During NYC’s late ’70s fiscal crisis, a panicking City government caved to the demands of a 29-year-old real estate developer in hopes of sparking revitalization. The remaking of New York City in the ’70s was the genesis of a new kind of public sector, desperate to please the business community and willing to pander to anyone with cash in hand.
This was not completely without warrant. The City had less money than ever as companies and their employees relocated to whiter suburbs with kinder tax codes. The exodus decimated the City’s tax base at a time when social services were needed most. But the steps taken to salvage a depleted budget only exacerbated inequality in the city.
Democrats of the era were not looking to hold private interests accountable. Quotes from Jimmy Carter and Ronald Reagan make it sound like they are running on the same ticket:
“Government cannot solve our problems. It cannot set our goals. It cannot define our vision. Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy. And government cannot mandate goodness.”
Jimmy Carter, 1978 State of the Union address
“It is my intention to curb the size and influence of the Federal establishment and to demand recognition of the distinction between the powers granted to the Federal Government and those reserved to the States or to the people. All of us need to be reminded that the Federal Government did not create the States; the States created the Federal Government.
Government is not the solution to our problem; government is the problem.”
Ronald Reagan, 1981 Inaugural Addresses
Donald Trump, that 29-year-old, built part of his fortune by taking advantage of this new attitude in government. Kim Phillips-Fein’s Fear City: New York’s Fiscal Crisis and the Rise of Austerity Politics eloquently outlines this phenomena.
Trump wants to get into Manhattan real estate by redeveloping the Commodore Hotel. The Commodore, once a high society hangout in the early 1900s, falls into disrepair after ownership declares bankruptcy in 1970. This is a potential disaster for the City. If the Commodore collapses, the blight of Times Square could spread to Grand Central Station and further lower NYC’s international image. Trump sees this as an opportunity. The City is so anxious to sell the property, throwing tax dodges at Trump to entice him. He eventually works with the Hyatt Hotels Corporation to put $9.5 million down for the property, which translates into roughly $360 million in tax savings and money deprived from the City.
This is a story of a soft municipal government bending to unreasonable requests. We don’t have to do that again.
Fast forward to our current fiscal crisis. It’s not a secret that housing prices have soared while wages have only inched higher in the past two decades.
In 1996, California median income was $38,812 and the average house was priced at $161,546. In 2018, those figures rose to $69,899 and $532,091 respectively. That’s a 80% increase in incomes and 229% in home values in twenty years.
Pay workers more and build more housing. The California wildfires could be avoided if we didn’t build houses in places that are susceptible to wildfires. These houses were only built because wealthy Californians have been very good at effectively forcing new homeowners to live in the wildland-urban interface (WUI) with their restrictive housing policies. Despite the destruction, experts estimate this kind of dangerous development will continue, replacing 12 million acres of wild and agricultural lands by 2050.
New York’s equity story is better, but not by much. And this says nothing about who can get federally backed mortgages and the long history of racist housing policies in America.
New York legislators can take action to undo some of the damage done.
Senate Bill S7238 and Assembly Bill A8848 will end subsidies for real estate billionaires and redirect funds to public housing and affordable housing by repealing section 421-a of the real property tax law. As many hope to plug all budget holes with marijuana legislation, economists estimates that will raise only $300 million annually. This bill will eliminate $4 billion worth of wasted subsidies per year.
Senate Bill S7231A and Assembly Bill A09041 will subject private equity firms to the same recording and taxation requirements that families pay through a mortgage. When a family applies for a montage, their debt is secured to a physical property. If they can’t pay their mortgage, they face foreclosure and the bank assumes ownership of the property. When a private equity or hedge fund purchases a large-scale housing development, they use debt instruments — mezzanine debt and preferred equity investments — that are not secured against a property like a traditional mortgage. In their case, the trustworthiness of the firm is enough to secure funding. Mezzanine debt and preferred equity investments are untaxed. This bill will raise upwards of $500 million per year by imposing the same tax that New Yorker homeowners are asked to pay.
The struggle to house a city of 8 million is daunting, but we can begin by protecting the housing that already exists. Tax breaks for real estate investors do not spur tax affordable housing but instead eliminate existing affordable housing units. These bills are just two ways to prevent another round of sweetheart deals for the rich. We can address the homeless crisis and rightsize the inequitable tax system by diverting local taxes on luxury development.
To read more about how we can end our reliance on billionaires and create a healthier economy: https://makebillionairespay.info/14-ways-to-tax-the-rich
Ivan P. Lomardi 