DOING business in Gotham has rarely been easy for the nearly 200,000 small firms that form the local economy’s backbone. But in the last few years, small businesses’ woes have worsened, say entrepreneurs and business groups. Taxes, fees and fines are higher than ever; city departments have stepped up inspections; and commissioners have promoted social policies that have added to their burdens.
In an election year, the costs of New York’s tough-on-business regime have started to grab headlines. Mayor Bloomberg and the City Council have agreed to set up a commission to cut business regulations, and the administration is rolling out initiatives aimed at helping small businesses. But while this (rare) attention to their problems is welcome, the city really needs lower taxes, more manageable fines and a more responsive bureaucracy.
Government-imposed barriers to doing business raise prices, narrow choices and inhibit job growth for all New Yorkers, owners point out.
Bloomberg’s tenure has been surprisingly tough on them. Owners got a glimpse of what was ahead right after Bloomberg took office, when the city began vigorously enforcing an obscure 1962 ordinance that limited the inscriptions on a store’s awning. Aggressive inspectors smacked shops with $400 fines until media attention and a public outcry prompted the City Council to rewrite the outdated law.
Far harder for businesses to survive, however, are steep recent tax hikes, especially the mayor’s 2003 $1.9 billion property-tax increase, which fell disproportionately on businesses. Along with aggressive reassessments of building values, the levies have almost doubled the city’s real-estate tax bite, from $8.6 billion in 2002 to $16.1 billion this year, with business paying half the toll.
One result: Many more instances of businesses shuttering, owing tens of thousands of dollars in property taxes. Bills like these have helped push up retail vacancy rates, now projected to hit double digits in the city by the year’s end.
The mayor defended his 2003 tax hike by calling the city a “luxury product” for which businesses were willing to pay a premium. While that might be true of the financial industry from which Bloomberg came, far more common are businesses like supermarkets that typically earn only 1 to 2 percent of sales.
Nelson Eusebio, who ran a supermarket in Brooklyn for 20 years and now represents other supermarket owners, estimates that 300 city supermarkets have gone bust since 2000. The Bloomberg administration, in its own study, acknowledges that New York is probably losing $1 billion a year in retail food sales to the suburbs because of a shortage of markets.
The city’s fines, fees, overlapping regulations and licensing requirements provoke nearly as much ire as taxes do. This year, the city is projecting $900 million in fines and fees from residents and businesses, a whopping $100 million rise. One example: The Consumer Affairs Department requires licenses for 55 types of businesses and fines those that don’t have them.
City agencies cling to such requirements because they’re revenue sources, business owners say. One big generator is the Health Department, which projects 27 percent more revenues from fines this year. Rob Bookman, a Manhattan lawyer who represents restaurants and bars, says that inspectors are spending hours at each premise — and that “nobody walks out with zero violations.”
Business owners have also felt frustrated by the social agenda of the mayor and his commissioners, who seem intent on engineering the city’s culture and making firms pay. The administration prohibited smoking in clubs and restaurants, banned trans fats in restaurants and forced chain restaurants to post calorie counts.
Bloomberg is also seen as friendly to sweeping projects that displace local businesses through eminent domain. Whatever the merits of initiatives like the Atlantic Yards or Willets Point, eminent-domain law as practiced in New York is a virtual death sentence to most small firms.
New York’s small businesses can take some comfort that their troubles are now getting attention. As well as a task force on duplicative regulations, the city has established a temporary forgiveness program so that owners can pay overdue fines and escape interest and penalties.
And no other champion of small firms is waiting in the wings. Although Democratic mayoral nominee Bill Thompson says that he favors reforming some business taxes, he’s yet to outline how he’d do that in today’s budget crunch.
Thompson, moreover, advocates requiring city firms that receive tax subsidies to pay a “living wage,” even though there’s now substantial research showing that living-wage requirements destroy jobs, raise unemployment and boost firms’ operating costs.
Still, small-business executives are hoping that the recession will eventually produce a more business-friendly City Hall — a long shot, given the city’s history of anti-small-business attitudes. But the only alternative for many would be to seek their fortune elsewhere, following the many businesses that have left over the years.
Adapted from City Journal, where Steven Malanga is senior editor.