City must reduce tax burden to retain businesses

Real Estate Weekly, May 4, 1994 by MaryAnne Ronayne

There is a unique opportunity today for the City of New York to significantly slow the flight of its corporate tenants and in fact begin to attract new businesses to the City.

To accomplish this it is incumbent upon the new administration to ease the economic burden it has placed on all its business citizens, both large and small.

After working for several years to help New York City retain its major corporate residents, it is clear that while there are a variety of reasons for a company to consider relocation, it is the impact on the bottom line that is major motivating factor.

In recent years, the City has offered significant economic incentives - usually centering on a reduction of the real estate tax burden - to large employers and high profile companies who were considering moving out of New York. These incentives, which lowered their operating costs, represented the most powerful and effective tool the City had to retain jobs and keep the large and prestigious organizations here.

Now it is time for the City's Administration to go beyond these 11th hour actions and establish a more comprehensive approach to the problem. It's time to reduce the causes that compel companies of all sizes, from all industries to leave.

Clearly, New York City must continue to do what it can to keep the large companies, the large employers, from leaving. For these corporations are the City's engines for growth, fueling the expansion of small and medium sized companies. But, it also must address the concerns of its other corporate citizens, small and medium sized companies that generate so much of the vitality that is New York City.

In reality, companies with problems relating to City services, or their tax burden, should be aware that they can be heard, if they know how to approach the City's agencies. At the same time, it is in the interest of the Administration to dramatically transform the business climate in New York City to compete more aggressively with lower cost cities.

For the last few years we have been working with companies struggling to maintain operations in the City. We worked closely with these companies to find ways to reduce their problems and enable them to be more competitive without packing their bags and leaving.

For sizeable tenants with large numbers of employees, our primary approach to find ways of lowering operating costs has been through consulting on government financial incentive programs. Government incentives can have an appreciable effect on a company's bottom line.

By assembling a package of public sector incentives tailored specifically to a company's operational needs, we have assisted businesses, both commercial and industrial, to significantly reduce their occupancy costs.

The overall goal must be to make the City more closely competitive with other major corporate centers and other communities in the region. We know that many companies are willing to pay a premium to be located in New York, the global financial and commercial capital. But, the differential under the current real estate tax structure has grown too great.

To help attract these companies City government must shift from a "retention" strategy to a more aggressive marketing strategy. This means closely re-examining and reducing or eliminating the commercial rent tax, the hotel occupancy tax and other tax disincentives.

An elimination or significant reduction of these taxes will go far to reduce the movement of companies of all sizes out of the City and make the New York a more friendly place in which to do business.

Relocation is a major undertaking for any company. It significantly impacts all areas of the business operation. The objective of any relocation is to improve the quality and cost competitiveness of the business environment.

For a New York based company, that means seriously considering the cost benefits of alternative sites in the City as well as in other areas.

Final decisions should be based on a variety of factors including occupancy cost analysis, labor and demographic studies, costs of living and quality of life assessments.

At a time when rent levels in New York City have declined to the lowest point in over a decade, when attractive space is available, we in the real estate industry, should be in a position to attract corporate tenants into the City. But, this will only happen if the cost of doing business here is reduced.

If that happens, it may for the first time in recent memory make it possible for the real estate organizations in the City to be more proactive than reactive and aggressively go to work to attract major companies from other regions, and encourage a greater number of foreign companies to open offices in New York.