lot of airy wishful thinking, such as "Working with financial institutions, pension funds, financial intermediaries and philanthropy, we will also seek to leverage private capital on a greater than 3 to 1 basis," or "We will work in partnership with the State and the Federal government to identify new resources to fund affordable housing in the City and help us meet these critical objectives."  Sure thing, Bill. 

The actual numbers of units to be created are remarkably small.  The headline number is 200,000 units of affordable housing, but that's over 10 years -- so 20,000 per year.  But wait, isn't a mayoral term only four years?  Yes, he's counting most of this from after he's long gone.  And the 20,000 per year is "created or preserved," of which only 8,000 per year created.  That compares to the 80,000 per year created by the private markets in the 1920s -- the last decade when New York had a relatively free housing market and no depression going on.  In a city of 3+ million housing units, this 8000 per year is really a drop in the bucket.  And, given New York's terrible record in actually getting anything built, I would be extremely skeptical that much of this will actually happen.  In the Soviet Union, after seven decades of socialist housing production, they had 25 year waits for tiny shoddy apartments.  We won't have that because we allow a restricted private housing market to continue to operate; it's just that we drive up the cost of the private alternatives by 50% or so.

Also coming out in the last week have been the new teachers' contract, as well as the budget for the coming fiscal year.  Given that de Blasio was essentially put in office by the teachers' union, things could again have been far worse.  The main issue was that the teachers had been working without a contract for several years, and insisted on retroactive pay increases for those years.  Bloomberg refused to agree to that, with the result that he left without doing a new deal.  De Blasio has agreed to the retroactive raises, but with a gimmick:  raises covering 2009 - 2014 will be payable in five payments from 2015 - 2020.  So again, he's putting a big piece of it off until after he's gone.  And then, under any honest accounting, if you committed to that today, wouldn't you have to accrue the whole liability today even though you won't be paying for years?

Go to the budget (follow link here) and you will be hard-pressed to figure out where the increased costs of this contract are hidden.  At page 4 you learn that salaries and wages of city workers are projected to be less in FY 2015 ($23.1B) than FY 2014 ($23.6B).  So where are you hiding these pay increases, including the retroactive ones?  Or is the headcount going down by 10%?  Oh, and the financial plan only goes out to 2018, so the retroactive pay to be doled out in 2019 and 2020 isn't in here anywhere.

And how about pensions?  Supposedly the cost of pensions for city workers is going to go from $8.2B per year in FY 2014 to only $8.7B in four years out in FY 2018.  This is completely fictional.  The section on pension costs tells you nothing about the assumptions.  They're catching a big break this year because the stock market just went up 25% or so last year.  Do they really think that that is going to continue? 

But again there is some relatively good news, which is that they are being quite conservative in their revenue assumptions.  Of course, if you threaten tax increases at every opportunity and have twenty or thirty prosecutions going against your biggest taxpayers (the big banks) at any given time, the idea that your tax revenues might not grow much is probably right.

For now, New York City continues to grow, following 20 years of Republican and semi-Republican governance.  These developments threaten to slow that down some, but not to stop it dead in its tracks.