Wednesday, October 29, 2008

Without Reservation: Show Us the Money

The Bloombergistas have finally figured out what local small businesses have known for the past seven years; buttlegging of cigarettes is costing local retailers-and the city/state tax payers-hundreds of millions of dollars a year. With record deficits facing both governments, drastic enforcement action is needed since estimates indicate that up to $1billion can be found to help balance the state budget, and nearly $200 million alone can be obtained for the city.

As the NY Times details this morning: "Bootleg cigarette traffic from Long Island’s tiny Poospatuck reservation to New York City is brisk, so much so that some cigarette dealers on the reservation don’t even bother to set up storefronts, according to a motion filed in federal court on Tuesday. Instead, the dealers take telephone orders for bulk shipments of untaxed cigarettes. Millions of them are delivered to the city by van and distributed through an underground network that dramatically undercuts tax collection, the city alleged."

When we first brought this up-and pointed out the lost black market sales to city bodegas, green grocers and newsdealers-the mayor labeled it a, "minor economic issue." He was trying to downplay just how much his record cigarette tax increase had walloped retailers-forgetting that in the long run the city was also a big loser: "Officials estimate that untaxed cigarette sales by the eight dealers have cut city revenues by nearly $195 million a year, an amount the city can ill afford during a financial crisis. In addition, bootleg cigarette traffic undermines a Bloomberg administration anti-smoking campaign."

So while the Alliance is happy that the administration is finally getting into the enforcement business we're displeased, to say the least, that the city didn't feel the need to act on behalf of its businesses-only when its own ox was so obviously being gored. And the activities of the phony Indians is too obvious for anyone to ignore: "In making off-reservation sales, including bulk transactions in which defendants sell van loads of cigarettes on a daily basis, which are then trafficked into New York City for resale, defendants grow rich at the expense of tax-paying retailers and city and state taxpayers,” lawyers for the city said in the 43-page memorandum requesting a preliminary injunction against the tribal dealers."

There are only 279 people living on the Poospatuck reservation, yet there are 49 businesses entities selling smokes-an obvious attempt to end run legal limits on bulk sales. The vanning of cigearettes into the city-and the backpacking of resellers-has been documented from the beginning of the Bloomberg tax increase in 2002; so its nice to see that we have been vindicated: "Another defendant, TDM Discount Cigarettes, does not maintain a storefront, a fact that indicates that TDM “engaged entirely in bulk sales,” the court papers said. A confidential informant said that TDM made deliveries to a storage location in Queens owned by cigarette resellers in the city, according to the court papers. A lawyer for TDM could not be reached for comment."

Now if Governor Paterson would get into the act, another important source of new state revenue could be found to close the state's record budget gap: "Mr. Paterson said that a gap of $12.5 billion has already opened between projected revenues and spending for the 2010 fiscal year, which begins on April 1. He expects deficits of $15.8 billion for the following fiscal year and $17.2 billion in fiscal year 2012. “We will face massive deficits in this state,” the governor said at a news conference in Manhattan. “And we’re going to have to take bold and urgent actions to try to accommodate them.”

Like how about enforcing the law on lawless Indian retailers by charging the taxes upstream, so that the city's enforcement efforts would be streamlined. Given the record deficit, the governor's excuses for inaction-much like those of his predecessers-can no longer be accepted. As the NY Post points out this morning, drastic budget cutting is going to be needed: "But the challenge will be to do so in a way that minimizes damage to the economy, upon whose health Albany relies. That means cutting the fat, saving core services - and holding down taxes. Is Albany up to the job?"