Sign of Bad Economic Times; or "Minor Economic Issue?"

Yesterday, as the NY Daily News reports, the city 's Board of Health passed a regulation requiring stores to post large anti-smoking signs: "The health department wants to serve up something new at your corner bodega - a fresh slice of blackened lung. The grisly image is one of several new anti-smoking ads - as big as 3 feet by 3 feet - that new Health Commissioner Thomas Farley wants to post at the cash registers of every store in the city that sells cigarettes."

Once again, the city goes after the legitimate cigarette retailers-regulating rather than legislating-while allowing the black market to flourish. As we told the News: "The signs are counterproductive to the viability of these businesses," said Richard Lipsky, spokesman for the Neighborhood Retail Alliance, who said many shopkeepers are paid to display cigarette ads. "The profitability of these stores is going to be eroded." Others said a 3-foot-square sign would be difficult to accommodate, especially in a space as small as a newsstand."

Since the mayor passed the largest percentage tax increase in the city's history-the 1800% hike in the cigarette tax in 2002-60% of all tobacco sales have suffered a forced migration to the black market or Internet; a $250 million loss to area bodegas, newsstands and green grocers. Mike Bloomberg, deriding the concerns of small shopkeepers, called the loss, "a minor economic issue." And the mayor has done little to aggressively interdict the illegal sellers-preferring to crackdown on the legal store owners.

As Robert George pointed out at the time: "Bloomberg earlier this year raised the city tax on a pack of cigarettes by $1.50. That means the average pack of cigarettes in New York City costs about $7.00 (the state had raised its own tax on the not-yet-illegal substance last year). Yet, two months ago, the association that represents bodega (Puerto Rican deli) owners, protested on the steps of city hall to say that the cigarette tax was killing their business. Bloomberg stunningly responded to the protests, "I just find it inconceivable that you could equate people's lives — particularly children that buy cigarettes in bodegas — with a minor economic issue…Let's get serious!"

And these store owners are now suffering the worst effects of-not only the recession-but of the city's anti-small business policies; and we are experiencing the the highest levels of bankruptcies and store evictions in the city's history. On Monday, over 60 small business and advocacy groups will be gathering at city hall to promote a Robert Jackson-sponsored bill that would mitigate evictions through mandatory arbitration. But, as far as we can see, the Bloombergistas remain tone deaf.

And, if the mayor's five borough economic plan ads is examined, a total psychotic break; since, under the mayor's less than watchful eye, stores are dropping like flies-with for rent signs becoming ubiquitous all over the neighborhoods of the city. But tobacco is fair game, no matter how much the ubber-regulators may hurt the local merchants. And the state has chimed in with an exorbitant increase in tobacco registration fees.

The health of New Yorkers is an important target for policy makers; but so is the health of small stores. Taking away bodega ad space for another warning sign is just another example of the idée fixe of Mike Bloomberg and his regulatory crusaders. Pretty soon, we're gonna have ten foot anti-smoking signs plastered all over the windows of the proliferating legions of empty store fronts.

Senate on the Warpath?

It looks as if the State Senate may be getting serious about the uncollected taxes on Indian retailers-amd the refusal of Governor Paterson to man up on the issue. As the Times Union reported last week: "In the latest example of how not even Democrats are cozying up to Gov. David Paterson these days, Craig Johnson, the Long Island Democrat who heads the Senate Investigations Committe, wants hearings on the lack of tax collections. This comes in the wake of a story earlier this week in the Buffalo News noting that Paterson has quietly written off the estimated $65 million it could have gotten by taxing Native American cigarette sales."

Now Paterson isn't alone in this example of shameful timidity; after all, Governors Paptaki and Spitzer was as equally pusillanimous. But the state's budget is now in free fall, and revenue needs to be found someplace; and Senator Johnson's doing the right thing: "Senator Craig M. Johnson, chairman of the Senate Standing Committee on Investigations and Government Operations, announced today plans to hold a hearing on the state’s long-unsuccessful attempts to collect taxes from cigarettes sold to Non-Native Americans on Indian reservations. This move was prompted by news that the Paterson Administration has quietly written off collecting this revenue — a move that is in direct violation of a law that the governor himself signed last year. The failure to collect this revenue is costing the state $65 million this year, according to the state Office of the Budget."

That $65 million number is a really low ball figure, however-and convenience store industry sources estimate that the state is losing closer to $600 million every year because of the state's failure to confront Indian tax avoidance. As Johnson says: "We literally can’t afford to look the other way, nor should the state Department of Taxation and Finance ignore a law that is barely a year old,” Senator Johnson, (D-Nassau,) said. “This Committee wants to be helpful in finding a solution, but the public also deserves to know where things stand between the state and Native American retailers and why there has yet to be an agreement.”

And Senators Klein, Stachowski and Griffo also weigh in on this crucial revenue issue-one that also impacts local convenience stores who can't compete with retailers who aren't charging taxes on their cigarette sales. Griffo's statement is to the point: "Griffo noted that according to some estimates, New York fails to collect $400 million a year in sales taxes on cigarette sales to non-Indians at Indian-owned businesses. “What this can mean to the state, and also to the local communities in Oneida County that should have been sharing in this money for 14 years, is very important given our current fiscal crisis,” Griffo said. “This is also a very important issue for the small convenience stores located near Indian-owned businesses. There should be a level playing field for them in which to compete.”

In NYC, this issue has a particular resonance as local bodegas are fighting to stay in business even while a major source of their revenue-over $250 million a year in cigarette sales-has literally gone up in smoke, lost to a burgeoning black market that blatantly sells illegal smokes right out on the sidewalks in front of the struggling stores. All of this is a consequence, of course, of Mike Bloomberg's confiscatory cigarette tax policy in the city.

As we told the NY Times seven years ago: "Richard Lipsky, a lobbyist for the owners of small delis, bodega owners and convenience stores, predicted in an interview that many neighborhood stores would not survive the higher tax as many smokers would buy their cigarettes over the Internet, from Indian reservations, from adjoining states or from smugglers." And so it went-but the least the city and the state can do is to insure that everyone who sells tobacco products pays the heavy freight.

And not to mention also, the fact that it has been determined that a good percentage of the black market money has been channeled into terrorist activity. As the NY Post reported last year: "Nearly two dozen Arab cigarette smugglers have been smoked out for buying and then reselling contraband butts to New York bodegas and other shops. Lured by fake ads in Arabic-language newspapers, the smugglers bought $6 million in contraband smokes from New York tax and federal undercover agents."

And the money is flowing: "And a top elected official now warns that the untaxed cigarettes could be funding terror overseas. All the profits of the smugglers - whose sales to hundreds of area stores exceeds the business of most legitimate wholesalers - "was shipped overseas to the Middle East," said Deputy Commissioner William Comiskey of the state Taxation and Finance Office. "We know that the money wasn't kept here," said Comiskey, whose agents conducted the elaborate sting, noting that "it's a possibility" that the smugglers' multimillion-dollar operations, which also include sales of guns and counterfeit tax stamps, could be at least partly funding terrorism."

Does this Comiskey fella still work for the state? If so, maybe he should send a message to our chief executive-hint: he's hiding under his desk-that his inaction is shameful. So it's about time that the senate stood up on this issue. With another two or three billion dollar shortfall facing the state this fall, it is simply unconscionable for the governor to refuse to act-in our view, it is an impeachable offense.

As Senator Griffo told the TU: "“First and foremost, the tax should be collected. The law of this state says sales of tobacco products to non-Indians should be subject to sales tax. “I don’t know how the Administration can pick and choose which laws they want enforced. Existing law is intended to be abided by, not to be negotiated. I can’t imagine what would happen to employers that went 14 years without obeying the law. We can’t just ignore the law. If the Administration thinks the law is wrong, the redress open to him is to go through the political process to enact a new law, not to simply give up on making the law work.”

It's time for action-and Paterson needs to be confronted so that the law is enforced. The bell is tolling on the governor's nonfeasance.

Governor Saddles Up on Indian Cigarette Taxes

The Alliance has been fighting for the better part of a decade to get the governor of New York to simply enforce the law and end the lucrative cigarette black market that is crippling small businesses all over the state. And yesterday, David Paterson finally said, "Enough's enough!"

As the Observer points out: "Governor Paterson is taking on the American Indians in New York, moving to collect taxes on cigarettes sold within reservations to non-Indians. The move is sure to provoke a fight, and past attempts have led to a tremendous backlash, with the Seneca tribe shutting down a highway near Buffalo. The move, announced Tuesday as part of his executive budget, has been pushed by legislators and budget watchdogs as an easy source of revenue—State Senator Carl Kruger has said it could be $1 billion a year—that is due to New York. The Seneca have opposed it, saying that as a sovereign nation, the state does not have the right to collect such taxes."

And the move by the governor drew praise from legislators in attendance. As Crain's Insider tells us (subsc.): "Gov. Paterson drew applause—tepid, but genuine—from legislators exactly once yesterday as he proposed his flat-spending budget for fiscal 2011. The clapping occurred when he called for enforcing the law on Indian tribes that are selling tobacco tax-free to non-Indians."

Legislators have grown frustrated seeing how, year after year, governors from Pataki to Paterson have ignored the laws they have passed to begin the collection process. But this year, Senator Carl Kruger began to draw a line in the sand-and the state is in such dire straights that the time was right for Paterson's about face: "The Pataki administration’s failed attempt to do so in 1997 resulted in tribes shutting down the New York State Thruway with a tire-burning protest. But there is a political as well as a fiscal upside to collecting the taxes now: It would prevent legislators like Sen. Carl Kruger from reprising their argument that Paterson should not slash services before collecting taxes on tribal tobacco sales."

We need to remember that the Paterson administration was singing a completely different tune last Fall-as the Observer reminds us: "This is a turn for the Paterson administration, which was resistant to legislators' calls to impose new rules on collecting the taxes. The governor's counsel, Peter Kiernan, said this of the taxes at a Senate committee in October: "While that remains an option, it is a one-dimensional choice that could have deleterious consequence that could include resistance, violence and retrenchment."

But, important and symbolic as was the the governor's change of heart yesterday, it doesn't mean that supporters of collection have a straight run to victory on this contentious issue: "Then again, it's unclear just how serious the administration is about the plan. The governor did not include revenue from the tax collections in his budget, saying that it would hold off until a six-month public comment period ends. Budget director Robert Megna told reporters this was because the state was being conservative in its expectations and that "We expect that ongoing negotiations will take place" with the Indians."

Which isn't quite true, because buried in the governor's budget proposal on page 98, under, "improve audit and compliance," is a $221,000,000 projection from this change in policy direction. But the Observer's warning is merited-as Senator Kruger makes clear in a press release he issued yesterday: “I am encouraged by the Governor's renewed attention to the need to collect the hundreds of millions of dollars in tax revenue from sales of cigarettes by Native American enterprises to non-Indian customers,” Sen. Kruger said. “Rescinding the Tax Department's policy of forbearance, as the Governor now says he intends to do, would be a huge step forward. But we need to see a timetable, and we need to proceed in the proper sequence.”

And Kruger goes on to outline the steps that need to be taken on this: "He said the Governor must announce first that all cigarettes available for sale in the state must be tax-stamped, and that Native Americans living on reservations will be able to purchase cigarettes free of tax for their personal consumption through the issuance of ‘tax- free coupons’ to the tribes. When this takes place, “the Attorney General can go back into state court demonstrating compliance and have the present injunction lifted,” Sen. Kruger said."

All of which underscores that there is still much work left to be done-and that end zone dances today are premature. But we are still encouraged because of the damage the so-called policy of forbearance has done to the most vulnerable small businesses in New York-and it is why we will be holding a major press conference on this next week at City Hall-as Crain's reports:

"Paterson will find allies outside the Legislature, too. Stores say they lose millions of dollars in sales to a black market fed by the tribes. A coalition of legislators, anti-smoking groups and merchants, organized in part by lobbyist Richard Lipsky, plans a Jan. 28 press conference to support enforcement. Lipsky says bootleggers routinely drive to Southampton to buy cigarettes from Indians, who legally may exempt only Indian buyers from sales taxes. Lipsky estimates that a single van can hold $150,000 worth of smokes, which are then resold illegally to consumers, costing the state and its localities $1 billion annually. The key to enforcing the law, advocates say, is requiring cigarette wholesalers to buy tax stamps for their product."

We need to remember that this long battle had one individual, Red Apple chairman John Catsimatidis, who never tired of keeping the issue alive-paying for ads castigating the state's non actions and initiating his own law suit that was followed by Mayor Bloomberg's own legal challenge. In a major way, the Paterson reversal is a tribute to Catsimatidis' perserverance.

But the work is unfinished, and the Insider offers this final cautionary note: "During his speech, Paterson promised tribes that he would continue to talk with them. Negotiations have never succeeded, though, because the tribes know their sales would plunge if they charged tax."

Now, more than ever, we need to push the governor to develop an immediate enforcement timetable. Let's be clear: this is money that's on the table, and can be collected now if the steps outlined by Senator Kruger are followed. We aim to make sure that they are.

Black Market Terror

As the NY Post is reporting today, the cigarette tax enforcement problem has serious international repercussions: "Nearly two dozen Arab cigarette smugglers have been smoked out for buying and then reselling contraband butts to New York bodegas and other shops.
Lured by fake ads in Arabic-language newspapers, the smugglers bought $6 million in contraband smokes from New York tax and federal undercover agents.
And a top elected official now warns that the untaxed cigarettes could be funding terror overseas."

The huge disparity now caused by further increases in the New York State and City taxes is a potential bonanza for smugglers-and some of the profits from this smuggling will end up in the hands of terrorists:All the profits of the smugglers - whose sales to hundreds of area stores exceeds the business of most legitimate wholesalers - "was shipped overseas to the Middle East," said Deputy Commissioner William Comiskey of the state Taxation and Finance Office.
"We know that the money wasn't kept here," said Comiskey, whose agents conducted the elaborate sting, noting that "it's a possibility" that the smugglers' multimillion-dollar operations, which also include sales of guns and counterfeit tax stamps, could be at least partly funding terrorism."

And while kudos here go to the sting operation, it must be pointed out that millions more in untaxed smokes can easily be channeled through purchases from Indian retailers-a loophole that could be closed if Governor Patterson simply enforced the law that's on the books.

The current sting was set up in Virginia: "The sting led to the arrests of 21 out of 27 men named in money-laundering, trafficking and conspiracy indictments unsealed this week. Most of them are originally from Yemen and Jordan. The case, which is being prosecuted by federal authorities in Virginia, was set in motion in early 2007 by New York state Tax and Finance agents, who set up a warehouse in King George County, Va., and stocked it with cases of untaxed cigarettes." But the reality is that the smokes can be bought as cheaply right here in NYS-which is a scandal of potentially disastrous consequences.

Taxing Shamelessness

Having all the money in the world is always a challenge to good taste-and for Michael Bloomberg, it is a challenge that he has roundly flunked with his attack on the putative tax policies of Bill Thompson. We might even have used the old pot and kettle analogy to describe the Bloomberg gambit if there wasn't a good chance it would be wrongly misconstrued. Here's the NY Daily News' description of a new stealth Bloomberg web site: "Sure, it doesn't take a doctorate in political science to figure out that the campaign behind the ThompsonTaxHike site is that of one Mayor Bloomberg, who has lately stomped on Democratic rival Thompson for flip-flopping on the millionaires tax. But it's notable just how far you have to get into the whole presentation before you actually see Bloomberg's name: You have to click through the ad, get to the site and then actually hit "play" on the clip, which is one of Bloomberg's latest TV commercials."

Well, we do have a doctorate in political science, and we can figure out that this is as crass an attack as they come-especially given Bloomberg's own tax and spend record. Is this all simply a way to use more money to misdirect the tax paying voters away from the awareness that Mike Bloomberg has absconded with so much of their already-and will likely to continue to do so in spades if re-elected?

For those with senile dementia here's what Take a Tax Hike Mike did: "New York City (especially Manhattan) has often been criticized for its high taxes and high cost of living. In his first term as mayor (from 2002). Michael Bloomberg raised taxes, stating that he wouldn’t cut back on essential city services. In January 2003, Bloomberg was cited in the New York Times stating the following: “If New York City is a business, it isn’t Wal-Mart—it isn’t trying to be the lowest-priced product in the market,” a draft of the speech reads. “It’s a high-end product, maybe even a luxury product. New York offers tremendous value, but only for those companies able to capitalize on it.” The “New York is a luxury product” speech has been widely quoted. The “luxury product” idea is criticized by those who point out New York’s disappearing middle class."

And let's not forget that "Luxury Mike" also raised cigarette taxes by over 1800%-the largest proportional tax hike in the city's history. This tax, which we had labeled the, "bodega tax," at the time, diverted over $250 million a year from the city's small groceries to the black market-driven street sales; and continues to do so today with contraband flowing unabated from Indian retailers selling non taxed product. Needless to say, this is the kind of tax that impacts the less than luxurious among us.

So Bloomberg's attack tax ads on Thompson reek of hypocrisy-and he should be ashamed enough to admit it. In fact, this discussion of taxes is the only one that you'll hear from the mayor, whose campaign seems to have banned the word entirely from his farcical "five borough economic plan" missives. No, better to misdirect and mislead the voters by attacking someone else's-not record-but passed statements.

And we don't have to go back to 2002 to dramatize just how hypocritical this-can the folks remember the mayor's sales tax hike last spring, the one that was enacted in the middle of the deepest recession in 60 years? As we commented at the time: "What the people need to realize, however, is that with this latest sales tax hike, the mayor has transformed his vaunted five borough economic plan into an expanded campaign that now encompasses two states; and it is the Garden State and Paramus Park Malls that are now poised to reap the benefits of Bloomberg's beneficence."

So just we remember that we warned you-the tax man cometh if Mike Bloomberg gets re-elected. He has, in his latest effort to disorient the voters, neglected to let us know just how bad the state and city's fiscal condition now is. As Michael; Goodwin reminded us yesterday: "Consider this: New York state is effectively bankrupt. Tax revenues are falling faster than autumn leaves and Albany will probably soon run out of cash."

We are going to be in for a rather rude awakening in January should the mayor get re-elected. Five borough euphoria will give way to the additional tax raises-this time, however, accompanied by the knife and scalpel to the city's budget. The folks are gonna wonder what happened, because if you listened to the full panoply of Bloomberg campaign ads, you would have heard not a single discouraging word. In our view, this fact alone-the sheer and monumental dishonesty and hypocritical disregard for speaking the truth when you are not beholden to the special interests-is ample cause for giving Mike his ticket to ride.

Sign Off

As the NY Daily News is reporting, lawsuits have been filed that oppose the Board of Health's gruesome cigarette signage-the ones that force store owners to essentially speak against their own interests. But while the News highlights the role of the manufacturers-always the better villain in their eyes-it is the beleaguered retailers who are losing their first amendment rights: "Big tobacco is trying to force the city to yank graphic anti-smoking posters from thousands of stores that sell cigarettes. Philip Morris, R.J. Reynolds and Lorillard bankrolled a federal suit that says the ads - which must be posted near cash registers - are unconstitutional. The placards contain gruesome pictures of cancer-ravaged lungs, a decaying tooth and a stroke-crippled brain with the message "Quit Smoking Now."

The manufacturers are arguing on the grounds of federal preemption: "The suit in Manhattan Federal Court says only the feds can mandate warnings on smoking risks," but it is the first amendment issue that gets the retailers' blood churning: "The "images of diseased body parts" at bodegas and newsstands amount to advocacy - and forcing the shopkeepers to post them violates the First Amendment."

Our good friend Jim Calvin makes this point: "The suit was joined by two Queens stores and two retail groups including the state Association of Convenience Stores. "Our customers are turned off by the signs - disgusted by them, nauseated by them," said association president Jim Calvin. "And these aren't people who came in to buy tobacco. They came to buy milk or lottery tickets and were so turned off, vowed not to come back."

And, as one bodega owner tells the News, the efficacy of the signs is by no means determined: "Whether they're effective is a matter of public debate. Jose Nunez, 52, owner of a grocery on Nostrand Ave. in Brooklyn, said the price of cigarettes is a bigger deterrent than any photo. "It's almost $10 a pack. That will stop someone faster than a sign," he said."

But being efficacious-or fair to the business interests of small store owners for that matter-has never been a priority of the department of health. The department's menu labeling fiasco has had little ot no effect on the fast food choices of the city's fatter folks-while making the job of fast food operators both more onerous as well as expensive. All of this in an economic climate of record store closings in the city's neighborhoods.

This means little to the health ideologues. And the other compelling issue in this legal wrangle is the sheer volume of signage that myriad city agencies foist on store owners-with each sign needing to be placed in a, "prominent," position in the retail outlet. It won't be long before one of the city's army of inspectors comes in to find that the sign isn't properly positioned-and another $1,000 (or more) fine is handed out to protect the easily manipulated public that is in dire need of more information it can get from signs posted on bodega walls.

Signs that take away from the ability of store owners to advertise their products-and that are often sources of revenue from willing manufacturers. As we pointed out last year: "The health of New Yorkers is an important target for policy makers; but so is the health of small stores. Taking away bodega ad space for another warning sign is just another example of the idée fixe of Mike Bloomberg and his regulatory crusaders. Pretty soon, we're gonna have ten foot anti-smoking signs plastered all over the windows of the proliferating legions of empty store fronts."

But, as far as the current legal action is concerned, the free speech rights of small store owners is the more serious issue at hand. In essence, what the Board of Health is doing is compelling the retailer to advertise to his or her customers that a legal product for sale in the store is something that the customer should avoid-forcing the bodeguero in this instance to argue against his or her own interest. If Mike Bloomberg wants to advertise against smoking, he has more than enough of his own money to wage a serious campaign-and, at the same time, he would be aggressively exercising his own free speech rights.

But to use the power of government to force people to say things that they don't want to say, that it isn't in their interests to say, is a blatant usurpation of one of the most basic constitutional rights we have in this country: the right to speak our own mind without the government putting words into our mouth.