Taxes

New State Budget Hands Mayor a Taxing Decision: Extend the State Business Tax Cuts to the City?

Posted by George Sweeting, April 2, 2014

The state may have blocked the Mayor’s proposal to raise the personal income tax on high earners, but now Albany has presented City Hall with a new tax question: whether to go along with business tax changes that could cost the city hundreds of millions of dollars in tax revenue and are likely to result in big tax cuts for some banks. The state budget includes important but little-discussed changes in state business taxes that City Hall will likely come under great pressure to follow.

Until now, the city and the state have each had an income tax for banks, separate from the city and state income taxes on corporate businesses. The bank and corporate taxes have different rules and tax rates, although in recent decades the structural differences between banks and other corporations has been blurring. Last year, the Governor’s Commission on Tax Reform and Fairness recommended ending the state’s bank tax and extending the state corporate tax to cover banking corporations to ease tax compliance costs and reduce opportunities for gaming the system by firms seeking the most advantageous tax treatment. There will be winners and losers under the changes. Some banks and corporations will reap savings, while others may see higher tax bills. Which category the banks and other firms fall into will depend on the nature of their business operations.

The new state budget eliminates the bank tax while also making other changes to the state’s corporate tax. Eliminating the bank tax costs the state tax revenue because of differences in how income is allocated; the other changes include some provisions that will increase the state’s tax revenue and others that will reduce it. For now, the state has only provided an estimate that the net impact of all of the business tax changes is a loss of $205 million in tax revenue in state fiscal year 2015-2016, which grows to losses of over $500 million after three years.

There is usually strong pressure for the city to conform to state business tax changes to maintain broad alignment in the tax structure and ease the compliance burden for the many businesses subject to both city and state income tax. Beginning in January 2008, the state fully phased in changes in the way it taxes firms with operations here and outside New York to what is called the single sales factor, providing many businesses with tax savings at considerable cost to state tax revenue. The city followed suit, phasing in the singles sales factor over 10 years. Conversely, when the state dropped its unincorporated business tax, the city did not conform.

While no estimate has been publicly released, following the state’s lead by shifting banks to the general corporate tax would almost certainly cost the city a significant share of the over $4 billion of revenue IBO expects the combined bank and corporate taxes to generate in city fiscal year 2015. How much will depend on whether that change is accompanied by others that could raise revenue, but based on what we know about the effect on the state level, the revenue loss could be in the hundreds of millions.

The challenge for City Hall will be navigating between the arguments for the economic benefits of moving to a simpler and easier tax system for financial firms and the likely loss of tax revenue needed to fund the de Blasio Administration’s agenda. Much of this will be fought out in Albany, which must approve any changes to the city’s businesses taxes, perhaps as early as June when the current session ends.

Municipal Labor

Report on Pay, Demographics of Municipal Workforce Slips From Sight on Bloomberg Administration’s Last Day

Posted by Doug Turetsky. February 5, 2014

A little noticed report, prepared by the Department of Citywide Administrative Services and the Mayor’s Office of Operations and released on the Bloomberg Administration’s last day in office, looks at changes in the compensation and composition of the municipal workforce over the past decade. The report, which is not available on the city’s website but IBO provides here could fuel arguments on both sides of the negotiations to settle the city’s expired labor contracts.

According to the report, the median base salary, which doesn’t include overtime, pension, or fringe benefit costs, for full-time city employees in fiscal year 2012 was $65,299. That’s relatively little-changed from an inflation-adjusted median salary of $64,698 in 2003, Mayor Bloomberg’s first full fiscal year in office. As the report states, “Median [inflation-adjusted] salaries have remained stable over the past ten years, ranging from a low of $59,000 in 2005 to a high of $66,000 in Fiscal 2010.”

While union leaders may look at those numbers and see fodder for arguing that salaries for municipal workers barely stayed ahead of inflation over that 10-year period, that small gain might look pretty good to a large share of the rest of the city. For city residents as a whole, median earnings adjusted for inflation have not yet rebounded to their 2005 level. Median citywide earnings in 2005 were $37,091 and just $34,019 in 2012, according to Census Bureau figures compiled by IBO’s Julie Anna Golebiewski.

The report, New York City Government Workforce Profile Report, covers 39 agencies with nearly 327,800 full-time and full-time equivalent employees. The report includes all the city agencies that report to the Mayor along with the Health and Hospitals Corporation and New York City Housing Authority, even though these two are technically not city agencies. So that means agencies such as IBO and the Campaign Finance Board and employees of other elected officials are not included.

Overall, nearly one-third of the city’s full-time workforce—about 100,000 employees— had base salaries of $50,000 or less in 2012. On the other end of the salary scale, 9 percent of the municipal workforce—about 27,000 staffers—had base salaries of $100,000 or more.

On the agency level, median base salaries also varied. The very highest was the School Construction Authority, where the median base salary for its staff of 660 was $100,400. The uniformed services tended to have substantially higher median salaries than workers in other agencies. At $76,488, the median salaries for the police, fire, and correction departments outstripped the 2012 citywide median. The sanitation department, with a median salary of $69,339 was nearer the median for all city employees.

Conversely, a number of agencies had median base salaries well below the citywide level. The Taxi and Limousine Commission’s 460 full- and full-time equivalent employees had a median salary of $39,205 in 2012. They were followed closely by the housing authority’s 11,500 staff members with a median salary of $40,624.

In addition to information on salaries, the report provides numerous demographic details on the city’s workforce—from gender and racial and ethnic profiles of agencies and various occupational categories to information on employees’ average years of city service, civil service status, and eligibility for retirement. The report’s intent is clearly stated up front: “The goal of this report is to make New York City’s municipal workforce…transparent to the people it serves, and to provide interested parties with the personnel data needed for analysis and planning.”
Somehow that goal of transparency faded away in the waning hours of the Bloomberg Administration and this report—covering the city’s single largest expense, about $37 billion annually on its workforce—went largely unseen.

Debt

New Soccer Stadium Deal Bails Out Failed Parking Lots, Boots Money Owed to City for Decades

Posted by Doug Turetsky, January 6, 2014

The deal now taking shape to score a new soccer stadium in the Bronx would bail out the bondholders of the failed Bronx Parking Development Company. But it would shut out the city from receiving any of the rent or other payments it is owed for the parking sites until 2056.

The Bronx Parking Development Company runs the system of 9,300 parking spaces in a number of lots and garages built at the behest of the Yankees as part of the deal for the new Yankee Stadium. To pave the way for the lots and garages scattered near the stadium, the city leased about 20 acres of land—including 3 acres of parkland—to the parking company, provided a $39 million direct subsidy (the state kicked in an additional $70 million), and issued $238 million in tax-exempt bonds.

The parking spots have been underutilized because of good mass transit options for getting to the ballpark and overpriced compared with nearby parking alternatives. As a result, the Bronx parking company has effectively defaulted on its bonds and failed to make any of the $3.2 million in annual rent as well as payments in lieu of taxes it owes the city since leasing the land in 2008. In need of new revenue, the company issued a request for proposals last spring to sublease and redevelop two of the sites near Yankee Stadium. Now a deal for a new soccer stadium has emerged, with a portion of the proposed 10-acre stadium site incorporating a third site leased to Bronx parking.

The New York City Football Club, a partnership of the Yankees and the Manchester City Football Club (a British Premiere League team), would pay the Bronx Parking Development Company $25 million for its part of the proposed stadium site. Under the terms of the so-called forbearance agreement between bondholders and the Bronx parking company, three new series of bonds would be issued to replace the originals as part of the restructuring of the company’s debt. No provisions are made for money owed to the city.

The lease the city signed with the Bronx parking company anticipated that revenue could fall short of needs and made debts to the city secondary to those of bondholders. The terms of the new bonds presume the city will get nothing for more than 40 years. All revenue received by Bronx parking, from the proposed soccer site as well as the parking company’s other sites, would go to bondholders. Two of the three series of new bonds would not reach maturity until 2056, meaning the city would not begin receiving lease or other payments from Bronx parking until then—foregoing about $150 million in lease revenue alone.

Even as the city would be giving up this revenue, published reports indicate taxpayers are being asked for more to support the construction of the proposed $350 million, 28,000-seat soccer stadium: tax breaks, additional public land, and more tax-exempt financing issued by the city’s Industrial Development Agency.

Whether or not the soccer stadium gets built as currently proposed, it may be decades before the city’s initial subsidy of the parking system delivers any of the expected returns to New Yorkers.

Taxes

Thousands of City Homeowners Could Lose State Property Tax Break as Deadline for Registering Approaches

Posted by Doug Turetsky, December 9, 2013

New York City homeowners may be letting millions of dollars in state property tax breaks slip away. For the first time since the state enacted the STAR tax abatement 15 years ago, homeowners, including coop and condo apartment owners, are required to register with the state in order to receive the tax break in the upcoming fiscal year. With the registration deadline of December 31 fast-approaching, only about half of New York City homeowners receiving the tax break this year have registered—well below the statewide average of 66 percent.

The tax break, known formally as Basic STAR, will be worth about $300 to each eligible city household in 2015. Using state Department of Taxation and Finance figures for the number of households that have not registered as of November 26 and the city’s property tax assessment roll, IBO’s Ana Champeny estimates that about 250,000 city households have not yet registered. That would leave about $75 million in potential property tax savings unclaimed by city residents next year. This tax break is a state expense and comes at no cost to the city budget.

Senior citizen homeowners who receive what is known as Enhanced STAR don’t need to register. There are nearly 100,000 New York City households receiving the Enhanced STAR property tax break.

More than 3 million properties currently receive the Basic or Enhanced STAR exemption statewide. In recent years the tax break has cost the state more than $3 billion annually.

The county with the highest registration rate in the state is Saratoga, where 83 percent of current STAR recipients have registered. The rates in the city’s five boroughs pale in comparison. The highest is Staten Island at 64 percent, the lowest is the Bronx at 47 percent. Brooklyn is at 50 percent, Queens 52 percent, and Manhattan 53 percent. Citywide the rate is 53 percent.

Homeowners are only supposed to receive the STAR benefit for one property. Until now, the program operated on the honor system, with the state tax department assuming owners of two or more properties were only claiming STAR once. But an audit released earlier this year by state Comptroller Thomas DiNapoli found that about a fifth of the claims for STAR were in fact ineligible for the tax break. Most of the ineligible exemptions identified by the state Comptroller were for “double-dipping”—homeowners receiving the exemption for properties that were not their primary residence. Other improper exemptions included homes that received the tax break even though they were in foreclosure.

The state implemented the registration system this year so tax department assessors could start tracking whether a homeowner was claiming a STAR tax break for more than one property and to help identify other improper claims. The prevention of duplicate claims by one homeowner may explain in part why registration numbers are lagging in New York City. The STAR property tax break is worth more outside the city, so homeowners with multiple properties may be choosing to register for their homes outside the five boroughs.

The state first alerted New York homeowners to the new registration requirement in August and sent another mailing in September. In late November the state sent postcards to homeowners urging them to “Register Now,” with a particular focus on New York City. Registration can be done online at www.tax.ny.gov/pit/property/star13/default.htm or by calling 518-457-2036.

Health, Social and Community Services

Bloomberg Administration Renews Plan to Close Two City-Run Immunization Clinics, Leaving Just One Open

Posted by Doug Turetsky, December 6, 2013

When New Yorkers look back on the administration of Mayor Michael Bloomberg, many are likely to think of the numerous public health initiatives. Indoor and outdoor bans on smoking. Calorie counts on menus. Eliminating transfats. And campaigns against salt and supersized sodas. So it may come as a surprise that during its last days in office the Bloomberg Administration plans to shut two clinics that provide immunizations to low-income New Yorkers.

There are currently three walk-in clinics run by the city that provide thousands of low-income patients with free or very low cost immunizations to prevent diseases such as mumps, rubella, and hepatitis B. The clinics in Tremont in the Bronx and Corona in Queens are set to close while the clinic in Ft. Greene, Brooklyn will remain open. In the first half of 2013 the three clinics served a total of 26,000 New Yorkers ages 4 and older.

To the city’s Department of Health and Mental Hygiene closing the clinics is a matter of dollars and sense. Closing the two clinics, which are each currently open two days a week for a total of 11 hours, will save $433,000 in city funds, according to the health department. There would be no layoffs connected with the closing, all staff would be reassigned; savings would come from leaving vacant positions unfilled and shedding the overhead costs for the two sites.

The city would also have to ante up more funds than in the past if the clinics were to stay open because of federal cutbacks in grants that help pay to purchase vaccines. The city’s health department expects federal funds to New York City for immunizations to fall from $5.4 million last fiscal year to $2.2 million this year.

Keeping the Tremont and Corona clinics open would entail taking on a level of city expenditure that doesn’t make sense to the health department since only about 1 percent of annual immunizations in the five boroughs take place at the clinics, according to the health department. The department notes that immunization rates have been climbing even though other clinics have been closed over the past decade. The health department reasons that by closing the two part-time clinics, the city can focus its resources on keeping the busiest of its three clinics open five days a week in Ft. Greene. Health department officials are assuming that only a portion of those that would lose access to immunizations in the Bronx or Queens will travel to Brooklyn.

This is the second time in recent months the Bloomberg Administration has sought to close the two clinics. Shortly after the City Council enacted the budget for the current fiscal year, which began on July 1, the health department announced it intended to shut the Tremont and Corona clinics, although it was not part of the budget plan. Public health and children’s advocates including the Commission on the Public’s Health System and Citizens Committee for Children protested the move, as did a number of elected officials and unions such as DC 37. The health department reversed the plan in August, at least temporarily.

While acknowledging the loss of federal funding, Anthony Feliciano, executive director of the public health commission, questions whether focusing resources on the Ft. Greene clinic makes sense from a public health perspective. Long commutes to Ft. Greene from the Bronx or Queens would undermine the walk-in nature of the clinics and discourage some individuals and families from getting needed immunizations.

Accessibility has apparently been a draw. Nearly 7,600 patients were seen in Corona during the first half of this year and about 6,000 in Tremont over the same period.

Although the health department contends there are 50 alternative clinics in the Bronx for free or low-cost vaccinations and 22 in Queens, Feliciano expresses concerns about language barriers and cultural sensitivity, especially for undocumented individuals. The Corona clinic sits in the community board with the highest share of foreign-born residents in the city.

Given Mayor Bloomberg’s emphasis on public health initiatives, closing the two clinics would make an odd coda to his last days in office.

Transportation

Loose Change Adds Up to Millions for Transit Agency

Posted by Doug Turetsky, November 18, 2013

metrocard

Photo by Tara Swanson

There’s a particularly opaque source of revenue in New York City Transit’s financial plan that’s called, in jargon only a bureaucrat could love, “fare media liability.” What it amounts to is the transit agency’s loose change jar. It is where the transit agency accounts for all those nickels, dimes, quarters, and sometimes bigger sums left unused on lost and expired MetroCards.

Last year, the jar was pretty full since it held more than $95 million—an unusually large amount that resulted from transit riders stocking up on MetroCards prior to the December 2010 fare increase and then some of those cards expiring with funds left unused. While $95 million is just a small share of the $3.7 billion the transit agency collected in 2012 in fare revenue, it’s still a lot of nickels and dimes, especially for an agency often knocking at the door of City Hall and the Capitol building in Albany for fiscal help.

But the jar may not be nearly as full in the future. The reason is that in March New York City Transit started to charge riders $1 every time they bought a new card rather than refill the one they already had (at least until that card expires and you can then get a free replacement). The transit agency expects fare media liability will drop to the more typical amount of about $52 million this year and, with a full year of the replacement fee in place, fall to $41 million in 2014.

The new charge has clearly changed many straphangers’ behavior. Subway station floors are no longer littered with MetroCards, empty or with small change left on them. The transportation agency expects to soon announce details that show the number of new cards issued has fallen substantially and the number of cards refilled has risen dramatically, according to agency spokesman Adam Lisberg.

The policy of promoting reuse of valid MetroCards and charging for replacement cards (damaged cards are replaced for free) is wrapped in the earnest rhetoric of environmentalism and is called a “green fee.” But there are fiscal motivations as well.

The charge for new cards will generate a projected $24 million in revenue this year, according to a Daily News article. Many tourists and business visitors who want to use public transit will have to pay the fee to get a MetroCard and New Yorkers who don’t have a card for whatever reason will also be paying the new card fee.

The policy also will generate savings. The transit agency typically produced about 160 million cards a year at a cost of $10 million. But with fewer new cards needed, New York City Transit expects to save about $3.8 million by producing about 60 million fewer cards annually. And with less MetroCard litter, there’s some savings on cleaning too.

Yet as the transit agency’s financial plan anticipates, there will still be a stash of unspent change on expired MetroCards. Some of that will come from tourists and other short-term or occasional riders who buy a card and wind up not using all of the money placed on it.

Many everyday riders also will contribute to the ongoing accumulation of fare media liability. The transit agency’s method of providing discounts ensures this. Under the latest fare hikes, the transit agency provides a 5 percent bonus when riders put $5 or more on pay-per-ride MetroCards. But that $5 only gets you 25 cents more on the card, well short of the $2.50 needed to swipe through a turnstile. You need to put at least $50 on the card before the bonus will net a bus or subway ride.

Many cards are likely to be lost or forgotten before the 5 percent bonus adds up to a ride or they will expire with an odd amount left on them. Although the transit agency gives riders two years to replace an expired card and have the funds on it transferred to a new one, many old cards are also likely to slip away with unused value.

As a result, New York City Transit can continue to expect to see some loose change aiding its budget.

Homelessness, Social and Community Services

Homelessness Up Locally, Down Nationally: But Federal Cutbacks May Soon Drive Up Numbers Coast to Coast

Posted by Doug Turetsky, October 24, 2013

New York City often bucks national trends. That can be a good thing, like when we add jobs following a recession at far faster rate than the rest of the country. But sometimes it’s not so good.

Take the issue of homelessness. Nationally, the number of homeless people has declined over the past six years by 6 percent, years that included a wrenching national recession and a period of rising home foreclosure. Over those same years, the number of homeless families and individuals in New York City has hit record highs, rising by 17 percent even though the recession and foreclosure crises were less severe here.

The number of homeless people nationwide fell from about 672,000 in 2007 to 634,000 in 2012, according to the federal Department of Housing and Urban Development’s 2012 Annual Homeless Assessment Report, which is based on counts during a single night. Over three-quarters of the decline in U.S. homelessness was attributable to fewer homeless families; from 2007 through 2012, the number of adults and children in homeless families declined by nearly 29,000, from about 423,000 to 394,000.

In New York, the numbers swung in a decidedly different direction. In fiscal year 2007, there was an annual average of 34,200 homeless people in the city’s shelter system each night, according to figures from the Department of Homeless Services. By 2012 the number had grown to more than 40,100, an increase of 5,900. In fiscal year 2013, which ended in June, the number of homeless grew by nearly 7,000, an increase of 17 percent, and totaled almost 47,100. This included more than 37,500 children and adults in homeless families. The increasing numbers of homeless was driven in part by the elimination of funding for the city’s Advantage program, which helped people move from shelters to permanent housing by temporarily subsidizing their rent.

Given these opposing national and local trajectories, it’s not surprising that HUD reports that among large cities, New York had by far the largest increase in its homeless population in 2012. HUD’s 2012 assessment report shows an annual increase of about 5,550 homeless people in New York City, a rise of nearly 11 percent. Percentagewise, that’s in line with Phoenix, but more than double the increase in San Francisco. Conversely, Los Angeles, Houston, Las Vegas, Fresno, and Philadelphia saw declines in homelessness that outpaced the 1 percent decline nationwide.

Mayor Bloomberg might contend that the declines in these other cities may have been achieved in part at New York’s expense. As the Mayor famously commented in March, “…you can arrive in your private jet at Kennedy Airport, take a private limousine and go straight to the shelter system, and walk in the door and we’ve got to give you shelter.” The Mayor is right on two counts: about 10 percent of homeless families list their last address as outside the city, as do a higher percentage of single adults, and New York, unlike any other city, has legal obligations to shelter the homeless. But it’s highly unlikely that their path to the shelter system follows the route he describes.

Soon, though, more cities may be on New York’s path. Federal budget cuts—the so-called sequestration—will be taking a toll on housing subsidies and support for homeless services programs. In February, HUD Secretary Shaun Donovan warned at a Senate Appropriations Committee hearing that cutbacks due to sequestration could result in 100,000 formerly homeless people nationwide being thrust back into homelessness. Donovan also said that an additional 125,000 individuals and families could lose their housing subsidies and as a result be at risk of homelessness.

The loss of rental subsidies is a particular risk for New York and could lead to some households currently receiving assistance falling into homelessness and also impede the city’s ability to provide subsidies that help the homeless leave the shelter system. As IBO noted in its report on the Mayor’s Executive Budget in May, the city’s Department of Housing Preservation and Development is expected to lose $36 million in federal Section 8 rent subsidies this fiscal year. City officials planned to tap a reserve fund to cover part of this year’s loss, but the budget hole remains completely unfilled for the ensuing years. A combination of cutbacks by Washington in federal fiscal year 2013 means the city’s public housing authority could lose $78 million in its share of Section 8 subsidies.

In 2004, the Bloomberg Administration set an ambitious goal of reducing New York’s homeless population by two-thirds by 2009. Instead, the city’s homeless population has grown. Now federal cutbacks threaten to further increase the number of children and adults without homes in New York—and nationwide.

Education

Answering Back: SOS Report on IBO’s Comparison of Public Funding for Charter & Traditional Schools Doesn’t Make the Grade

Posted by Doug Turetsky, October 10, 2013

We rarely comment on publications by other organizations. But a report that includes IBO in its title that was just issued by the organization Save Our States demands a response on at least two counts.

The new report “revisits” our February 2010 fiscal brief and 2011 blog post, which compared the amount of public funding for general education at charter schools with that for the city’s traditional public schools. We found that charter schools co-located in public school buildings receive slightly more per student in public support than traditional public schools when the value of free space and other in-kind contributions are accounted for.

The authors of the SOS report, Harry J. Wilson and Jonathan Trichter, contend that our finding was flawed and that the amount of public support that charter schools receive is thousands less per general education student than the true cost of educating students at traditional district schools. What was the flaw? They say we failed to consider the underfunding of the city’s pension plans and commitments for retiree health care benefits for school staff and should have accounted for those future costs when totaling the amount of support for the traditional public schools.

The problem with their contention is that our focus is the current level of actual public spending in support of charters and traditional schools in a given school year, as presented in the Bloomberg Administration’s financial plan. (Moreover, estimates of future costs and when they will come due, particularly for retiree health care benefits, vary considerably.) We clearly state the basis of our comparison in the fiscal brief and blog.

But even if we did take unfunded pension and retiree health care liabilities into account, the SOS contention fails to hold water. Why? Because there are two sides to the ledger. The formula in state law that determines the allocation to charter schools for each student enrolled includes an amount based on the pension and fringe benefit costs of personnel at traditional schools. So, for example, if the city administration chose to increase the amount spent for pensions each year to more fully reflect future liabilities for staff at traditional public schools, that amount would also go into the formula for charters, thereby increasing the per student allocation for charters as well.

In short, the difference in public support between traditional and charter schools would remain unchanged. Of course, given that charters tend to rely on cheaper 401(k) plans for retirement benefits, taking unfunded pension costs into account would increase the public subsidy to charters even though their retirement costs have not increased.

The SOS report is framed as a critique of IBO’s analysis of comparative public support for the city’s charter and traditional public schools. While the report provides important insights into the critical municipal finance issue of unfunded pension and health care costs, it offers nothing to undermine our core findings on public support for charters and traditional public schools.

Economic Development, Taxes

Next Phase of Hudson Yards May Come With Increasing Costs for the City

Posted by Doug Turetsky, October 3, 2013

The next phase of the Hudson Yards project is beginning to take shape as approvals get underway that will allow the rise of an 80-story office building known as North Tower. But the project’s cost to the city may be rising as well.

On October 10, the New York City Industrial Development Agency plans to hold a public hearing on the proposed tax breaks for the next phase of the project. Since the Hudson Yards plan was first approved in 2005, references to tax abatements focused predominately on the need to spur the office development component of the office, residential, and retail project. Now it appears that in addition to the 20-year tax breaks for the North Tower, the IDA is also set to award a 20-year tax break to the 1.1 million square foot shopping mall to be constructed with an entrance into the new tower.

The Industrial Development Agency estimates the tax abatement for the North Tower and mall will be worth $328 million (in today’s dollars). The value of the tax break for the tower is not separated from that of the mall by the agency since it is being treated as a single entity rather than two distinct developments.

The North Tower and mall will together total 3.8 million square feet, a little more than twice the square footage of the South Tower that is already under construction by Related Companies. Yet the IDA estimated the tax break for the South Tower is worth $106 million—just a third as much as for the North Tower and shopping mall. The rent the mall can command from retailers makes it especially valuable and is apparently driving the difference in the size of the property tax breaks between the two sites.

Providing a property tax abatement for the mall means the city will need to pump more money than previously expected into Hudson Yards to meet the development’s debt service obligations. It also undercuts a shift in city policy away from showering retail projects with tax breaks.

When the Industrial Development Agency, which is administered by the quasi-public Economic Development Corporation, announced its plan for making tax incentives available to spur construction at Hudson Yards, the discussion focused on making the construction of new office space more affordable. Residential and retail components of the Hudson Yards plan were ancillary.

Interim IDA Chairman Joshua J. Sirefman stated in an August 2006 press release describing the agency’s guidelines for awarding tax breaks at Hudson Yards: “The UTEP [Uniform Tax Exemption Policy] amendment provides the framework for financial assistance to overcome the high cost barrier to development that will enable the city to capture demand for new Class A office space and will fuel the continued growth of the city’s economy.”’

The Bloomberg Administration sought to lessen the use of property tax breaks for retail projects with the revamping of the city’s Industrial and Commercial Incentive Program in 2008. But the Industrial Development Agency has substantial leeway to provide tax breaks to the mall if the agency sees fit.

Under the tax exemption policy for Hudson Yards approved by the IDA’s Board of Directors, the mall can qualify for tax abatements if it’s of sufficient size (at least 1 million square feet) or furthering the commercial purposes of the office tower.

Ultimately it boils down to this: it’s up to the development agency to decide. As the guidelines for awarding city tax breaks at Hudson Yards state, the determination of whether a component of the project furthers its commercial purpose is “…in the sole discretion of the Staff.” Likewise, “…it shall be in the Agency’s sole discretion to determine whether the project is of sufficient size and density to qualify [for tax abatements].”

A tax break for the mall means there will be somewhat less money flowing to the Hudson Yards Infrastructure Corporation from new development within the 26-acre Hudson Yards site. The infrastructure corporation, created by the city, issued $3 billion in bonds to pay for the extension of the 7 subway line and to make other improvements aimed at spurring development in the Hudson Yards area.

Under the financing plan for Hudson Yards, all of the money that would typically flow to the city from property tax on the new developments at the site is instead directed to the infrastructure corporation to help pay debt service on the bonds. Because debt service would begin to come due before there was sufficient new revenue to pay the bondholders, the city was temporarily on the hook to make the payments. As the project proceeded and development picked up, city officials expected that Hudson Yards would increasingly generate the funds needed to make the annual debt payments on the borrowed money.

It hasn’t worked as planned. The pace of new development has been slower than expected, forcing the city to spend more of its own funds. A report by IBO’s Sean Campion found that from 2006 through 2012, Hudson Yards produced only $170 million in tax and fee revenues from development—$113 million less than anticipated by project planners. In the early years, interest earnings from investing the bond proceeds offset some of the shortfall but those have now dried up. Over the seven-year period, the city has provided the infrastructure corporation with $374 million in funding for debt service and other needs.

Giving up tax revenue that would have come from the shopping mall means the city’s tab will continue to grow.

Census Data, Economic Development

The More Things Change, the More They Stay the Same: Richest and Poorest NYC Census Tracts, 2000 & 2011

Posted by Doug Turetsky, September 24, 2013

New York has often been characterized as a city of contrasts, especially when it comes to wealth and poverty. To get an idea of how those contrasts may have changed over the past decade, IBO took a look at where the 10 highest and lowest income census tracts in the city were located in 2000 and 2011 based on the median household incomes in those tracts.

2013censustractmapbMap created by Nashla Salas

Looking at these top 10, bottom 10 compilations, a few observations can be made that are both telling and not wholly unexpected: wealth tends to be geographically concentrated in New York City, poverty more dispersed. While median household incomes in 2011 for the city’s highest income census tract in 2011 is still below 2000 levels (when adjusted for inflation), the gulf between rich and poor remains large.

IBO’s Julie Anna Golebiewski compiled the lists of highest and lowest income census tracts using the 2000 Census and the 2011 American Community Survey five-year estimates. Census tracts vary in size both spatially and in number of residents, though the U.S. Census Bureau aims for census tracts to contain about 4,000 people and are initially drawn to encompass a demographically homogenous population. To aid our comparison, all incomes from 2000 are expressed in 2011 dollars.

Based on our lists of poorest census tracts, concentrations of poverty are dispersed through most of the city. In 2000, 4 of the 10 lowest income census tracts were in Brooklyn, another three in the Bronx, two in Manhattan, and one in Staten Island. Only one neighborhood, Brownsville in Brooklyn with 2 of the 10 poorest census tracts, contained more than one of the poorest tracts in 2000. A decade later, 5 of the 10 poorest census tracts were located in Brooklyn, four in the Bronx, and one in Manhattan. The geographic dispersion narrowed a bit more with two of the lowest income census tracts still in Brownsville and two others in Hunts Point.

Conversely, the city’s extreme wealth is concentrated in relatively few neighborhoods. In 2000, 9 of the 10 highest income census tracts in the city were located in Manhattan—the one tract outside of Manhattan was in the Riverdale/Fieldston section of the Bronx. This geographic concentration of wealth becomes clearer with the observation that five of those highest income census tracts were located on the Upper East Side. In 2011, the story was similar. Eight of the 10 wealthiest census tracts were located in Manhattan, six of them on the Upper East Side.

One significant geographic change was that two Brooklyn census tracts muscled into the 2011 top 10 list—one in Brooklyn Heights, the other in DUMBO—where none had made it in 2000. Over the decade, median household income grew by more than 45 percent in each of these census tracts. In Battery Park City, another newcomer to the top 10 list in 2011, median household income increased by more than 25 percent during the years 2000-2011.

Moving past locational differences, the contrasts in wealth and poverty become even starker when viewed in terms of dollars and cents. In 2000, median household income in the wealthiest census tract, located in Midtown Manhattan (just southeast of Central Park), was $256,100. The poorest census tract, located in the Bronx’s Hunts Point, had a median household income of $9,600. That’s a gap of more than $246,000 between median incomes in the city’s wealthiest and poorest districts. Or to put it another way, median household income in the Midtown tract was more than 25 times that of the Hunts Point tract in 2000.

Between 2000 and 2011, median household income in the richest census tract declined, as it did for the city as a whole. Over the same period, median household income remained roughly constant in the poorest census tract and the income gulf between the richest and poorest tracts narrowed slightly.

The wealthiest census tract in 2011, located in Manhattan’s Upper East Side, had a median household income of $247,200. In comparison, the poorest census tract, located in Coney Island, Brooklyn had a median household income of $9,500. The difference in median household incomes between the two census tracts was over $237,000, meaning the city’s richest census tract still had a median income 25 times higher than the lowest income tract.

While New York’s highest income areas in 2011 may have been a little less well off than the highest income areas in 2000, a yawning gap remained between the richest and poorest sections of the city.