Archive for the ‘Blank Slate Media’ category

The tax man cometh – By George J. Marlin

September 25, 2020

The following appeared on Tuesday, September 22, 2020 on The Island Now’s website:

The federal government’s budget deficit is hitting all-time highs and New York’s 2020-2021 state and local government budget deficits are mushrooming.

And if Joe Biden wins in November, his new spending proposals will exceed $5.4 trillion over ten years.

Where will all the money come from to plug budget gaps and to fund new spending? Tax hikes.

Biden has already proposed raising the top income tax bracket on people earning over four hundred thousand annually to 39.6 percent. The capital gains rate will jump from 23.8 percent to 39.6 percent and corporate taxes will go from 21 percent to 28 percent.

However, if the Democrats win control of the White House and both branches of the Congress, don’t expect the radicals to be satisfied with Biden’s plan. My guess is they will insist that rates for income taxes and capital gains hit at least 45%. As for the corporate tax rate, they will probably push it to 35%, the rate during the Obama years.

In New York, Gov. Cuomo has been lobbying for $59 billion from Washington to close the fiscal gaps for the state, the MTA, and local municipalities.

But even if he gets that money from a Biden administration, it’s only a one-shot revenue. It does not fix the structural deficit caused by Cuomo’s shutdown of the New York economy.

Tens of thousands of small businesses and restaurants that will never reopen and the exodus of the state’s top earners will have long-term effects on tax revenue streams.

While Governor Cuomo understands that increasing taxes will not be enough to cover the projected deficits, his message is failing to register with the Democratic-controlled state Legislature.

Those Democrats are calling for the rate on millionaires, which is presently 8.82%, to be increased to 9.6 percent for those making over $5 million annually, and for those earning over $100 million, 11.85 percent.

The most ridiculous proposal is a tax on unrealized capital gains of equity holdings of billionaires.

If enacted, people would have to pay a tax on a stock that has appreciated in value even though the owner has not sold the investment and taken again.

Here’s how that would work: An investor buys a stock on January 1 for $5 a share, that at year-end is valued at $8 a share. The owner would have to pay a tax on the $3 appreciation.

But, say in March of the next year the investment goes south and the investor sells it for $2 a share. The owner not only takes a 60 percent loss on the investment but is stuck paying an unrealized capital gain tax on April 15 on the losing stock that the investor no longer owns.

Sound crazy? It is.

A tax on unrealized gains, by its very nature, is ludicrous.

As for local governments, an important source of income—sales tax collections—continues to decline. In August, it was off 7.8 percent statewide compared to a year ago, and in July it was down 8.2 percent. In Nassau, sales tax revenues, this year, have been down 10.5 percent.

To fill the 2020 deficit hole, Nassau might be able to issue debt through the Nassau Interim Finance Authority. But that, too, is only a one-shot.

Other municipalities may go to Albany and beg for the authority to issue deficit debt.

That remedy, however, only kicks the fiscal can down the road. It sticks future generations—the children and grandchildren of today’s taxpayers—with the bill for this year’s spending.

Unless elected officials at every level of government agree to do more with less, and address the skyrocketing costs of entitlement and pension programs, every form of taxation will have to be increased.

And considering that over 400 thousand have fled New York this year, raising taxes will only exacerbate the situation.

E.J. McMahon, a senior fellow at the Empire Center for Public Policy agrees. “State lawmakers,” he observed, “now clamoring to jack up state and city tax rates on millionaires insist the targeted taxpayers won’t mind—and won’t respond by simply moving. But the new IRS data add to the body of circumstantial evidence pointing to an increased outflow of high earners from New York even before the pandemic.”

With federal, state and local taxes poised to go up, it should come as no surprise if the most robust corporate sector in New York is the moving van industry.

Many of Cuomo’s job investments have failed – By George J. Marlin

September 11, 2020

The following appeared on Monday, September 7, 2020 on The Island Now’s website:

Since Gov. Andrew Cuomo took office in January 2011, he has invested billions of taxpayers’ dollars into business ventures and so-called job-creating projects.

Regrettably, most of those investments have been flops.

Remember Start-Up NY? Cuomo spent over $50 million on television and radio commercials to promote that program, which grants ten years of no taxes to approved technology companies that locate in zones near state and city university campuses.

The return on the $50 million investment was awful. Between 2013 and 2016 only 408 had been created at a cost of $122,549 per position. (The dismal results may explain why we have not heard much of Start-Up NY in recent years.)

But that’s not the only failed program.

An investigative report released in June 2017 by the Gannett newspaper chain revealed that $13 billion in tax incentives, granted by state and local job programs during Cuomo’s tenure in office, had seriously underperformed and lacked transparency on how that money had been spent.

The report noted, for example, that Cuomo’s Regional Economic Councils had pledged $4.4 billion to 530 projects between 2011 and 2017, but few had job creation targets, and there were potential conflicts of interest.

It gets worse.

In August, the office of State Comptroller Thomas DiNapoli released an oversight audit of select high-technology projects funded by New York’s Empire State Development Corporation to determine if taxpayer money “is effectively spent and is producing the intended results.”

Formerly known as the Urban Development Corporation, EDC is the primary state agency responsible for coordinating, monitoring and funding the billions of dollars of investments in private companies that are expected to create jobs and spur economic growth in financially depressed parts of New York.

The audit, which covered the period Jan. 1, 2013 through April 30, 2019, focused on a number of expensive high-profile projects, including the “Buffalo Billion” initiative.

The auditors concluded:

• Initial project assessments lacked sufficient detail, such as reviews of the financial viability of beneficiary companies and cost-benefit analyses to assess the overall benefits of the projects, to justify the use of state funds.

• There is a lack of consistent and rigorous performance and evaluation standards for measuring whether programs and projects attain their intended goals.

• Public progress reports provide limited and conflicting information on high-tech projects’ progress, making it difficult to determine their current statuses.

And despite the billions expended, the projects have not created the promised number of new jobs.

The largest state investment (I use that term loosely) was $995 million in the four “Buffalo Billion” high-tech projects: the RiverBend Tesla project, the Buffalo IT Hut (IBM), the Medical Innovation and Commercialization Hub, and the Buffalo Institute for Genomics.

The biggest piece of change, $791 million, went to the RiverBend Tesla project, which—surprise, surprise—is not meeting expectations.

EDC’s own benchmark for such projects is $30 in benefits for every $1 spent. As for the RiverBend project, EDC expects the economic benefit per $1.00 spent will be a paltry $0.54.

How pathetic is that?

The audit points out that when the RiverBend project was expanded in 2014, the governor boasted 5,000 jobs would be created.

As those job numbers failed to materialize, however, the state agreements with RiverBend were amended to adjust the employment targets. The amendments reduced “the number of jobs required to be located at the RiverBend facility, as well as making it unclear what and where the remaining jobs will be.”

In other words, Cuomo’s “Buffalo Billion” investment, which he boasted would “create thousands of jobs and spur investments in new investment and economic activity” in Western New York has stalled.

In fact, despite the state’s investment of $995 million, Western New York experienced between 2011 and 2017 a 2.1 percent decline in advanced manufacturing jobs and a 2.6 percent decline in Life Sciences jobs.

How sad is that?

Time and again New York politicians have squandered taxpayer money in dubious corporate investments.

When will Albany pols learn that their job is not to be stock pickers, but to reduce taxes and regulations to attract private investors willing to risk their money to spur job creating economic activity in the Empire State?

How to cure Nassau’s ailing finances – By George J. Marlin

August 28, 2020

The following appeared on Monday, August 24, 2020 on The Island Now’s website:

When the Nassau Interim Finance Authority voted in January 2011 to impose a control period on the county government, the board chairman, Ronald Stack—an expert in municipal finance—had a plan in mind to get the county back on the path of fiscal righteousness.

The Stack plan, which included controls on spending and hiring, a wage freeze, and some tax-cert borrowing, was working, and the annual GAAP deficit was declining through 2013.

A wrench was thrown into the plan, however, when Stack’s successor, NIFA Chairman Jon Kaiman, negotiated a union wage deal in 2014 that was nothing more than blue smoke and mirrors. Kaiman’s claim that the deal was cost-neutral was false and based largely on expectations for the ill-fated and infamous county speed camera program.

An analysis released by the county’s independent fiscal watchdog concluded the new labor amendments would cost Nassau taxpayers somewhere between $120 million to $292 million.

The Kaiman deal caused the Nassau budget deficit to jump in 2015 to $189.2 million.

In later years, however, the county’s deficit began declining, thanks to NIFA’s insistence on fiscal discipline (including multiple rejections and revisions of county budgets) and a strong economy.

The county has reduced its dependency on borrowing for capital projects, employee termination payments, and legal judgments and settlements.

Sales tax and other key revenue streams had grown significantly and rising property values had stabilized property tax streams.

In fact, in fiscal 2019, the county incurred its first GAAP surplus, $76.8 million, in decades.

If that trend continued, NIFA might have lifted its controls in 2021.

But all bets are off due to the COVID-19 pandemic.

On August 18, NIFA issued its mid-year analysis of the county’s financial plan—and it is depressing reading.

NIFA projects that the $3.55 billion 2020 budget can incur a GAAP deficit to the tune of $334.2 million.

In the out years, the budgets are projected to have deficits of $481.4 million in 2021; $423.9 million in 2022; and in 2023, $436.3 million.

What’s driving these deficits?

The main culprit is the reduction in sales tax dollars due to Gov. Cuomo’s shutdown of the economy. In the second quarter, those revenues were down 24 percent compared to the same period in 2019. Sales tax revenues could be off as much as $237.8 million in 2020.

Proceeds from other income streams (i.e., Department Revenues, Fine and Forfeitures, OTB payments) are also taking hits due to lower transaction and economic activity.

NIFA estimates that total revenues could be off as much as $334.2 million by year end.

To address this crisis, NIFA Chairman Adam Barsky urged the county “to use the economic catastrophe as an opportunity to go beyond pre-existing geographic and political disagreements and examine all options, including those that might have been disregarded in more ‘normal times.’”

Many of the options available to elected officials can be found in the Grant-Thornton study commissioned by NIFA in 2011 to identify potential savings and cost-cutting opportunities valued at between $251 million and $319 million.

Since most of the recommendations have been ignored, the nine-year-old report is still relevant and its suggestions valuable.

The savings the county executive has proposed thus far don’t cut it. NIFA’s analysis reveals “almost 40 percent would not provide savings on a GAAP basis and more than 90 percent would be non-recurring.”

These gimmicks will not put the county on a firm, structural financial footing. They will only kick the fiscal can down the road.

To address the projected deficits in the coming years, NIFA recommends that the county “implement gap-closing initiatives in fiscal year 2020, which provide recurring revenues and savings beyond the current year; and pursu[e] productivity improvements through collective bargaining in order to control labor costs, which represent approximately half of total spending.”

Such measures and increasing sales tax receipts, due to a recovering economy, may significantly improve the county’s fiscal condition.

However, if the County refuses to deal with fiscal realities and employs fiscal sleight of hand schemes as the Republicans did back in the 1990s and during the corrupt Mangano administration, NIFA will have to step in and impose what Chairman Barsky has called “Draconian” spending cuts.

Barsky said the measures could include laying off as many as 2,900 employees or hiking county property taxes by up to 60 percent.

The time has come for the county to face reality and to implement a dramatic restructuring of its government operations.

And the road map can be found in the 300-page Grant-Thornton report, as well as a subsequent, shorter report commissioned by NIFA a few years ago.

Implementing its scores of recommendations could be the prescription to cure the ailing county government. NIFA can impose controls, but it can’t create political will—that’s up to the county’s elected officials.

DiNapoli waves red flag on NYC revenue loss – By George J. Marlin

August 12, 2020

The following appeared on August 10, 2020 on The Island Now’s website:

In early August, State Comptroller Thomas DiNapoli released a 43-page analysis of New York City’s economic and fiscal trends. His perceptive report should be read by every local official facing an operating budget deficit.

Here’s an overview of DiNapoli’s findings:

Two months after Gov. Cuomo ordered the shutdown of the New York City economy, 940,000 workers lost their jobs. The city’s unemployment rate, which hit an all-time low in February of 3.4%, had skyrocketed to 20.4 percent by June.

The hardest hit: bars, restaurants and hotels. That sector lost 304,000 jobs by the end of April.

Retail lost over 90,000 jobs.

Those sector losses explain why the highest unemployment is among minorities and young people living in the Bronx. Unemployment in that borough has hit 24.7 percent.

The DiNapoli report goes on to describe the shutdown’s devastating impact on the city’s fiscal condition.

In June, the city estimated that its two-year revenue loss will be at least $9.6 billion—and that’s a low-ball number.

Those estimates do not factor in money that may not arrive from Albany. If the state does not benefit from a new COVID-19 relief bill, the city could lose up to $3 billion in aid.

Urging the mayor to face fiscal realities, DiNapoli concludes his report with these words: “Given the size of the budget risks outlined in this report … the Office of the State Comptroller urges the city to prepare additional actions to balance the budget.”

What actions has Mayor de Blasio taken to balance the city’s budget? So far, it has been mostly fiscal sleight of hand.

He has raided trust fund reserves to the tune of $1.3 billion. The total drawn down could hit $4.1 billion.

The city has also reduced its reserve for collective-bargaining agreements by $1.6 billion. (This is a dubious reduction, considering de Blasio’s history of giving away the store to non-police unions.)

Since de Blasio took office, the city workforce — the largest of any municipality in the nation — has grown by 24,000 bureaucrats for a total of 325,000.

The mayor’s latest plan assumes the number of employees will drop by a paltry 3,656. Most of those, no doubt, will be police and school principals retiring because they are disgusted with the mayor’s inept crisis leadership.

Instead of cutting out the lard in the city’s bureaucracies to balance his budget de Blasio wants to raise taxes on the wealthy.

Prior to the pandemic, 1 percent of the city’s 4 million households—that’s 40,000—paid 50 percent of the city’s income tax.

However, since March, scores of residents living in the city’s wealthiest neighborhoods have fled to their weekend homes in Long Island, upstate, Connecticut and even Vermont.

Gov. Cuomo, realizing the city is losing revenue, has been urging them to come back.

But Cuomo has conceded that his pleas have been falling on deaf ears. Many have said to him that if they stay in their vacation homes, “I pay a lower income tax, because [I] don’t pay the New York City surcharge.”

The governor rightly dismissed raising taxes on the rich because he knows that even if a few thousand of the city’s wealthiest households pull up stakes, the city’s tax collections will crumble.

De Blasio rejected the governor’s position saying: “To the point about the folks out in the Hamptons, I have to be very clear about this. We do not make decisions based on the wealthy few…. That’s not how it works around here anymore.”

The delusional mayor went on to say that the wealthy can afford to pay more in taxes and that many of them would be happy to do so.

During de Blasio’s reign, expenditures have increased by over $20 billion —3 times the rate of inflation. And the mayor’s spending spree was funded by tax revenues from the top 1 percent.

De Blasio is incapable of grasping that the city is dependent on revenues from the wealthy because middle-class jobs have declined significantly in recent decades, and lower-income folks if they are lucky enough to be employed, pay little in local taxes.

De Blasio and regional officials better heed DiNapoli’s warnings and find ways to do more with less.

But if they fail to right-size government and raise taxes on the well-off, they will alienate the very people who have the financial resources to pack up and quit New York.

The Unique Coronavirus Recession – By George J. Marlin

July 28, 2020

The following appeared on July 28, 2020 on The Island Now’s website:

The 2020 recession Americans have been enduring is very different from past downturns.

First and foremost, the economic shutdown was induced by government fiat.

But the shutdown was selective in nature. Amazon and the big box stores (Costco, Walmart, Target), which were permitted to remain open, have been doing pretty well financially throughout the crisis.

In the case of Amazon, it has done extraordinarily well. The value of the Amazon stock owned by Jeff Bezos, went up $13 billion one day in mid-July.

The Big Government crowd approve of big stores because their corporate chiefs, who fear boycotts and public denunciations, are easily intimidated.

Hence, the section of the economy disproportionately damaged—small businesses. (Since they are hard to control, Big Government types despise small shops almost as much as they loathe suburban single- family homes.)

A study issued by the Partnership for New York City estimates that one-third of the city’s small businesses—that’s 80,000—may not reopen. That translates into several hundred thousand working-class folks pounding the streets looking for a job.

The news gets worse.

The Wall Street Journal, in an article titled “More Restaurants Forced to Close as Virus Fears Diners Away,” reported that between March 1 and July 10, 2020, over 1,250 New York restaurants have closed permanently.

Only Texas and California — whose combined population is three and a half times greater than the Empire State — have experienced more closings, 1,300 and 2,250, respectively.

Fisher and Phillip’s National Hospitality Practice Group has noted that in August there can be more restaurant closings in New York if the Paycheck Protection Program grants to save jobs runs out. Also, many landlords who offered rent deferments of a few months want to be paid in August.

The Nassau and Suffolk COVID-19 Economic Impact Report released by the two County Executives on July 8, 2020, also paints a dreary picture.

The study states that “net job losses to date total 220,000 and may reach as high as 375 thousand in 2020, reducing local earnings by as much as $21 billion and local economic activity by $61 billion.”

So far, 8 percent of Long Island businesses have closed and the hospitality sector — food and drink services — has been hardest hit.

This helps explain why the highest unemployment on Long Island is among the working class — particularly Hispanic workers.

The selective nature of the coronavirus pandemic closings is wreaking havoc on Main Streets throughout Long Island.

Retail space vacancies are hitting all-time highs — north of 20 percent — which in turn means commercial real estate values will drop and many owners may have no alternative but to default on their mortgages.

Here’s another reason why the recession is unique:

In past downturns, people stopped spending because they were unemployed. Hence, the government often stepped in with deficit spending to jumpstart the economy in order to get people back to work so they could resume spending.

However, as economist Arnold Kling, writing in National Affairs, noted, “In [2020], the government has been more concerned with slowing the spread of the virus, and policymakers actually prefer to see ‘unessential’ consumption activities curtailed. In a typical recession, construction and durable goods manufacturing experience the sharpest decline, while service industries stay relatively stable. In this case, in-person services have been among the hardest hit sectors of the economy.”

Retail and restaurants have been suffering because those lucky enough to be employed with disposable income are staying home and not spending locally.

And their spending habits are changing.

Many, myself included, are ordering more online and are not in a rush to dine indoors. As for outdoor dining, it has not been appealing in 90-degree weather and will not be feasible come November.

In addition, Gov. Cuomo has further hindered restauranteurs by dictating what constitutes a bona fide meal.

Sadly, the coronavirus pandemic will have a lasting impact on New York’s economy—particularly on Long Island. Thanks to poorly-conceived government policies, Main Street shopping may become a relic of a quainter age.