The Streets Were Paved with Gold (35 page)

Why are New York and Philadelphia today so different from other aging cities? They are not, says George Sternlieb: “In a strange way, New York and Philadelphia’s decline has lagged behind other older cities because of their more diverse job base and huge government expenditures. New York and Philadelphia held
together better than older industrial cities. They are the rear runners, not the front runners. In the fifties and sixties, they did not lose 35 percent of their population, as places like Cleveland, St. Louis and Detroit did. So, in a sense, New York and Philadelphia were the last ones to lose. Beginning in 1970, they lost about 12 percent of their jobs and began to lose population. When you start losing population, you start losing your mom-and-pop stores and your buying power. It kind of feeds on itself.” Many of those mom-and-pop stores—groceries, luncheonettes, dry-cleaning shops—don’t show up on the Bureau of Labor Statistics reports because they often paid salaries off the books. Many were victims of “progress.” Such major construction projects as the Cross Bronx Expressway, urban renewal, the World Trade Center in downtown Manhattan, uprooted neighborhoods and the satellite businesses that serve them. Perhaps eventually those people and businesses would have left anyway. Older cities like New York suffer from obsolescence. Small garment center lofts were designed to serve neighborhood retail haberdashers, not large discounters like J. C. Penney with more than 1,700 stores.

What was the effect of taxes, which are high in New York and Philadelphia? “Economists look at the total tax burden and say that compared to elsewhere it’s not that much worse,” answers Sternlieb. “But economists are schmucks. They often ignore the psychology of businessmen”—who see no end to the growth of local taxes—“and the real pocket costs to the decision-maker, who decides whether the business stays or goes. This is controversial, but why is New Hampshire growing as fast as the Sunbelt? It’s a Northeastern state. It has a reactionary governor. But it also has no taxes. It’s pulling jobs out of Massachusetts and Vermont.” Well, does this suggest that if New York drastically reduced its taxes, it could recapture its lost economic base? “I’m afraid not,” says Sternlieb. “Once you’ve busted the egg it’s very hard to put it back together again.” If that’s true—and I’m not sure it is—the argument for special federal help for New York is, ironically (and tragically), strengthened as the city becomes economically weaker. Small comfort. More than likely, New York—like other older cities in the past—will continue to shrink as the nation continues to decentralize.

New York is not an exception in the attention focused on its “resurgent” downtown. Because Fortress Manhattan is alive and well, it’s assumed that the rest of New York is, too. Ten years after
its devastating race riots—43 killed, 5,000 left homeless, $50 million in property damage—Detroit is also said by the press and its officials to be coming back. They cite the sparkling new shopping centers, town houses and apartments that dot downtown. A modern seventy-story hotel looms over its glittering $337 million Renaissance Center complex. St. Louis has preserved the flat where Scott Joplin composed his ragtime music and persevered to witness a burst of office and hotel construction redefine its skyline. The Boston Plan, as it is called, has pooled $1 billion of private and public money to reinvigorate downtown and face-lift four neighborhoods. Baltimore imported Mies van der Rohe, I. M. Pei and Edward Durell Stone to forge a new downtown silhouette. Pittsburgh and Atlanta have almost totally modernized their central business districts.

But the plague spreads and surrounds these glittering castles. Middle-income people—black and white—continue to ooze from central cities, leaving the poor behind. Building abandonment multiplies. Tax revenues stagnate. Dependence on federal aid grows. As in New York, the national unemployment rate among urban blacks is almost twice that for whites; among black youths, it hovers between 40 and 50 percent. A September 1977 survey of twenty-five cities by the federal Housing and Urban Development agency, reported on six critical indicators of a city’s economy—employment, assessed valuation of real estate, loss of population, investment, retail sales and office space. Most of the twenty-five cities, they found, continue to decline, though the erosion has slowed. In 1976, devising what they called a Hardship Index, Richard P. Nathan and Charles Adams of Brookings contrasted New York with thirty metropolitan areas and thirty central cities. Against six criteria—unemployment, dependency, education levels, income level, crowded housing and poverty—New York fared comparatively well, ranking 11th among the metropolitan areas and 29th out of the thirty central cities.

The economic decline of central cities contrasts not just with the new downtown office towers and hotels, but with national growth. According to
Fortune
magazine, non-farm employment in the U.S. increased by 14.3 percent from 1970 to 1976. In those same years, non-farm employment soared 40 percent in Arizona, 34 percent in New Mexico, 29 percent in Florida. Texas alone gained almost 1 million jobs—more than the combined growth of Michigan, Illinois, Ohio and Massachusetts. The Houston job market expands by
4 percent annually, easily providing employment opportunities for the 1,000 families who arrive each week. Since 1960, New York City has experienced the slowest growth in non-farm jobs of any major city in America. While older cities worry about too little growth, newer cities like Houston and San Diego worry about too much. Riverside, California, where a young attorney, Richard Nixon, was married thirty-eight years ago, is struggling to wall off developers and preserve what remains of its orange groves.

To raise revenues to support a more dependent population, most declining cities raised taxes. As they raised taxes, those who could afford to moved elsewhere. The result is not peculiar to New York, though it is the most extreme case. “For more than a decade,” concluded Governor Carey’s Special Task Force on Taxation, “New York has imposed the highest state and local taxes per capita in the United States. In 1974, the charge was $952.29 per person. This burden was 25 percent higher than the next two states, Hawaii and California, and 55 percent higher than the national average.” In 1977, the Temporary Commission on City Finances released a study—
The Effects of Personal Taxes in New York City
—which found: “The average tax burden is greater for New York City residents than for residents of the fourteen next largest cities in the United States.… In 1974, the most recent year for which comparative data are available, per capita local taxes averaged $699 in New York City compared to $569 in Boston, the second highest tax-burden city, and $529 in San Francisco, the third highest. Chicago and Los Angeles had local per capita taxes of $213 and $212 respectively.” When state taxes are factored in, they discovered, “the average per capita tax for New York City residents increases to $1,186”—a different figure from that of the Governor’s Special Tax Force—“almost double the average of $632 for the other fourteen cities.” In 1976, according to the U.S. Commerce Department, New York State and local per capita taxes were second to Alaska’s, but that was before the Alaskan pipeline bathed that state in oil. The Empire State’s taxes rose 56 percent above the U.S. average. Texas was 21 percent below the national average; Arkansas, 38 percent below.

New York’s higher taxes mean higher costs. A family of four earning $50,000 a year, said the Commission, ransomed 11.1 percent of its gross income to New York City and State—three times the national average of 3.7 percent. The same family in Los Angeles paid half New York’s rate (5.6 percent); in Boston, 4.4
percent; Atlanta, 4.1 percent; Chicago, 2.3 percent. The same family in Houston or Seattle paid zero. A family earning $25,000 ransomed 6.6 percent to the city and state of New York—almost three times the national average. The same family in Los Angeles paid 3 percent; in Boston, 4 percent; Atlanta, 3.1 percent; Chicago, 2.1 percent. A Houston or Seattle family paid zero. Another way to put it: a family of four earning $20,000 in Houston would need to make $27,071 to have the same disposable income in New York. Or: to take home $25,000, a New York resident would have to earn $33,676—10 percent less than the $30,651 a Connecticut or New Jersey resident would have to earn. To lug home $150,000, a city resident would need to earn $294,114, while a business executive in either of the two neighboring states would need only $251,000—20 percent less. In the face of these numbers, it requires a vivid imagination to blame the federal government for the exodus of middle- and upper-income citizens and businesses from New York. Mayor Koch’s Task Force on Economic Development found, for instance, that “75% of manufacturing jobs lost between 1960 and 1976” moved not to the Sunbelt but to the tri-state area, where costs were cheaper.

It’s also difficult to blame only the federal government for New York’s extraordinarily high living costs. Half the excessive living costs of upper-income families here, says Herb Bienstock of the Bureau of Labor Statistics, “is attributed to higher personal income taxes.” These are the people who own—and relocate—businesses. The Bureau gathers household living costs for three types of families. In late 1976, a
low-income
family’s cost of living in New York was 8 percent above the national average; an
intermediate family
, 16 percent above; an
upper-income family
25 percent above. Removing the extremes, the intermediate New York family’s costs are comparable to those of a family in Boston or Newark, for example, but considerably above those of all other cities. Beginning in 1972, however, this gap began to narrow as New York’s living costs have risen more slowly than the nation’s.

New York City is also plagued by uniquely high energy bills. Mayor Beame’s first five-year economic development plan, offered in December 1976, admitted that energy costs in New York outdistanced those in each of the twenty-three major metropolitan areas. Many New Yorkers blame Con Edison, the giant, inefficient utility company. Yet the city’s plan acknowledged that 25 percent of the consumer’s bill was attributable to city taxes, though even
when taxes are eliminated, Con Ed’s costs exceed those of neighboring areas. The city’s official bond prospectus, issued in May 1977, shows how much more expensive electricity is in New York. A modest industrial firm with a maximum demand of 75 kilowatts would receive a monthly electricity bill of $1,261 from Con Ed. In Houston, the same firm would pay $455; in Los Angeles, $589; in Chicago, $718. New York is also unique within its own region. The same firm would pay the Long Island Lighting Co. $766; in Stamford, Connecticut, the cost would be $756; in Greenwich, $693. A similar pattern prevails for gas prices. According to the Bureau of Labor Statistics, in 1974 the gas bill for 40 therms in the New York metropolitan area was $13.59—almost double the cost of most cities. In Detroit, the same gas costs $7.63; in Cleveland, $6.50; San Francisco, $5.63; Chicago, $7.52; Dallas, $4.31; Pittsburgh, $7.54.

New York’s economic climate is also fairly special. Until recently, a succession of mayors and governors paid little heed to economic development, starving their development efforts of tools and resources. While the city reclined, the State of Alabama’s development office summoned its own jet plane to fly executives south; Georgia opened development offices in Brussels, Tokyo, Toronto and São Paulo; Indiana retained the national Gallup organization to conduct surveys to determine which firms might want to relocate there. Most states and cities, unlike New York, offered businesses cheap land and tax inducements. In 1975, the city’s Economic Development Administration budgeted just $7,400 for surveys and travel expenses. In 1976, New York ranked 17th in the money spent to promote tourism, its second largest industry. The city government earmarked $500,000—one-sixth Las Vegas’ tourism budget.

Steep taxes don’t make for a good economic climate.
Fortune
condemns Northern states for thickheadedly missing the point behind the Sunbelt’s surge: “It’s booming in great part because it’s pro-business—and Northern cities, by and large, aren’t.” That’s an exaggeration, but it contains the skeleton of truth. The Fantus Company, a business location consulting firm based in New York, regularly ranks the business climate of the fifty states. Using such indices as costs, taxes, regulations, tax breaks, etc., they once found that of the top ten states, seven were in the Sunbelt. The worst state: New York. An April 1977 Fantus memorandum to the Foundation Committee for Economic Development in New York
City concluded, “The existing economic environment in New York City is not conducive to the creation of new jobs.… At this point in time, New York City cannot offer, to a prospective client, the quality and array of services available in other United States cities.”

Four months later, now under contract to the city, Fantus prepared another report, suddenly discovering some of the “locational advantages” of the city: “(1) New York is the cosmopolitan metropolis of the United States; (2) Every service needed by modern, sophisticated business is readily available; and (3) Operating costs are competitive.” Comparing all costs, they said a foreign firm would find it less expensive to do business in New York than in Los Angeles. The city’s labor costs, for instance, are now more competitive. In 1976, according to the U.S. Department of Labor, city manufacturing workers earned less than the U.S. average. And there are other indications of New York’s changing economic climate. The city is phasing out the stock transfer tax, has reduced its occupancy tax and promised to cap real-estate taxes. Governor Carey, in 1978, proposed and won agreement for a $750 million reduction in state taxes. State commerce Commissioner John Dyson, an outspoken business advocate, set aside state monies to promote tourism. The state legislature expanded the tax and land incentives local governments may offer business. The business community is much more visibly involved in the government of the city, as they have traditionally been in other cities. Ironically, the most compelling arguments against Abe Beame’s reelection were made not by his opponents but by his own business or establishment-dominated commissions, particularly the Temporary commission on City Finances and his Management Advisory Board.