The Present and Future Fiscal Problems of the Two New Yorks: What Happened This Time

The state and city of New York have chronic fiscal difficulties, namely, expenditures that tend to exceed revenues by significant amounts. The deficits were moderate in the 1980s but have become large and acute in the 1990s as the state and city economies have been in a prolonged recession. Deficits are expected to continue well into the future. Supply side factors, particularly high wage levels, are the main causes of the state's deficits. For the city, supply side factors, particularly high employment, and demand side factors are main causes. Federal aid reduction is a minor cause. The city's fiscal condition is compared with that of the thirty other largest U.S. cities in a regression analysis which updates Gramlich's analysis of the period immediately before the famous New York City fiscal crisis of 1975.