Tuesday, September 23, 2008

Tax Chickens Coming Home to Term Limits Roost

As the NY Times reports this morning, plan are being made to raise the city's property taxes-and the timing couldn't be more of a potential perfect storm since discussions are continuing around the controversial move to rescind term limits. Still, the economic climate for most city homeowners is no a propitious one for another round of tax increases-in spite of the sage advice of the NY Times editorial board: "In 2007, with the city on better financial footing, he and the City Council agreed to a 7 percent tax cut for homeowners. But this year, in May, as the national economic downturn began to take its toll, Mr. Bloomberg said that he doubted that the city would be able to continue the tax cut beyond July 2009. The prospect of higher property taxes can hardly be welcome news for residents reeling from skyrocketing fuel costs and a weakening housing market."

As we have said time and time again, we're in this situation because of the failure of the current mayor to understand the need to rein in the cost of government-and to truly appreciate just how much the city's tax and regulatory policies impeded the growth of business here. Coming from the financial services sector, an area that is fairly insulated from the city's taxing and regulatory arm, Mayor Mike has never really understood (or cared to any degree about) small business or other economic growth centers that are impacted because of how expensive it is to operate here.
It is why, for instance, that immigrant supermarket operators-one of the city's remarkable success stories- are opting to open stores in the south; but Bloomberg has remained oblivious over the course of his tenure, prattling on about how "high end" the city is, and will always be.

This incapacity is the focus of Nicole Gelinas' prescient piece on New York's "debt disaster" in this morning's NY Post. Gelinas warns how current city debt will be exacerbated if we raise taxes in response to the current revenue short fall: "But as debt service consumes more and more of shrinking revenues in the next few years, our leaders will be tempted to call it an "uncontrollable" cost - and hike taxes. In that case, people likely won't come to New York to take advantage of lower private-sector costs, because public-sector costs - taxes - will be so high, relative to cities like Houston and even Boston. The tax base would then further erode, as we wait for the ghost of Wall Street to re-appear. And all of that debt will have done us little good."

So now we come to a point where the days of wine and roses are ending and the mayor is being falsely lionized-by self-serving acolytes in the press and in the world of big real estate-as a savior in troubled times. In our view, we're facing some tough decisions because Bloomberg came into office in 2002 with no clue about how government works, and with a big government philosophy that exacerbated his ignorance. So it's a little late now to be innovative, leaving the current, in Mayor Mike's view, Hobson's Choice: “I said we will look at all the different possibilities, but I think the solution is a combination of expense reduction, which nobody is going to be happy about, and revenue enhancements, which nobody is going to be happy about.”

And the current economic downturn, when coupled with the hosannas for him from the press, seems to give the mayor a sense of droit du seigneur “I don’t think that this will be contentious, or at least very contentious, even though it will be a difficult time because I think the City Council really does understand that we are living in a different world than we did a very short period ago,” he said. “New York City has an awful lot going for it. We want to make sure that we don’t jeopardize or reduce or remove all our advantages.”

In the Bloomberg world view, our "advantages" are related to the "vital" services that government provides-there's no concept of how reducing the size and scope of government-and lowering the city's tax burden-can generate business and increase revenue. The real 24 dollar question is how the coming tax hike will play into the term limit debate; potential opponents for incumbent council members are already lining up, and over turning the popular will will not enhance their popularity.

As the NY Sun points out: "A candidate running for an open seat currently held by Council Member James Gennaro in Queens, Michael Simanowitz, said yesterday that he has yet to decide if he would remain in the race if Mr. Gennaro runs again. According to Mr. Simanowitz, incumbents who vote to extend term limits could find their seat harder to hold onto given the popularity of term limits with voters. "Any sitting council member who votes to change term limit laws is going to be a target — I have no doubt." Mr. Simanowitz said."

And any sitting council member who does so, while at the same time raising the property taxes on already over burdened homeowners, will face an electorate in an anti-incumbent mood that just may moot the entire term limits repeal.