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The Big Apple Takes A Bite Out Of Its Deficit

by Mike Godfrey, Tax-News.com, New York

28 November 2002


Faced with a forecast deficit next year of $6.5bn, New York's City Council passed a package of service cuts and tax increases on Monday which will raise about $1.5bn annually, partly from a swingeing 18.5% property-tax increase. Service cuts work out to a saving of $800m annually - but a number of the Mayor's requested cuts were denied in negotiations over the package. And spending is due to rise by $800m this year in the first place.

The average homeowner's tax bill will go up by about $340 a year. It will cost the average co-op owner an extra $496 per year, and the average condominium owner $836 more annually. Commercial rental costs will rise on average by about $1.75 per square foot.

Typically, leases in Manhattan have clauses which pass on tax increases to a tenants, so that landlords with fully-let buildings won't immediately feel any pain. But the value of many buildings will go down as landlords' net rent decreases with their inability to pass on increased costs to new tenants. Asking rents in downtown Manhattan already have fallen 14% since Oct. 2001, and vacancies are at 14.5%.

The Manhattan Institute estimates that the tax increase will cost 62,000 private sector jobs. "The city is really shooting itself in the foot," says Douglas Durst, a major New York developer. "It's going to cause tenants who were wavering between the city and someplace outside the city to choose outside the city."

The Council passed the measures by 41 votes to 6. "We're in a fiscal crisis. We have been bombed," Council Speaker Gifford Miller (D-Manhattan) said, referring to the Sept. 11 attacks. "There is no Hail Mary pass. There is no silver bullet. It is this simple: We must find the money to pay for those things that we feel we must pay for."

The Mayor had presented his plan just eleven days ago, and many have complained that there was no time for public debate of the issues involved. Before the Council vote, its Finance Committee debated the measures, allowing public testimony at the last minute. Of eight speakers, only one opposed the tax hike: John Doyle, vice president for government affairs of the Real Estate Board of New York. "This is the largest tax increase in the history of the City of New York, and yet you are passing it without even consulting with the people who are affected by it, other than me," he said.

But Mayor Michael Bloomberg disagreed: "I don't believe that people will leave this city because of higher taxes - I do believe they would leave this city very quickly because of lower services," he said.


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