Monday, June 22, 2009

Small Busness and Bloomberg's Five Borough Plan

We have previously posted on the incremental progress encompassed in the city council's effort-along with the mayor's-to try to improve the business climate for the city's smallest entrepreneurs. A more robust response is needed, however, since the current economic crisis can't be solved by any incremental band aid approach. In addition, a greater recognition is also necessary concerning how municipal policy itself contributes to the retail crisis.

The salience of this observation was brought home last week at a City Hall press conference headed by the intrepid Council member Tony Avella: "Extortion is taking a heavy toll on businesses throughout the city as under-the-table fees spread unchecked, according to a report by the U.S.A. Latin Chamber of Commerce.Responding to the corruption, Mayoral Candidate Tony Avella joined nearly 70 business owners and advocates at city hall on Wednesday, calling for a federal investigation."

What the press conference underscored, was that Mom and Pop retailers are being victimized at every turn-whether it's unscrupulous landlords, or simply the high tax environment that sends so much business elsewhere. Which is, of course, one of the reasons why local supermarkets are disappearing before our very eyes-the subject of a City Council hearing tomorrow.

In the view of the city planners, however, it is the lack of selection-or simply the lack of sufficient number of markets-that is causing consumers to shop elsewhere. As the DCP report on the supermarket gap pointed out: "There is enormous capacity for new supermarkets throughout the city. NYC has the potential to capture approximately $1 billion in lost grocery sales to suburbs. The loss in sales is enough to support more than 100 new neighborhood grocery stores and supermarkets.”

This observation highlights the confusion so often made between causation and correlation. Many folks do leave the city to shop; and it is our belief, bolstered by considerable data, that they will continue to do so even if the city is able to subsidize some new supermarket development. The fact is that the city's strapped consumers are being forced out to less tax happy environs.

This was recognized by Rudy Giuliani when he first pioneered the elimination of the clothing sales tax for purchases under $110: "The overwhelming successes of these tax free weeks obviously sent a message to Albany that did not go unheeded," said Mayor Giuliani. "The removal of this regressive tax on items costing less than $110 will save New York City families hundreds of dollars each year, add approximately 13,200 jobs and boost the City's economy by $910 million. I commend Governor Pataki and the State Legislature for passing this important legislation."

And Giuliani went on to point out: "It will also do much to recover the $700 million per year New York City merchants lose to New Jersey because of this tax," the Mayor continues. "Working families with lower incomes that typically spend a large portion of their income - as much as 12 percent - on clothing and footwear will especially benefit from the removal of this burdensome tax."

High taxes=lost business; it's just that simple. And with another sales tax hike on the way-if the state senate can ever get its act together-more consumer emigration will certainly follow. Which means to us, that building new box stores and suburban style supermarkets will do less to staunch the efflux of city shoppers than it will cannibalize sales from NYC's neighborhood shopping strips.

Which brings us back to the Bloomberg recycled five borough economic plan. It is simply a distraction from the fact that Mike Bloomberg, in his eight years governing this city has raised taxes across the board and increased regulations, all the while he was simultaneously growing the municipal work force and the size of government along with it.

It is amazing, given the mayor's record, that any one with a feel for the full spectrum of city business could tout the mayor's fiscal acumen as a rationale for a usurped third term in office. The city's economic troubles have been exacerbated by anti-business public policies engineered by a billionaire mayor who lacks the policy sophistication to properly address the roots of the current crisis. It is a triumph of public relations that will, retrospectively, expose the city's voters for the rubes they are if the mayor is able to garner his well purchased third term.