Monday, October 19, 2009

NYC Small Business Exposé

In the current issue of the City Journal, Steve Malanga provides us with a withering critique of the plight of NYC small businesses-and, at the same time, gives us an incisive indictment of how the Bloomberg "five borough economic plan" is truly a fraud perpetrated against the small firms of this city. And he does so by leading with the comments of our own Morty Sloan.

Here are Sloan's lead off remarks: "Morton Sloan feels besieged. Over the last several years, the Bronx-based entrepreneur has watched the property taxes on the ten Morton Williams supermarkets he runs in the city swell by hundreds of thousands of dollars. Increasingly aggressive city inspectors now linger in those stores for hours, writing costly citations for items that clerks accidentally mislabel. Some of Sloan’s suppliers say they’ll no longer deliver to New York City because of the Department of Transportation’s frequent parking-ticket blitzes. It gets worse: a new Bloomberg-administration program that encourages fruit and vegetable vendors to set up on street corners has left him scrambling to match prices with competitors who don’t have to pay rent, utilities, payroll taxes, and various other expenses."

So, how does the city address Sloan's concerns? By using tax dollars to try to put the guy out of business entirely: "And now the city wants to plunk a 60,000-square-foot supermarket into a heavily subsidized new development just blocks from two of his stores. “I’ve never received a subsidy or asked anything of the city in 35 years, except to be left alone to do business,” Sloan says. “But everywhere I look these days, it seems like the city is trying to make life tough for me.”

But Sloan's plight is just the tip of the iceberg-and Malanga provides a litany of abuses and complaints. According to Malanga's well-researched piece, taxes and regulations are strangling the city's small business sector: "Doing business in Gotham has rarely been easy for the nearly 200,000 small firms that form the backbone of the city’s local economy. Virtually everyone who runs a business in New York has long had to deal with uncompromising inspectors, unsympathetic city bureaucracies, and complex regulations, to say nothing of profit-crushing taxes. But over the past few years, small businesses’ woes have worsened significantly, say many entrepreneurs and business groups."

All city agencies are playing their revenue enhancing role, as our friend Ramon Murphy tells Malanga: “In 25 years, this is the worst I’ve seen things,” claims Ramon Murphy, owner of two bodegas and president of the city-based Bodega Association of the United States." And he's not alone-but the Bloomberg campaign response ignores the tax and regulatory elephant in the room: "But while this (rare) attention to their problems is welcome, business owners say, what the city really needs is lower taxes, far fewer regulations, more manageable fines, and a more responsive bureaucracy. At stake is the health not just of a few small firms but of the city’s wider economy. Government-imposed barriers to doing business raise prices, narrow choices, and inhibit job growth for all New Yorkers."

All of which goes to the heart of our critique of the Bloomberg regime-and the hollowness of the idea that the current fiscal mess necessitates a third Bloomberg term. More of the same high tax and enhanced enforcement? Malanga's narrative should give us pause: "Far harder for Gotham businesses to survive, however, are steep recent tax hikes, especially the mayor’s $1.9 billion property-tax increase in 2003—the largest single increase in the city’s history, which fell disproportionately on businesses. Combined with aggressive reassessments of the value of buildings over the last eight years, the new levies have virtually doubled the real-estate tax bite in the city, from $8.6 billion in 2002 to $16.1 billion this year—a rate of growth nearly three times the rate of inflation."

And these real estate taxes have meant higher rents and an increased cost of doing business: "Property taxes have created a huge problem for landlords and for small-business owners who rent,” says Bradley Silverbush, a real-estate lawyer at Rosenberg & Estis in Manhattan. “Most landlords now insert clauses into leases saying tenants must pay any increase in real-estate taxes because landlords have been burned by the big increases, but tenants, especially small businesses, can’t bear these new taxes either. Their revenues just don’t change that much from year to year.”

Small firms with narrow profit margins have come to view Mayor Bloomberg as unsympathetic to their plight: "The mayor defended his 2003 tax hike by calling the city a “luxury product” that businesses were willing to pay a premium for. While that might have been true of the financial industry from which Bloomberg himself came, far more common are businesses, such as supermarkets, that typically earn only 1 to 2 percent of sales. “You can’t raise the price of a can of peas that much to pay for higher taxes and fines,” says Nelson Eusebio, who ran a supermarket in Brooklyn for nearly 20 years before closing up shop recently. Eusebio now heads a local association of struggling, mostly Latino, supermarket operators. He estimates that 300 supermarkets have gone out of business in the city since 2000..."

But while the tax burden certainly hurts, it is the regulatory onslaught that drives small business into a frenzy: "One big generator is the Department of Health, which projects 27 percent more revenues from fines this year. Owners say that they’ve already seen the result in a blitz of tickets. Rob Bookman, a Manhattan lawyer who represents restaurants and bars, says that inspectors are spending hours at each premise—and that “nobody walks out with zero violations.” James McBratney, owner of Jimmy Max on Staten Island and president of the local restaurant association, says that he was recently soaking his silverware in a way recommended by the manufacturer when he received a summons for having standing water in his restaurant. “I explained it to the judge, and even brought the manufacturer’s instructions with me, and I was told, ‘Do you expect the manufacturer’s instructions to supersede the laws of the city?”

This is so typical of the city's mindset-and underscores why the businessman Bloomberg has been such a big disappointment. He had an opportunity, as the guy who wasn't beholden to the special interests, to do some creative re-invention of government in order to make NYC a better place to do business. But it wasn't in his mindset at all-to wit, his witless "luxury city" remark.

But the unwillingness of the mayor to reform this anti-business climate, devolves more from his infatuation with big government-and the need to fuel its municipal work force-regulatory fines and fees will do just fine, thank you: "Businesses have understandably looked with alarm on the city’s latest budget, which projects collecting nearly $900 million in fines and fees this year—a whopping $110 million increase over 2008. The city says that much of the gain will come from an increased number of parking tickets and traffic violations, thanks to a new program of cameras set up at intersections. But that’s hardly consolation to businesses: many of them, especially package-delivery firms, wholesalers, and others that must negotiate the city’s streets every day, have borne the brunt of previous ticketing sprees."

And when it's not the fines themselves, it's the arrogant stupidity of the bureaucrats that drive smaller firms batty: "Lawyer Steven Barrison recently represented a small businessman and property owner who had pulled down a building on his land but kept getting water bills for it—and threats from the city for not paying them. “The city swore that they were reading a meter on the property,” says Barrison. “It took me two years to get an inspector to come to the site so I could show him there was nothing there, and another two years to get the city to stop sending bills. Meanwhile, this guy is paying me to represent him.”

And, as Malanga details, even when the mayor has tried to address some of the problems-as with the efflux of supermarkets-he manges to exacerbate rather than ameliorate the problem: "After the city’s own study backed up reports of a growing supermarket shortage, the administration offered virtually nothing to help struggling stores stay in business, instead debuting a package of tax incentives to lure new stores to New York and licensing new cart vendors to sell fruits and vegetables in underserved areas. The effect has been to worsen the plight of existing supermarkets. The cart vendors are already setting up shop near supermarkets, owners grumble. “The city sees people in line at these new vendor carts and declares the program a success,” says Morton Sloan. “What about the business I’m losing?”

Malanga really leaves no stone unturned-and turns to the use of eminent domain at Willets Point to drive home just how bad the Bloombergistas have been to the little guys: "He has supported everything from the Atlantic Yards project in Brooklyn to a massive new development in Willets Point, Queens, which would uproot hundreds of firms. Whatever the merits of these individual initiatives (and government’s record of picking winners in business is erratic at best), eminent-domain law as practiced in New York is a virtual death sentence to most small firms. “If government wants to displace a small business in New York and the business doesn’t own its own property, its chances of survival are slim because government pays virtually nothing to these businesses,” says Michael Rikon, an attorney at Goldstein, Goldstein, Rikon & Gottlieb in Manhattan, a firm that specializes in eminent-domain cases. “They come to me to represent them, and I often refer them directly to a bankruptcy lawyer.”

So, as the next two weeks lead us inexorably to the mayor's third term. Malanga's report on the plight of small business underscores just how mendacious the Bloomberg campaign-right from its opening phony justification for the over turning of term limits-has really been. Mike Bloomberg's legacy-if he continues along the same path that he has been leading the city up till now-will be that of the most anti-small business chief executive the city has ever seen. And nothing else he has done will ameliorate the shame of this epitaph.