This article I wrote appears on The Catholic Thing web site on June 26, 2013.
Archive for June 2013
The following appears in the June 21-27, 2013 issue of the Long Island Business News:
To placate voters who are angry over his gun control legislation and his unwillingness to approve hydro-fracking or to implement genuine unfunded mandate relief for local governments, Gov. Andrew Cuomo has been conjuring up piddling economic proposals he hopes will boost his approval ratings.
Cuomo’s latest concoction is “Tax-Free NY.” Companies that “partner” with state universities and select private colleges and open or expand their facilities on 3 million square feet of designated land north of Westchester County and 30,000 square feet on Long Island, will be able to operate tax free.
There will be “no income tax for employees, no sales, property or business taxes for a decade.”
Tax-Free NY, which Cuomo has immodestly called the greatest game changing initiative since the construction of the Erie Canal, appears to be only a new label for an old error. It is a scaled down re-packaging of the failed scandal-ridden Enterprise Zones initiated during Gov. George Pataki’s tenure in office.
Enterprise Zones, championed in the 1980s by New York conservative icon Jack Kemp, called for tax breaks to entice businesses to relocate to depressed urban areas.
This supply-side economic theory anticipated that tax incentives coupled with the suspension of regulatory and zoning restrictions would entice entrepreneurs to invest in poverty-stricken areas and increase job opportunities.
A pilot Economic Development Zone program, created by Gov. Mario Cuomo in 1986, was dramatically revised by Pataki in 2000 and rechristened “Empire Zones.” Eligibility rules to receive tax benefits were expanded, as were the rules to create new zones.
A study released in 2009 by the Citizens Budget Commission concluded that the Empire Zone Program, whose costs skyrocketed from $30 million in 2000 to $580 million by 2008, had become “a vehicle for giving tax-breaks to a variety of corporations with no clear, consistent, verifiable justification for the public investment.”
In other words, a well-intentioned plan morphed into another form of crony-capitalism.
Andrew Cuomo’s SUNY Empire Zones could be a similar boondoggle that gives special treatment to the favored few at the general expense.
It could become a free-lunch program for savvy high-tech entrepreneurs who would seize opportunities to make millions by partnering with renowned and innovative SUNY professors regardless of the tax-structure.
Tax-Free NY could also be exploited by local schemers and the politically connected, particularly around community colleges, looking to escape heavy taxation.
Most importantly, Tax-Free NY discriminates against and penalizes struggling businesses and commercial real estate developers that have played by the rules, have paid their taxes and have put up with all the regulations. Vendors who have “partnered” with SUNY campuses throughout the state for decades would be penalized because they are located outside the zone.
Heavily taxed commercial real estate would have to unfairly compete against tax-free sponsored office spaces.
For over 30 years, governors have failed to address the state’s economic woes. In fact, their tax and spend and regulatory policies have made things worse.
If Cuomo doesn’t want to follow in their footsteps and turn vast regions of New York into a big Detroit, instead of a promoting a program that invites political shenanigans, he should create an equal playing field by significantly cutting state corporate taxes and reducing local tax burdens by eliminating unnecessary unfunded mandates.
Such bold broad-based policies would turn New York into one giant enterprise zone that would unleash entrepreneurial forces and truly shatter its high-tax reputation.
This article I wrote appears on The Catholic Thing web site on June 12, 2013.
The following appears in the June 7-13, 2013 issue of the Long Island Business News:
The lowering of LIPA’s bond rating by Moody’s Investor Services to borderline junk, BAA1 from A3, did not help the governor’s cause. LIPA, Moody pointed out, has “little, if any, cushion for the unforeseen events that seem to occur every year.”
Political interference, Moody concluded, could make it “increasingly challenging for the board to take steps to systematically enhance the long-term financial and operational stability of the utilities, particularly if those actions would lead to rate increases.”
The feasibility of the governor’s pledge to freeze rates for three years has also been challenged.
The Director of Evercore Wealth Management’s municipal research department, Howard Cure, observed, “To start off with saying we’re not going to have any rate increases for three years when there’s a lot of capital needs – the math doesn’t work for me.”
The loudest complaints have been over the political decision to continue the $586 million in annual PILOT payments to local municipalities and school districts. Many commercial real estate proprietors and homeowners are tired of subsidizing municipal entities in which they do not own property or reside.
I, for instance, live in the New Hyde Park school district and paid about $9,000 in taxes this past school year. Because 15 percent of my monthly LIPA payments go to PILOTs, I also contribute year in and year out to the operating budgets of other school districts where LIPA owns land. That is truly “taxation without representation.”
Eliminating these egregious PILOTs could lower rates or at the very least freeze rates. Also, the revenues could be used to finance much needed capital improvements.
Another concern is the review and oversight of LIPA contracts over $50,000. Cuomo’s plan would amend Public Authority Law Section 1020-CC to eliminate the present requirement that “all contracts of the Authority shall be subject to the provisions of the state finance law relating to contracts made by the state.”
Such a change in the LIPA statute would cut the office of the State Comptroller out of the process to review and approve contracts. This in turn could open a new era in crony capitalism.
Finally, there is the issue of the proposed “advise and recommend” role of the Department of Public Service. Many are fearful that DPS will be a toothless tiger permitting the new five-member board to run wild.
The Cuomo administration has defended this structure, pointing out that LIPA bond covenants prohibit direct DPS control over rates and management.
This claim is substantially true. The rating agencies prefer public utilities to be free from crawling through state bureaucratic mazes to get approval for rate increases in order to meet principal and interest payments on outstanding debt.
Nevertheless, the DPS will not be opening an office in Long Island merely to take in the sights. Hovering over the LIPA board, scrutinizing budgets and capital project plans, utilizing the bully pulpit and issuing critical public edicts of board practices or policies, will most likely keep the trustees on the path of righteousness.
The clock is ticking. The governor has only a month to get a LIPA reorganization plan through the state Legislature and hurricane season is rapidly approaching. This may mean Cuomo will have to put aside his pride and address some of the issues raised here and by other critics.
If Cuomo fails and Long Island gets hit with another Sandy debacle, he will not be able to evade responsibility for the miserable response of one of his state agencies as he did last year. The finger he will be able to point will only be at himself.