Figure 2 highlights that the impact by major city varies, but even in the most severe ultra-bear scenario, the budget decline figures are generally less than 5%, and the years-of-cash-supply figure is almost always greater than five. We can see that among our pool of large cities, Boston is the most affected on a budget-decline basis given its dependence on property taxes and its higher tax rate for commercial real estate. Relative to cash on the balance sheet, New York is the most affected in each scenario.
We believe the years-of-cash columns in Figure 2, which show how many years the city can absorb a predicted budget decline with just the cash on its balance sheet, are noteworthy. These range from seven years (New York) to 130 years (Philadelphia) in the bear case. We believe that this exposure is manageable because under the ultra-bear scenario, even New York, with an estimated 26% decline of available cash, can absorb that impact for four years with only its existing cash cushion.
It’s worth noting that this analysis assumes there will be no other adjustments in revenues or reductions in expenditures, which would not necessarily be the case in a more extreme bear scenario. Additionally, this decline would likely happen over at least two years, which gives cities more time to react than our table accounts for.
The bottom line is that while certain segments of the commercial real estate sector may have struggled of late, large cities are prepared to weather any subsequent storms, thanks to their durable balance sheets and diverse revenue streams.