New York City is facing its worst economic crisis in 45 years. The unemployment rate stands at 20 percent and could rise higher in the months to come, as more small businesses and restaurants shutter in the wake of the COVID-19 pandemic, which killed more than 20,000 city residents and forced most public and private institutions to temporarily close. Tax revenue in the city and across the state is down significantly from a year ago.

Though Mayor Bill de Blasio and the City Council agreed to a balanced $88.1 billion budget at the end of June, plummeting revenues have led de Blasio to warn that he will need to lay off 22,000 municipal workers if the city can’t borrow money. City Council Speaker Corey Johnson and other lawmakers have joined de Blasio’s call for borrowing authority. Governor Andrew Cuomo and the Democrat-controlled State Legislature must authorize the city to take on debt.

De Blasio is seeking to borrow up to $5 billion, as well as hunting for ill-defined savings with municipal labor unions as part of a plan to help close a projected two-year deficit close to $6 million, though that gap may end up larger. Even if New York is temporarily granted the ability to borrow money, fiscal dark clouds remain for America’s largest city, which had a relatively strong economy until the coronavirus outbreak in March.

New York City’s current fiscal picture is especially troubling, explained Howard Chernick, a professor emeritus of economics at Hunter College and the CUNY Graduate Center, because it previously enjoyed the “extra benefit” of so many different businesses and small economies densely packed together. The prolonged shutdown has utterly halted that natural dynamism.

“We are losing that density which everyone is codependent on,” said Chernick, who worked on a new analysis estimating revenue shortfalls for cities across America. “I think that’s part of why New York is hurting even more than I would have thought.”

The economic term for this is “agglomeration,” Chernick said, and it’s what has made New York City tick for decades. On a single block, in a normal time, restaurants, dry cleaners, gift shops, hardware stores, and beauty salons can all benefit from shared foot traffic and thrive together.

In 2008, when the national economy crashed and a long-term recession ensued, New York was able to insulate itself, relative to other localities, because day-to-day business did not cease and tax revenue continued to be generated at a sustainable clip. Sales taxes, real estate taxes, and other smaller revenue streams based on financial transactions remained steady.

In 2020, in the age of coronavirus, that’s all changed. What makes de Blasio’s job particularly daunting is the city doesn’t have the power, on its own, to raise income taxes or borrow money. Both require state approval. Absent federal bailout money, which has not materialized from the Republican-controlled Senate and President Donald Trump, borrowing or hiking taxes are the only ways to generate new revenue—and Cuomo, a Democrat who has been opposed to his party’s fiscally progressive wing, has consistently rejected the idea of raising taxes on the rich.

A number of new wealth taxes have been proposed by Democratic lawmakers and progressive organizations, including a billionaires’ tax to create a fund for workers excluded from typical government relief, an ultra-millionaires’ tax for education funding, and a host of other proposals that advocates say could raise as much as $35 billion a year, rather than resorting to budget cuts. Cuomo, for now, has shot down all of them.

Federal aid of the likes outlined in the Heroes Act, passed by the Democrat-controlled House, would go a long way toward fueling a New York City turnaround, Chernick and most other left-leaning economists have argued, if billions trickle down to replenish the city’s coffers. But Republicans never brought the Heroes Act up for a vote and Congress is no closer to any bailouts for local governments than they were in the early summer.

Borrowing, meanwhile, comes with its own pitfalls. Democrats in the State Senate and Assembly have yet to greenlight the city to start taking on debt, though they are believed to be closer to permitting de Blasio to take action as the threat of the layoffs becomes real.

“The fiscal emergency in the city is just that—an emergency. That means emergency measures are needed to deal with it,” said State Senator Liz Krueger, the Manhattan Democrat who chairs the Senate’s Finance Committee. “This is not business as usual. It is also not the 1970s, when years of mismanagement led to a crisis.”

In economic circles, borrowing money to keep city employees on payroll and services afloat is frowned upon because of the 1970s fiscal crisis, though New York City, under Mayor Michael Bloomberg, took on debt to pay for city services after the 9/11 attacks. In 1975, New York City was on the brink of bankruptcy, its budget in ruins after multiple mayors employed various financial gimmicks that allowed the city to take on increasing and unsustainable amounts of debt to pay for social services. The city’s creditors, many of them powerful banks that were less interested in buying up city debt as the 1970s wore on, decided they would no longer lend money to the city.

When money is borrowed it can take many years to pay off, meaning future city residents may end up funding services that they never enjoyed. Fiscal mismanagement was one element of the fiscal crisis, however—unlike COVID-19, the 1970s nadir was decades in the making. White flight and the collapse of blue collar manufacturing began eroding the city’s tax base after World War II, as the suburbs absorbed more of the middle class and well-paying factory work was harder to find.

Kim Phillips-Fein, the author of Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics, an account of the 1970s fiscal crisis, believes City Hall should be wary of accruing new debt.

“The city needs to push for more resources, and it should place its political energy here instead of on trying to take on more debt,” Phillips-Fein said in an email. “There are many obvious problems with expanding borrowing, but one of them is that it empowers the city’s creditors who may at some point in the future use that power to demand various cuts—as happened in the 1970s.”

Teachers, sanitation workers, firefighters and police were all laid off during the crises of the ‘70s, while libraries, daycares and hospitals were shuttered, triggering a painful contraction of the city’s finances. Tuition was imposed on CUNY as education services were slashed.

Instead of borrowing, Phillips-Fein said, New York City “needs to foreground those issues now—and seek higher taxes on the wealthiest New Yorkers as well as greater federal and state aid.”

The Citizens Budget Commission, a nonpartisan fiscal watchdog, is against borrowing as well, though is more opposed on the grounds that it simply won’t be enough to close growing budget gaps and substitute for revenue losses. Maria Doulis, the vice president of the CBC, believes de Blasio can do more to seek savings through worker attrition, asking municipal unions to contribute more to their health plans, and trimming various bureaucratic costs.

On Tuesday, de Blasio signaled his willingness to freeze or reduce the pay of municipal workers to avoid layoffs.

“The city has not done enough to use the powers it has to bring the fiscal situation into control,” Doulis said. “Borrowing should be a last resort. It shouldn’t be seen as an easy option that absolves you from making other hard choices.”

Like Cuomo and a new business organization fronted by former Governor David Paterson, a close Cuomo ally, Doulis is opposed to raising taxes on the wealthy, arguing the economy is too frail to sustain any increases and the richest taxpayers could decamp for other states.

Other economic voices, however, believe New York City can and should borrow money, as well as hike taxes on the wealthy. Given the remarkable nature of the current crisis, Chernick, the CUNY economist, argues de Blasio can “run up some debt” to help pay for current expenditures.

James Parrott, the director of economic and fiscal policies at the Center for New York City Affairs at the New School, agrees, pointing to the feared alternative: potentially draconian cuts to the social safety net.

“The budget challenge the city faces is not a result of bad budgeting practices,” Parrott said. “The city budget hasn’t been poorly managed.”

Fiscal hawks point to the fact that de Blasio’s threatened 22,000 layoffs would less than the 30,000 odd municipal employees the mayor has added to the budget since taking off in 2014. But Parrott said much of that increase, in his analysis, was driven by de Blasio’s popular universal pre-K initiative, which remains the central achievement of his mayoralty.

Looming over this uncertainty is Cuomo, who maintains inordinate power over the city’s finances. For months, Cuomo has threatened deep cuts to localities, including New York City, if federal aid doesn’t arrive. Though Cuomo has not outlined formal cuts—to do so would trigger a negotiation process with the state legislature that was part of the new powers granted to Cuomo when the state budget was passed in April—his office has begun the process of “withholding” local aid to public schools and other municipal services, a euphemism that implies the cuts would not be permanent in the event federal aid becomes available.

With that likelihood diminishing by the day, City Hall is bracing for a large, yet-to-be specified reduction of state aid to New York City. Cuomo has also taken steps to revive the long-dormant Financial Control Board, the state-controlled entity that entirely determined the city’s finances from the mid-1970s until 1986. Cuomo, however, would need the state legislature’s approval to return the financial control entity’s powers.

For now, City Hall hopes to avert a state takeover of its budget-setting powers. For close observers of municipal finances, the next few weeks—with the threat of layoffs growing and the state government still unwilling to grant de Blasio much latitude—will be one of the more crucial stretches of time in recent memory.

“The city will run out of options if de Blasio doesn’t get borrowing authority,” Parrott said.