The recent roller coaster stock market -- Monday's 777 point drop and Tuesday's 485 point recovery, following a similar pattern two weeks ago -- is a stark reminder of how bad the economy really is. But, it’s the tightening credit market that may have a more immediate impact on our city services.
That’s because, while a declining stock market will have a negative effect on the city's revenues (and therefore spending on services) down the road, the lack of available credit and the increasing interest on loans is a problem today.
Not-for-profits that have contracts with the city rely on short term loans for business related expenses. I am already beginning to hear about some that are having a difficult time obtaining credit.
City contractors who may have to take out a loan for, say, an emergency repair to fix a leaky roof or a broken elevator, may not be able to get it. Those who need a short-term loan to bridge funding as they await a city contract, may be in the same boat.
This could affect senior centers, day care centers, and much more.
The reason not-for-profits are having problems securing credit is that the credit market is really tight, meaning that banks just don't have money they are willing to lend.
What may make things worse for some not-for-profits is that they can’t use their services – like providing meals to seniors – as collateral on the loan. Instead, some organizations use their contract for collateral. The problem is that there is a provision in city contracts that says the city can reduce or eliminate a contract if there is a serious financial crisis. If a contractor puts the city contract up for collateral on a loan, this may be seen by a lender as a high risk loan because the collateral dollar value is not guaranteed.
Fortunately, there are some organizations in New York City that may be able to help not-for-profits secure short-term loans, including the Fund for The City of NY, which manages a cash flow loan program that so far this year has made $25 million in bridge loans. But this is not a long-term, sustainable solution to the problem. That has to happen at the federal level. We are all waiting.
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