A quick look at New York City finances

For all practical purposes, New York City has 8 million residents.

Source

With 340,000 full-time municipal employees, that is one full-time employee for every 24 residents. The median employee salary is $88k. If the typical cost of benefits is 33% of base salary, then the total cost of compensation per employee is $117k or $4.9k per resident every year.

There are 167k pensioned retirees or almost exactly one retiree for every two full-time workers.

The pension fund is 90% funded (which is excellent for a public pension). 40% of the fund is invested in publicly traded equities (stock market), 10% in "private equity", 8% in real estate and 20% in quality bonds. The remainder is sprinkled over junk bonds and niche financial products. This asset allocation is similar to CALPER's and isn't widely out-of-line with conventional thinking.

The key-point is that the equities, junk bonds and real-estate are vulnerable to downturns that will impact the fund's ability to pay future benefits. 

A recent court ruling (note that judges are public employees) ruled that New York City must fully fund all healthcare costs for the plans that their retirees choose. 

Revenues

Approximately 30% of the city's revenue is from property taxes. Of that thirty percent, commercial property and multi-family (more than three unit) apartments make up about 40% of the property tax revenue each.

Approximately 37% of the revenue comes from a dog-breakfast of other taxes with personal and business income taxes being the largest pieces.

The last major category of revenue (about 25%) is from "grants" from the Federal government and from New York State.

Sensitivities

On the expenses side, due to activist judiciary rulings the cost of employees and retirees is a fixed cost.

Surprisingly, the carrying cost of debt is only 4% of the budget.

San Francisco office space went from a retail value of $1000/square-foot 2020-2022 to $400/square-foot. Drops in valuation force drops in property-tax revenues. If we assume 400,000 public defecations during that period, that is the loss of $4,200 in property value per dump. One shopping mall reports 93% vacancy rate.

On the revenue side, commercial real estate, especially the valuation of office space, is exquisitely sensitive to business environment. Small increases in vacancy rates give tenants leverage to negotiating rent or options to migrate to lower-rent office space.

Additionally, publicly traded companies have a fiduciary responsibility to be very protective of cash-flow. Financial officers have a legal obligation to negotiate rent and investigate lower-cost alternatives. 

A graphic example of what happens to prices when demand collapses

Unfortunately for New York City (and San Francisco), once people start questioning the absolute necessity of having a business presence in a "special" location, there is no stuffing the toothpaste back into the tube.

The ripple-effect does not favor NYC. Loss of revenue lowers credit ratings which raises the cost of servicing the debt. Higher-income workers flee. The attitude of municipal employees tanks.

As the probability of bankruptcy becomes more likely, rolling-over bonds becomes much more difficult. The Detroit bankruptcy resulted in employees being "made whole" and people who had Detroit City bonds getting zero. That was not in alignment with previous bankruptcy precedence but it is now the new standard.

A likely path to "Reorganization" would be accelerating erosion of NYC's financial condition and then, suddenly, an inability to roll a loan over. Unable to pay the principle, the city will be forced to seek protection in the courts. A classic case of brittle-failure.