Lincoln Eccles won’t be paying his property tax bill come the July 1 due date — he says he simply doesn’t have the money. 

The owner of a small apartment building in Crown Heights, Brooklyn, Eccles has been locked in disputes with some of his 14 tenants who have withheld their rent, while others haven’t been able to keep up with payments since the pandemic devastated the city’s economy.

Now, unless the city acts to lower the 18% interest rate on unpaid bills or delay putting liens on property owned by those in default, Eccles will be in deep trouble.

“I’m screwed,” he said, almost with resignation.

Lincoln Eccles owns a Crown Heights building that has been in his family since the 1960s. Credit: Ben Fractenberg/THE CITY

Mayor Bill de Blasio outlined a bleak picture of the budget Wednesday amid negotiations with the City Council that have so far focused on defunding the NYPD in the aftermath of the social justice movement spurred by George Floyd’s death at the hands of Minneapolis police. 

The mayor said city revenues for the current fiscal year ending June 30 and the one that begins July 1 have fallen $9 billion below expectations — and raised the prospect of 22,000 layoffs to save $1 billion. 

But with the city budget now expected to be about $89 billion, or $6 billion less than the mayor initially floated in February, de Blasio argues the city may need to borrow billions — a risky move recalling the 1970s fiscal crisis.

As Eccles’ case illustrates, whatever budget is adopted will be more of a wish than a plan. That’s because no one knows how much the city will actually collect in taxes for the fiscal year that begins July 1. 

Prospects for additional federal aid are unclear, significant cuts in state aid remain a threat and a bill to allow the city to cover shortfalls with borrowing remains stalled in Albany.

“The combined diversity and magnitude of uncertainties may be unprecedented,” said Andrew Rein, president of Citizens Budget Commission, a fiscal watchdog group. “It is incumbent on the city’s leaders to adopt a budget based on judicious estimates, and modify the budget during the year if needed.”

Taxing Projections

The City Charter requires the adoption of a balanced budget by June 30. The plan, though, may fall apart within a month starting with property taxes, which provide a third of the city’s revenue. 

Many taxpayers owe half their property tax bill July 1, and no one is certain how many won’t be able to pay like Eccles. The city estimates a default rate for the year at a little more than 2%. The Independent Budget Office puts the figure at a little less than 2%. 

But a survey by the Community Housing Improvement Program of its 4,000 members who own rent-stabilized buildings showed 6% won’t pay at all. 

Crown Heights residents called for a moratorium on rent during the coronavirus outbreak, June 24, 2020. Credit: Ben Fractenberg/THE CITY

The larger Rent Stabilization Association is conducting a separate survey and President Joe Strasberg says many members plan to pay only part of the bill. Because the size of tax bills depends on the number of units, no one is willing to guess at how much may not be paid.

Shortly after property taxes are due, the city will find out if people can pay income taxes that were deferred from April 15 to July 15. The city expects the delayed payments to total $3 billion and has allocated the money to the fiscal year that ends June 30, so any shortfall will create a budget deficit for that year.

Projections for other taxes remain very speculative. 

For example, May sales tax declined by $200 million compared with the previous year, or more than 30%. City Comptroller Scott Stringer said sales tax revenue should improve with the city reopening but cautioned that with hotels empty and restaurants limited, spending would continue to be weak.

Charts from the Citizens Budget Commission Budget Navigator.

Also looming is a reduction in state aid to the city, mostly for education. The state’s budget is about $10 billion in the red, and Gov. Andrew Cuomo has threatened a 20% reduction in local funding. That means a hit of up to $3 billion unless additional federal aid comes through, Stringer estimated.

Weighing Borrowing Risks

The uncertainty about federal aid makes any budget problematic. 

The mayor seemed to give up on the idea of federal help on Wednesday but others insist it is crucial, despite opposition from President Donald Trump and Republicans in Washington. 

Cuomo has called for $60 billion for the state over three years. Moody’s Analytics said Wednesday that nationwide, states and cities need about $500 billion to cover revenue losses.

Most experts believe some aid is likely given the upcoming presidential election and congressional elections, even if it’s not near enough for the city. 

“The aid is surely to be a disappointment compared with what people want,” said Matt Fabian, who follows state and local finances as a principal at Municipal Market Analytics. “It is never going to fill all the liquidity needs.”

The mayor’s statements Wednesday may have been an effort to pressure Albany to allow the city to borrow money to cover to prevent layoffs and other budget cuts. 

Borrowing to cover annual budget deficits was a financial maneuver that led to the 1970s near bankruptcy of the city, and was used to cover the shortfall after 9/11. De Blasio has suggested the city needs the authority to borrow $7 billion.

State Senator Liz Krueger (D-Manhattan) Credit: New York State Senate

State Sen. Liz Krueger (D-Manhattan) introduced legislation allowing borrowing at the city’s request. Details, though, remain vague. 

“Negotiations continue about what an agreement to allow borrowing might look like, including consideration of amount, length of borrowing, what the funds could be used for, and external oversight,” a spokesperson for Krueger said.

Relief Needed

Fabian said that many states and cities have borrowed money for short periods of time to cover the shortfalls, primarily from the delay in income tax payments. 

New York would be in the vanguard for long-term borrowing, though he expects other governments to do so late this year or early next year when budgets develop holes. He notes the interest rate today would be an attractive 3%.

The city contends borrowing is crucial.

 ”As we face more than $9 billion in lost tax revenue over the next two years alone, New York City will be forced to make even deeper, more painful cuts,” said Laura Feyer, a spokesperson for the mayor. “We need borrowing authority, just like after 9/11, to limit any further damage this virus could have on our communities and our economic recovery.”

The Citizens Budget Commission opposes borrowing now.

“Our work has shown city leaders can make the right tough choices to balance the budget without borrowing” said the CBC’s Rein. “Collaboration with labor is necessary to make it through this crisis by reforming costly health insurance arrangements and modernizing contracts to improve flexibility and productivity. Savings from labor and additional expense reductions can forestall layoffs and borrowing.”

‘I don’t know how I can climb out the hole.’

The budget maneuvering isn’t important to landlords like Eccles. The city imposes an 18% penalty on unpaid bills and is quick to slap liens on those property owners who don’t pay. 

A bill to reduce the interest rate and delay liens in the City Council met strong opposition from the administration and others who said the city couldn’t afford actions that might reduce tax payments further.

“Without relief, I don’t know how I can climb out the hole,” Eccles said.