Crain’s New York Business: Eric Adams’ tax break proposals get mixed reviews from city economists
By Brian Pascus
June 15, 2021
Economists believe Eric Adams’ campaign proposals to suspend real estate tax collections and offer sales tax holidays could deprive the city of much-needed revenue if they remain in their current open-ended form.
Adams’ mayoral campaign has announced three separate tax policy proposals aimed at alleviating economic pressure on hotels, small businesses, and consumers: a once-a-week sales tax holiday, a two-year suspension of the commercial rent tax, and a two-year suspension of property tax debt interest paid by hotels in default.
Adams’ baseline for his proposed commercial rent tax suspension is nebulous and appears to define eligibility only by a business’ ability to demonstrate hardship or commit to unspecified employment levels—definitions that concern economists.
“You want to make sure you have pretty clear criteria that a commercial tenant actually experienced hardship,” said James Parrott, an economist at the New School. “There’s no reason the city should be subsidizing companies that didn’t experience significant hardship.”
Adams’ baseline for his proposed commercial rent tax suspension is nebulous and appears to define eligibility only by a business’ ability to demonstrate hardship or commit to unspecified employment levels—definitions that concern economists.
“You want to make sure you have pretty clear criteria that a commercial tenant actually experienced hardship,” said James Parrott, an economist at the New School. “There’s no reason the city should be subsidizing companies that didn’t experience significant hardship.”
“It’s far from the largest revenue source in the city but it’s a significant one,” George Sweeting, deputy director of the NYC Independent Budget Office, said. “If you really completely eliminated it for two years…you either would have to adjust your spending or replace it with other revenues.”
Revenue loss is also the concern with Adams’ proposed sales tax holiday, which is set for Tuesdays in order to stimulate consumer spending at local businesses for one day of the week.
New York City’s sales tax is comprised of three parts: the state receives 4%, the city receives 4.5%, and the MTA pockets 3/8 of a percent. Only the city’s portion would be exempt under Adams’ plan—$6.6 billion in FY21 and $7.8 billion in FY22, according to the IBO, which forecasts a Tuesday sales tax holiday leading to a decline of a tenth of the revenue the city gets.
“That would be a big loss if you lost a tenth of that,” Sweeting said. “That would be $500 million.”
The other fear of some budget experts is that sales tax holidays mainly incentivize consumers to just shift their purchases around—for instance, consumers can choose to only buy cars on Tuesdays instead of the weekend.
“It doesn’t stimulate activity, and worse than the fact that it’s revenue-neutral is that it projects an impression that government is doing something to help when it’s not,” Parrott said. “Not only does it not make any difference but it’s actually bad. All it does is move around sales.”
One tax policy amendment from Adams that garnered support across the board is his call to suspend the property tax debt interest payment owed by hotels that fall into default or foreclosure. Currently the tax is 18% of the full amount owed at the time of the default.
“It will result in more hotels not reopening,” said Vijay Dandapani, president and CEO of the Hotel Association of New York City, of the current tax rate. “It’s not saying we walk away from the bill. It’s just that we won’t pay the interest.”
Dandapani underscored that while some hotels had reserves to make it through the pandemic, others cannot pay their property tax bills and have either borrowed or defaulted—an economic cycle that has created blight in certain sections of the city, namely Lexington Avenue between 50th Street and 30th Street.
“You see what it does to the block,” he said. “Keeping the hotel closed affects not just the single asset but the neighboring assets and neighboring buildings.”
The plan to give hotels a break on this payment is supported by economists, who argue the amount of revenue the city draws from the late interest payment is minimal compared to how much it hurts fragile hotel balance sheets.
“There’s definitely merit about changing that rate,” Sweeting said. “It won’t be a big hit to the city budgets and that would provide relief.”