ARGUMENTS AGAINST THREE PROPOSALS ROBERT CORNEGY PROMOTES
AS SUBSTITUTES FOR SMALL BUSINESS JOBS SURVIVAL ACT
(Tax incentives, Zoning and Mandatory Mediation )
All three proposals originated from final recommendations of the 1985 Mayor Koch and Speaker Vallone Small Business Retail Study Commission. The small business advocates called it the “Limousine Commission” because the majority of its members arrived in limousines. Hand picked by Koch and Vallone, the majority were presidents of a Wall Street firm, real estate firms, banks, and big business.
The Majority report favored “Mandatory Mediation without Binding Arbitration and one year extension to move.”
The Minority report favored the then recently introduced Council Member Ruth Messinger’s Binding Arbitration Bill , the original version of Small Business Jobs Survival Act (Jobs Survival Act) . The bill would give businesses the right to renewal leases and rights to negotiate lease terms, with final arbitration process if mutual agreement could not be reached.
All three proposals : Tax incentives, Zoning and Mandatory Mediation without Arbitration were all rejected by every business group in NYC and called “The Landlords Bill” , due to having only one goal, to keep the status quo and keep all rights to the Lease Renewal process exclusively in the hands of landlords.
Tax incentives, Zoning and Mandatory Mediation legislation would not
save a single small business or a single job, because none address the root causes forcing businesses to close.
The root cause for the closing of our long established small businesses is having no rights to renewal their leases when a lease expires, thus facing exorbitant rent increases and unreasonable lease terms with no options to negotiate fair lease terms. The present lease renewal process is one sided and so favors the landlords, who have exclusive rights to determine all the new lease terms, that businesses are unable to receive reasonable rents, reasonable length of leases, and are forced to pay the bills of their landlords. This failed lease renewal process has created a crisis to survive for many business owners and resulted in loss of jobs and stopping all growth and job creation for many businesses.
I. The proposal of applying Zoning laws as a remedy to stop the closing of small businesses and restoring stability and vitality to our small businesses will fail if enacted.
Zoning for the purposes of curtailing the opening of Chain stores in a designated retail shopping strip will fail to protect or save a single small business owner or save a single job for these reasons:
I. Zoning statues are written for regulation of NEW tenants only and offer no protection or rights to existing business owners whose leases expire.
The example often given of successful Zoning stopping the closing of small businesses is the Upper West Side. In reality, the Zoning law will not save or protect any West Side business because it has nothing to do with the root cause of the crisis , the lease renewal process.
Special Enhanced Commercial District
Upper West Side Neighborhood Retail Streets
“The proposal therefore seeks to promote a diverse and vibrant retail environment by ensuring that blockfronts along Amsterdam and Columbus continue to offer multiple retail venues, and that blockfronts along all three avenues are not dominated by banks. The proposal only regulates new frontages and does not in any way affect the type or size of retail allowed on these avenues, their ownership, or method of operation.
Another example given of the success of Zoning to curb Chains is San Francisco. While their zoning laws did succeed to restrict the Chains from domination of a community at the expense of smaller independent businesses, and put more control of neighborhoods’ storefronts into the hands of its citizens, the same zoning statue would fail in NYC to accomplish the same outcomes. The study and research for the zoning laws to limit chains and restaurants was started in 2002 at the beginning of complains of chains rapid growth replacing independent businesses in some neighborhoods. The Zoning law was enacted in 2004, with tight supervision and regular updated research by city government.
Zoning for NYC is about 20 years to late for the majority of our city’s busiest shopping strips.
NYC had the earliest chain growth of urban centers in the nation . That combined with big banks (many global banks) bidding against each other to be on every corner or prime location on Main Street has banks and chains well established citywide for the past 15 years. It is true that some communities with few banks and Chains located already on main street could thru zoning laws restrict the growth in the future. But each year there are less and less of these strips and not a real solution for the crisis the entire city faces, and as mentioned above, zoning offers NO protection today for a single business when their leases expire.
Zoning is a poor proposal because it discriminates in both “ who” is protected and “where” it offers protection.
Zoning statues being discussed , such as Upper West Side and San Francisco , address only RETAIL storefront businesses and excludes any protection or rights for all other commercial tenants: arts, NFP, and all professionals etc.. Only the Small Business Jobs Survival Act does not discriminate against any commercial tenant.
Zoning statues discriminate against older and bigger shopping districts in NYC who have experienced high rents for many years and have long established Chains and banks, thus regardless if more Chains open, their rents and lease terms offered will still be unreasonable. These high rent districts desperately need legislation now that gives existing businesses rights now to survive when their leases expire. Zoning will only delay a real solution like the Small Business Jobs Survival Act which the majority of our city’s small business owners need to remain in business.
Final comments : the Small Business Jobs Survival Act would do more than zoning to prevent Chains from opening on main street. The law would allow long established businesses to negotiate fair lease terms and remain in business with minimum 10 year leases. If a Chain wanted to open in a specific neighborhood it would have to either wait for an unprofitable business to close or buy out an existing profitable business. The decision of which type of business opens in a neighborhood would no longer be solely up to the landlord, where only the deepest pockets can open.
There is no reason both Small Business Survival Act and Zoning can both exists at the same time . The Jobs Survival Act protecting the current owners when their leases expire and zoning stabilizing the longer term market rates for a district and new tenants.
II. Argument against the Mandatory Mediation (Cornegy Bill) , which will make the crisis worse by starting a bidding war which will increase rents even higher.
Council Member Robert Cornegy soon to be introduced legislation would give business owners mandatory non- binding mediation with a lease extension of one year at 15% rent increase to find a new location to move to. The Cornegy bill would not save a single small business owner or one employees’ job. In fact, it would result in high rents and more businesses closing. This bill was written by REBNY 30 years ago and is word for word the primary recommendation of the Majority Small Business Retail Study Commission,. And unlike the false statements about the Small Business Jobs Survival Act going nowhere, it was Cornegy’s bill that was rejected by all the city’s businesses and sat collecting dust for 30 years.
Under Cornegy’s bill of Mediation without Arbitration and move, the businesses have no right to renewal their leases and no right to dictate any terms of the new lease. His bill would keep the Status Quo of not regulating the landlords who have exclusive power in all lease decisions. All of the major problems faced by business owners which are causing businesses close, stop growth or lay off workers are not addressed by Cornegy’s bill.
Such problems as exorbitant rent increases, illegal extortion of immigrant owners, short term leases (sometimes month to month), and abusive lease terms like paying the landlords taxes would all continue under Cornegy’s bill.
Passage of Cornegy’s bill would make the crisis worse because businesses in order to stay in their neighborhoods would be forced to bid against their neighbors for their locations, thus driving up rents even higher. There are only a limited number of empty storefronts in a busy neighborhood and the landlords want top rents from big banks or chains or they will not rent out. In many cases landlords will warehouse prime location and keep them empty for years until they get their sky high rents. This leaves only existing businesses as a possibility to take over the space. A bidding war between neighbors to stay will happen and rents will go sky high as a result.
CORNEGY’S BILL DISCRIMINATES AGAINST 70% OF
CITY’S COMMERCIAL TENTANTS
This law discriminates against the majority of our city’s small business owners by excluding their commercial leases from the bill. It only protects retail storefronts and all other businesses are excludes: including arts, professional services, nfp, medical practices, and every business above the ground floor. Even though CM Cornegy agrees the root cause of the crisis was high rents, Cornegy’s bill offers NO protection to 70% of city’s business owners against rent gouging.
CM Cornegy does not recognize the art community , medical professionals, manufacturers, or any professional businesses as being a small business, threatened by high rents and being in a crisis when their leases expire!
VOLUNTARY MEDIATION HISTORY OF FAILURE
CM Cornegy’s mediation without arbitration was tried in the past and failed miserably, and led to the enactment of Commercial Rent Control Law in effect for 18 years. In 1943 in NYC, real estate speculation was rising causing commercial rents to skyrocket dramatically, forcing businesses to close. Then Mayor LaGuardia established a voluntary Mayoral Mediation Board to resolve disputes. It was a huge failure when landlords refused to participate and worse, many small business owners complained of retaliation from landlords when they asked for mediation.
This law would not protect a single small business owner or save a single business from closing because the landlords still have all the rights and the final say on the lease terms.
III. Arguments against Tax incentives to landlords to not rent gouge. City’s own report shows potential to cause even higher increases in rents!!
March 26, 2015 interview with Villager editor, REBNY former president Steven Spinola said, “he is in favor of giving “tax incentives” to landlords who work to keep commercial tenants in place.”
Tax incentives to landlords to not raise commercial rents: This proposed legislation establishing a property tax credit for commercial landlords who voluntarily limit the amount of rent increases to small business owner tenants upon lease renewal. Similar incentives exist in the residential rent context, for example in the form of the Senior Citizen Rent Increase Exemption ("SCRIE") and disability programs under which the rent of qualifying senior citizens and disabled are frozen at a certain level, thereby effectively providing them with an exemption from future rent increases, and compensates the landlord by providing him or her with a property tax abatement credit equal to the amount of the senior citizen's future rent increases. Today, the determination of rent increases for residential property is set by special committees and regulated by statues. Commercial rents have no such guidelines and are set by market rate only.
In NYC , Commercial Tenants pay their landlords’ property taxes therefore this proposal offers NO incentive to stop rent gouging,
Because Commercial rents are not regulated, landlords can charge whatever they want, and commercial tenants pay their landlords’ property taxes, it leaves this proposal open to exploitation and abuse by landlords costing taxpayers a fortune.
July 27, 2016, Independent Budget Office Report:
tax incentives “unintended consequence of allowing landlords to raise commercial rents faster than they otherwise would have when leases for small business expire.”
“However, we expect profit maximizing landlords to increase rents in excess of what they would have been without the abatement to one degree or another.”
“Knowing they will collect the full rent charged small businesses, landlords have an incentive to increase rents when leases expire in excess of the amount their property taxes increase each year.”
“The city would therefore not only be subsidizing small businesses’ rents but also landlords’ operations by oversupplying tax relief.”
Only the landlords benefit from Tax incentives NOT the tenants .
This bill is voluntary , therefore would protect very few if any businesses. Those landlords who are rent gouging and extorting cash from mostly immigrant owners would not participate.
Would raise property taxes on New Yorkers because these tax breaks for landlords have to be made up by others , property owners. The only two options are to lay off government workers or raise property taxes .
Result in higher rents for all businesses. Once a landlord gets a tax break by claiming he would have doubled the rents , that higher increase now becomes the standard for all his other businesses and in the neighborhood area. Unscrupulous and greedy landlords will jump upon the higher rents as the new “fair market rate rents” thus forcing more businesses to close and workers losing their jobs then the rents go even higher.
OUTCOME TO SOCIETY FOR ANY OF THE THREE PROPOSALS
All three would result in greater harm to our low income and especially immigrant communities.
1. Anti-immigrant , none would stop illegal extortion of mostly immigrant business owners who have no rights and are easy victims. CM Cornegy harassment bill, which claims to address the extortion was rejected twice by city’s immigrant business advocates in 2009 and 2010 as being useless “not a single business owner would report their landlord without protection” .
Hard working immigrant families who invested their life’s savings and scarified can no longer sell their businesses or turn them over to their children. They can no longer grow and expand their successful businesses due to the unfair lease renewal process. Instead, only the landlords profit from successful businesses, when they offer only short term leases , sometimes month to month or one year, and wait for big chains or banks to rent too.
2. Anti- jobs, not one job would be saved by any of the three proposals . None address the unfair lease renewal process which only favors the landlords and if businesses can’t negotiate fair lease terms which allow for a reasonable profit they will go out of business and jobs will be lost.
The closing of a major pathway for lower income families to achieve social mobility will happen if small businesses are forced to close.
Those hard to employ with either being prolonged unemployed or with criminal backgrounds would lose their best opportunity for a second chance if small businesses close.
Those successful businesses planning to expand and create jobs will be stopped due to the uncertainties of their futures caused by no rights when their leases expire.
Those businesses who do renew their leases are forced to either lay off workers or pay less wages in order to pay the higher rents being demanded.
Due to the short term leases and not having any control over their futures, many businesses are forced to stop all hiring of new employees .
3. Anti- Supermarkets- In today’s real estate speculative market, large supermarkets are prime targets due to both their size and location. NO supermarket can compete against big banks and Chains for rents due to their small margins of profit. If supermarkets do not get protection from rent gouging and short term leases, they all will be forced out of business.
4. Anti- Seniors and low income families- The loss of affordable supermarkets hurts seniors on a fixed income and low income families the most. Steep rent increases force the owners to raise prices dramatically and lay off workers in order to survive.
5. Anti- Medical professionals – all the proposals discriminate again a major job creator in the minority communities, the medial professionals and all professional businesses. ALL proposals only offer protection to RETAIL storefronts.
6. Anti -property owners- If nothing is done to stop the loss of long established small businesses, ave. 1,000 per month in NYC with Courts issuing on ave. 542 warrants to evict commercial tenants each month. Then a dramatic loss in revenue to the city will happen which can only be made up by increase in property taxes or lay off city workers.
7. Anti- residential tenants- If sky high rents result in increase in property values, combined with decline in revenue caused by loss of small businesses and jobs, the result would be huge increase in property taxes which would result in a justifiable huge increase in the residential rent rate.