Gotham Gazette

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Looking at the Record: Taxes and Homelessness

Three recent reports from the New York City Independent Budget Office cast light on the Bloomberg administration's record in two important areas: tax policy and homeless services. The studies find some modest administration success in cutting back on unnecessary city business tax breaks; a growing loss of city sales tax revenues from sales on the Internet; and administration failure in one of its top goals - reducing family homelessness.

With the Bloomberg administration giving short shrift to accountability measures called for in the City Charter, the IBO has, in effect, become the default choice for measuring mayoral performance. The mayor does issue accountability documents such as the Mayor's Management Report released earlier this month and the Annual Report on Tax Expenditures, but they tend to take a minimalist approach.

Curbing Commercial Tax Breaks

In its August Fiscal Brief, "With Changes to Commercial Property Tax Program, Breaks Will Not be as Costly for the City," the IBO looks at a little-known, but very costly commercial tax break, the Prog/ Industrial and Commercial Incentive Program, begun in 1984. As its title implies, it seeks to encourage business expansion by exempting the value of new construction from property taxes for several years. But the expense of the program has tripled over the past decade, and in 2008 it will cost the city $512 million in lost revenues, according to the IBO.

The Bloomberg administration successfully pushed for a state law (see bill S6366A) that took effect July 1 -- creating the new Industrial and Commercial Abatement Program -- intended to reduce the costs of the original program. It will tighten the eligibility rules for participation and reduce the benefits in the program, to counter the argument that much of the business expansion subsidized by the old Industrial and Commercial Incentive Program would have taken place without the tax break. City Council approved the state's action last week. (See related story.)

The city will not see the full savings from this change for quite some time, since businesses already in Industrial and Commercial Incentive Program get to keep their benefits for as long as 15 or 25 years, depending on their type of business. (Industrial development gets a longer break than, say, retail expansion.)

In addition, the program goes on with no clear evidence that it actually works. The mayor's own economic agency, the Economic Development Corp. did a study of the incentives in 2007 and estimated that more than three quarters of the projects that received the tax break would have gone forward without it.

The IBO, responding to program supporters who say the Economic Development Corp.'s estimate is too low, said its own study, "provides strong evidence that the incentive program benefited a far broader group with more generous benefits than might have been necessary to meet the policy goal of promoting industrial and commercial development."

The Internet and Lost Sales Tax Revenues

The IBO's August Fiscal Brief, "E-Commerce: Eroding City's Sales Tax Revenues," throws light on an emerging tax policy problem: the difficulty states and localities face capturing sales tax revenues from goods and services sold on the Internet. Under current federal law, the report said, "a state may not require an out-of-state retailer to collect sales tax on sales to its residents, unless the retailer also has some physical presence or nexus in the state."

But even with this limitation, the actual and potential revenues for the city from online sales are substantial. The IBO estimates that in fiscal year 2007 about $2.2 billion of $4.4 billion in e-commerce generated by city residents was taxable. That would produce about $82 million in sales tax revenues for the city, but $29 million of that was not collected in 2007.

In an effort to capture more of that money, a new state law that went into effect in June, according to the IBO, "attempts to force collection of sales taxes on certain electronic purchases." The law already has been challenged in the courts. If it survives the litigation, the state projects the city could generate more than $27 million in new sales tax revenues in the current fiscal year, and more than $60 million in new revenues in 2012.

The IBO report includes an interesting discussion of the arguments surrounding Internet commerce. There is a fairness argument on the side of conventional retailers since such merchants -- "brick and mortar" retailers -- must collect the sales tax. There is a fairness argument on the buyers' side, since lower-income groups, are less likely to have access to e-commerce and so more likely to pay the sales tax, further increasing the regressivity of this tax.

Although a national resolution of the e-commerce sales tax issue would make sense, federal action is unlikely, according to the IBO, given the fights among states over the issue and the reluctance of Congress to tackle it. In the meantime, several states have developed a Streamlined Sales Tax Project that is attempting, on a voluntary basis, to bring some conformity to each member state's policies on such sales. New York State is not a member of the project, but is active in its discussions.

Homeless Services Reform?

In another August IBO report, "Has the Rise in Homelessness Prevention Spending Decreased the Shelter Population?" the IBO's answer for families is, no or, more precisely, "So far it has not worked as planned." "So far" is four years after the mayor introduced a five-year plan to reduce homelessness in 2004.

City spending on homelessness prevention increased from $160.6 million in 2004 to $191.2 million, spread among several city agencies, in 2007. The city upped its expenditures on homeless shelters from $563.4 million in 2004 to $603.5 million in 2007.

Yet the number of families in shelters on June 30, 2007 was 9,162, according to the IBO, up from 8,712 on June 30, 2004. After an initial drop, the number of families grew by 15 percent over the past two years. The number of single adults in shelters did fall from 8,432 in 2004 to 6,813 in 2007, down 17 percent from a peak during that time.

The IBO report notes some evidence that one Department of Homeless Services prevention initiative may be working. The HomeBase program, now budgeted at $12.4 million, uses seven nonprofit groups that now serve 12 catchment areas in the city. Citing figures from the Department of Homeless Services, the IBO report stated, "Family shelter entrants from the original six community districts with HomeBase rose 6.3 percent between 2004 and 2007 compared with increases of 13.7 percent in demographically similar districts without HomeBase and 17.5 percent in all other districts.""

Not Measuring Performance

Beyond the numbers, though, the IBO's Homeless Services report noted the administration has not produced an annual report on the mayor's five-year plan since July 2005. "Without regular information," the IBO said, "it is unclear which programs the Bloomberg administration believes have been successful, what have been the major challenges, and whether current efforts and funding are adequate in order to make progress toward their goals."

Similarly, important tax policy issues like those explored by the IBO -- the e-commerce sales tax issue and the incentive program changes -- are not discussed in the charter-mandated annual Tax Expenditures Report published by the city's Department of Finance. The most recent city report, for fiscal year 2007 (updated in December 2007), makes no mention of the efforts to change the Industrial Commercial Incentive Program. It simply describes the requirements it and notes that in 2007 there were 5,771 property tax exemptions on the books, costing the city $409.5 million in lost revenues.

Yet Section 240 of the city charter says the tax expenditure report should include, among other things, "such data and supporting documentation as are available and meaningful regarding the economic and social impact and other consequences of such tax benefit." (Interestingly, the introduction to the 2007 report edits this requirement down to "data, as available, on the economic and social impact of city tax expenditure programs." The word "meaningful" is excised.) It includes no such impact data and documentation about the incentive program.

In fact, Part V of the 2007 tax expenditure report, which Section 240 says should include (for each tax benefit) "a listing and summary of all evaluations and audits of such tax benefit issued during the previous two years," has only one entry, a one-page summary of an Economic Development Corp. report required by Local Law 48 of 2005, on 631 EDC "Investment Projects," i.e., business tax breaks individually negotiated with corporations.

The pattern here, as with the semi-annual Mayor's Management Report, is to provide a lot of statistics, but little or no analysis. For instance, the homeless services section of the Mayor's Management Report for fiscal year 2008, said simply, "The average number of families with children in shelter each day rose slightly. While the number of families with children entering shelter has declined, length of stay for these families increased."

Citing the expansion of HomeBase, the report said, "Over 90 percent of the families and adults receiving DHS homelessness prevention services did not enter the DHS shelter system, demonstrating the success of the city's efforts to offer at-risk families and individuals alternatives to shelter." The report, though, made no effort to explain why, in light of this, so many people still find their way into the shelter system.

Glenn Pasanen, who teaches political science at Lehman College, has been in charge of Gotham Gazette's finance topic page since 2001. 

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