Spinola Stresses Fiscal Responsibility

NEW YORK CITY-A buffer of blocks from the beacon of Midtown, Grand Central Station, the Hellenic-American Chamber of Commerce held their 9th Annual Real Estate Lecture series. Bustled onto the second floor of 35 W. 44th St., the event was put together by the group’s Real Estate Committee and chaired by Heritage Realty Services’ president and CEO George T. Constantin. The draw for the evening was the Real Estate Board of New York’s president Steven Spinola, who addressed the assemblage with the lecture “New York’s Fiscal Crisis: Its Budget, Taxes and Real Estate.”

Despite the faux-candle chandeliers and the on-looking paintings of the former presidents of the Harvard Club, Spinola seemed under no pressure to sound upbeat. “If you’re here to hear good news,” he began. “I might summarize that.”

Spinola pointed to the importance of the revenue that real estate creates for the city, but stressed the shortfalls the city is running into. “It’s not a budget problem,” he explained. “It’s a spending problem.”

The issue, as he saw it, is that Albany and City Hall are letting real estate cover the cost of their social policy decisions and that state spending is exceeding the rate of inflation. Spinola did not disparage the programs per se, simply their fiscal awareness, “New York cares, but [the people of New York City] lost track of what the cost is.”

A prime example, Spinola used, was the 18.5% raise in real estate taxes which was enacted five years ago. Since that point, he asserts, New York City has had a surplus equal to or greater than the revenue generated from that 18.5% tax. This was despite the fact, Spinola noted, that the City of New York is not supposed to ever have a surplus. However, the $132-billion current budget is roughly $10 billion more than last year, he pointed out, and this is without that 18.5% tax available. This begs the question of why and how the budget continues to rise, while income decreases. The city continually looks to real estate to make up that shortfall, he explained, as the city’s budget revenue traditionally consists of $16 billion to $18 billion from real estate.

Spinola also echoed the common warning on raising the taxes of rich New Yorkers, pointing out that people making over $200,000 per year–the magic number for the Obama Administration’s new tax policy–generate $4 billion of taxes for the State of New York. Spinola remarked that with 4% of the population generating 55% of the income tax in the state, “it doesn’t take a lot of them” to decide to move to spell trouble for the fiscal environment here.

Finally, Spinola slammed the new MTA bailout, simply calling it a “disgrace.” REBNY had supported the Ravitch plan, he explained, and the current plan he felt could cause more harm than good. The payroll tax, Spinola asserted–while only taxing one-third of 1%–will still kill jobs, as many as 20,000 he estimated, as companies–particularly smaller ones–look to their bottom line to make up for that shortfall. Moreover, the new plan, even with the 50-cent surcharge on taxi-rides only allots about $400 million for the MTA’s capital table. Spinola’s prediction was not sunny, “The MTA capital program will not be covered in a matter of months.”

He urged the people of New York City to look at other cities’ transit allotments, which average “around the 50%-mark” of the cost of running their mass transit systems. New York City’s MTA prices pay for “well under 50%,” he explained. The solution spoke to Spinola’s theme of the night, which was sacrifice and compromise.

“When [a company] is not selling enough widgets,” Spinola expounded, the solution is “not to increase the price of widgets.” Spinola gives some credit to the Governor and the Mayor for proposing jobs cuts and a halt on pay raises–4% and 3%, respectively–but that some of the job cuts are woefully inadequate to deal with the problems at hand.

Spinola did not rely solely on doom and gloom, however. “I believe New York City has come back from all the [crises] before,” Spinola asserted. He pointed to the 1970s for examples of broader cooperation throughout the city, most notably when commercial real estate pre-paid real estate taxes to help the city shore up its budget and how unions used pension money to buy bonds from the city.

Spinola also expressed a desire to see forward-thinking projects, which could help New York avoid longer-term problems. The Mayor and the city “need to come up with programs to incentivize” business for when the economy comes back, he urged. Some examples Spinola offered were options to waive the commercial rent tax on businesses that signed leases equaling or exceeding five years or even bringing 421-a–a recently repealed and controversial tax abatement for residential developers–as ways of keeping businesses in New York City.

“I hope you’ve all paid your taxes,” he laughed. Spinola leaned on the lectern and recalled a joke he used to tell about New York City real estate, “You can rent a beautiful space in New Jersey for the taxes you pay in New York.” His concern now, he explained, was that the joke was coming true.