Cities risk losing billions in taxes from working from home, analysts sound alarm
Great quotes: As telecommuting becomes the “new normal” for American workers, city governments and economic analysts are pressing the panic button.
“Remote work is about to devastate American cities.” — New York Review.
“The ‘office apocalypse’ is upon us.” – Internal from the business community.
“[We’re entering a] working from home and the office real estate apocalypse.” – National Bureau of Economic Research.
According to economic analysts, the growing trend towards working from home is “devastating“American cities. With almost a third of the workforce working remotely, employers find little reason to keep their physical offices open. Tax revenues in major cities like New York, Los Angeles and San Francisco fell as companies began to close offices. farm shop 450,000 square feet of office space in New York City alone.
New York Magazine points out that property taxes make up the majority (one-third) of New York City’s revenue, and office buildings make up one-fifth of that source. To put that into perspective, one of the city’s most lucrative tax districts, Manhattan, has seen a $5.24 billion drop in tax revenue since 2019.
Even the shift to hybrid work schedules hasn’t helped much. The New York State Comptroller reported that financial services firms in New York only have 56% of their staff in the office on any given day of the week. This change contributed to a 56.3% drop in pre-tax income for the securities industry, resulting in a loss of $17.5 billion in taxable profits. The problem doesn’t stop at property and corporate taxes either.
Public transit has taken a major hit. The pandemic has crippled the commuting industry. It has rebounded somewhat but still hasn’t recovered to pre-covid levels thanks to fewer workers having to physically report to the office. Ridership is still down 30% from 2019. Many transit systems were already Operating with thin margins, so it’s unclear how long some can last.
Similarly, pedestrian traffic has considerably decreases. Local stores are losing frequent stops for lattes and cocktails from surrounding businesses and foot traffic now that more workers are housebound. This situation created a triple whammy for New York.
The Big Apple lost a significant chunk of sales tax money – wham. Many stores went bankrupt and closed, flushing corporate taxes and payroll taxes down the toilet – wam. Now homeowners are struggling to fill these vacancies, leading to a sharp drop in property values and therefore lower property taxes – wham.
And the situation is no better on the west coast. Office vacancy rates in San Francisco, the heart of Silicon Valley, are hovering about 34 to 40 percent, according to the San Francisco Chronicle. Meta, Google, Salesforce, Airbnb, Twilio and others have all given up unused office space to cut costs.
Some analysts suggest that cities are converting offices into housing, arguing that reasonably priced occupied apartments are better than expensive but empty offices. However, “better than nothing” is unlikely to satisfy local governments. The fiscal deficit caused by the transformation from business to consumer will inevitably lead to higher income taxes for the working class. There is no win-win scenario.
It would appear that the grand experiment that has been the unprecedented shutdown of the US economy is having lasting adverse effects. Now the very government agencies that called for this drastic action are panicking over how to close Pandora’s box.