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Dinkins' promises 'preliminary'.

In his State of the City address last week, Mayor David N. Dinkins touched on many issues that affect the city's real estate community including sanitation violations, employee child care, occupancy taxes, funding an Economic Development Bank and funding for the construction of affordable housing.

Dinkins targeted small businesses and property owners for some economic relief but the consequences will be so peripheral that real estate industry experts labeled them merely first steps.

He proposed relieving 28,000 small businesses of the "single most onerous tax" imposed by the city. This Commercial Rent Tax is paid on all rents at a rate of 6 percent. Unfortunately, as one small businessman put it, the tax is paid on all escalations and includes electricity and other lease payments, kicking most of the city's small businesses above the proposed ceiling of $21,000 per year in Manhattan rental payments and $30,000 in the outer boroughs. Current thresholds are $11,000 and $15,715 respectively. The new proposal would cost the city $30 million in revenues.

Ronald K. Shelp, president and CEO of the New York City Partnership was quite pleased, however, by the Mayor's terminology. "We've been using the phrase for years that this is the most onerous tax in New York and it's nice to hear him say it," Shelp said.

While he noted that the group was in favor of the proposal, which would now cover one-third of the businesses in the city, he added that the long-term goal would be to cover all the businesses and end the tax completely. "It's a very small step in the right direction," said Steven Spinola, president of the Real Estate Board of New York. He said the plan seems to target small retailers and office users will find their rent will exceed the top rent levels.

"We hope the mayor will recognize the city is not just small retailers but also small offices with five or six people," he said. "It's somewhat stranger to have a higher rent number for outside Manhattan."

At the time the higher incremental rents were developed for outside Manhattan the market was very high and it was done to encourage development in other portions of the city. "The Manhattan market is not high now and the differential is counterproductive," Spinola said. Property owner/manager Peter L. Malkin, said that while the commercial occupancy tax break was good, it won't have a direct impact on major tenants, "It sends a good signal," he said, "together with the promised four-year freeze on property taxes and corporate taxes, that it will be helpful." Malkin said both the Lincoln Building and Empire State Buildings have many tenants renting under 1,000 square feet who will be positively affected.

No one will argue with the objectives the mayor has put forth, Spinola said, but it is unclear how they will be funded. "We need the other part of the state of the city and that is the money," he said, alluding to the projected $1.3 billion shortfall expected for the coming year.

City Council Minority Leader Fred Cerullo, in the first ever Republican response to the annual Mayoral address, challenged the city to provide more tax relief by "mining the untapped revenue generating potential of some of this city's public assets ... such as airports and publicly operated pari-mutuel parlors, to reduce tax burdens."

Cerullo is introducing bills to relieve owners from certain aspects of the rental laws, a subject the Mayor never mentioned.

Shelp, who was a member of the Mayoral Levitt Commission convened to study economic incentives, was pleased the Mayor was seeking to adopt the Commission's proposal to have an offset on the rent tax for contributions to arts groups.

The Mayor has proposed enactment of a 10 percent credit that could generate up to $14 million in contributions to cultural institutions. "It's a good idea and the arts are important in attracting businesses to New York," Shelp added.

City Council Speaker Peter Vallone, lining up perhaps for a Mayoral bid himself, was highly critical of the Mayor's proposals saying the Dinkins administration is not giving New Yorkers what they are paying for. Vallone believes the rent tax ought to be eliminated and did not favor merely a credit for cultural donations.

Additionally, the mayor proposed further financial support to the Levitt Commission's key proposal of a development bank to fund development and job retention projects. The mayor proposed an increase in funding from $50 million to $250 million in capital funds.

Saying Community Boards should be able to choose one or two days of the week on which Sanitation enforcement activity would be suspended, the mayor claimed he had "heard the voices of small business owners angered by receiving a summons each time a passerby drops a piece of paper on their sidewalk." He also announced a pilot program for greater self-enforcement.

A spokesperson for City Council Speaker Peter Vailone said, "We're inclined to favor the relaxing of garbage violations to help small businesses cope with insane enforcement rules so it's encouraging and welcome."

Spinola said: "The issue is simply not holding people accountable for a piece of paper in the garbage," noting the tickets are a significant revenue device.

John J. Gilbert III, president of the Rent Stabilization Association, said, "The good news is the Mayor acknowledged the problem that small owners and small business people are being fined to death by the Sanitation police. The bad news is that if we'll only have relief for two or three out of five days it's simply not dealing with the heart of the problem which is the source of the litter and the garbage.

One small property owner with an off-site job said he paid someone to sweep two times a day. He is cited by Sanitation because the homeless people on the block rifle the garbage and leave a mess. "It would be better to pay the homeless not to go through the garbage," he suggested to the Mayor. Spinola said the Business Improvement Districts already hire the homeless for street cleaning. "It's a continuous full-time operation," he said, "and not every business strip should do it and we shouldn't be penalizing small businesses."

Shelp said with 85 percent of the city's small businesses believing the city is hostile to them, at least the Mayor "recognizes that small business owners are having problems with the sanitation violations. This is a step in the right direction," he agreed.

The Mayor proposed giving grants of $100,000 to each of the 25 Business Improvement Districts to begin day care centers for their employees. One BID leader who asked not to be quoted said while they will be happy to receive the money, it is a small amount compared to the actual costs of setting up such a facility.

Malkin, who is also chairman of the Grand Central Partnership and the 34th Street Partnership, both BID's, said the $100,000 is a positive initiative and while not adequate to operate a center would be helpful in defining the problems and defining a program.

Malkin called the grants "seed money" to begin the process and suggested the BID's could work with an existing non-profit or obtain financing. "It's certainly a problem and a problem the BID's could be helpful in analyzing and coordinating with the public and private sectors," Malkin said.

This week, the City Council is slated to act on measures targeting vendors and the MayOr announced he will begin a crackdown on enforcement. Departing from his text, Dinkins noted, "It's a very tough issue when you have vendors out there saying 'we're not busting heads.'"

The Mayor acknowledged he is working with City Council Speaker Peter Vailone on developing a more equitable property tax system.
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Title Annotation:New York, New York Mayor David N. Dinkins proposes tax relief for real estate industry at State of the City address
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jan 13, 1993
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