10.6%: What's Behind New York City's Horrific Unemployment Rate
Defending an increase in real estate taxes in 2003, Mayor Bloomberg described New York City as a “luxury product” that businesses were willing to pay more for. “It isn’t Wal-Mart,” the Mayor said, “it isn’t trying to be the lowest-priced product on the market.”
But the mayor was ignoring the tens of thousands of businesses outside of Wall Street that operate throughout the city on low profit margins in highly competitive markets, businesses that struggle to cope with the city’s high costs and are especially vulnerable to a steep recession.
And now New Yorkers are seeing what happens to a “luxury product” in a steep recession. The Bureau of Labor Statistics’ most recent data show that the unemployment rate in the city has exceeded the nation’s, jumping to 10.6%, with nearly 425,000 people looking for work — the most in the 33 years since records have been kept.
The city lost an estimated 80,000 jobs last year and, the data show, those losses go well beyond struggling financial firms. Hard-hit manufacturers, many of which perpetually struggle to survive in expensive New York, shed 12,000 jobs in 2009. The city’s retailers eliminated some 10,000 positions, while core industries like publishing, legal services and real estate all contracted by thousands of jobs.
Today, New York City faces a frightening economic future because it has priced itself as a luxury product dependent on a narrow set of customers, namely Wall Street firms and those businesses which lived off the once-thriving work provided by the finance industry, like corporate lawyers or high-powered consultants. But with Washington eyeing a flurry of new regulations and taxes on financial firms that could limit future profits and growth in the industry, New York may be hard-pressed to find other industries that can boost its fortunes.
In his state of the city speech last week, Mayor Bloomberg listed a series of modest steps to help firms survive and the unemployed find work. But unless the city tackles the big cost disadvantages for businesses, nothing short of a major, unexpected revival on Wall Street will bring back the jobs the city is now losing.
Let’s start with property taxes. Thanks to the mayor’s tax increases, as well as sharp boosts in assessments, firms located in Midtown Manhattan pay, on average, $15.20 a square foot in property taxes, up 53% since 2001, according to research by the Studley real estate firm.
That bite is more than triple the national average of $4.48 a square foot for major cities, and it’s five times the average of commercial property taxes per square foot in northern New Jersey, resulting in millions of dollars of extra taxes for big companies The bottom line: Since 2002, total real estate tax collections in New York have almost doubled, from $8.6 billion to $16.1 billion — a rate of growth nearly three times the rate of inflation.
But the short term gains to our coffers mean nothing if businesses flee at the first sign of economic trouble. Just last week, JetBlue threatened to move 800 jobs from Queens to Florida because of lower taxes.
Real estate taxes only begin to tell the story of New York’s competitive disadvantage, however. A 2007 Independent Budget Office study of the overall tax burden in America’s largest cities calculated that the local tax bite in Gotham is 90% higher than the average in America’s other large cities. Taxes on business make up a large part of the difference.
Even more troubling is that the city taxes have grown under Bloomberg, who constructed the city’s budget as if the housing and finance bubbles of a few years ago would go on forever. A previous IBO study estimated that the local tax burden in 1997 was 79% higher than other cities, but the burden then shrank because of tax cuts enacted by the Giuliani administration and the City Council in the late 1990s. Between 1997 and 2000, the burden declined by about 8%, before starting to rise again under Bloomberg.
Taxes are only part of the problem, however. Doing business in Gotham has rarely been easy because of the city’s complex web of regulations, fees and fines, all of which have increased recently. In the current fiscal year budget, city departments have projected big increases in fines on businesses — a crude way to close budget gaps at the expense of the very firms the city hopes will lead it out of recession.
This can’t go on. In a post-meltdown city that no longer can harness the enormous earning power that Wall Street, New York will have to find ways to make itself more competitive by cutting taxes and other levies on businesses, which it can only do if it also restrains spending, which is the highest on a per capita basis among major cities, and far higher than most suburban locations.
In his state of the city address, the mayor outlined mild spending cuts, such as consolidating city agencies. But he has yet to take on the big budget items, most especially the city’s enormous personnel costs.
While private industry bleeds jobs, the average city worker now costs New York government — that is, taxpayers — $107,000 in pay and benefits every year. The Citizens Budget Commission has estimated that if the mayor simply froze wages of public workers this year (something mayors and governors around the country have done), New York could save $1.2 billion. Other big savings await on pensions and health benefits
The mayor seems to be counting on a robust revival of Wall Street. Nothing else can explain why, in the face of growing, troubling job losses throughout the city, he’s taking only mild steps to address the many disincentives that New York government places in the way of private sector job growth, upon which rests the city’s economic future.
This piece originally appeared in New York Post
This piece originally appeared in New York Post