Anyone who has recently walked through the main business districts in New York City can’t help but be shocked. In areas such as Grand Central, Midtown East, Penn Station and Wall Street there are numerous restaurants, shops and hotels which are closed, and the streets are desolate. This comes as no surprise given the employee office attendance of just 23.3 % reported by Kastle Systems as of January 31. Some creative thinking is needed, and fast. Two years into the pandemic, Midtown and Downtown remain in crisis.
New York Governor Kathy Hochul appreciates the severity of the problem. She is on the ball when it comes to the vital importance to the city of getting employees to return to the office. At a Citizens Budget Commission breakfast on February 3, Governor Hochul proposed a simple solution: “business leaders tell everybody to come back. Give them a bonus to burn the Zoom app and just come back to work.” The governor clearly understands the desperate need to bring back the millions of office employees who support the ecosystem of retail businesses and jobs in New York City’s Midtown and Downtown business districts, as well as central business districts of other cities all over the state.
Paying bonuses would certainly be a good start. However, this would have to be implemented on a company-by company basis, with each company facing the internal politics of whether it is favoring in-person workers over remote workers if they paid them a bonus. While that approach would be optimal for the real estate industry, it would be problematic for the office tenants which are also not eager to fork out bonuses out of their own earnings.
However, I have another idea that is very much in the same vein. In order to incentivize employees to return, New York City and New York State should offer tax credits to businesses for each employee that works in an office. This will require a careful statutory definition of what an office is, along with an accounting mechanism to ensure there is an accurate count of employees coming to work.
Critics of this idea will say we can’t afford it. But due to the rising financial markets as well as the unexpectedly high New York City and State tax collections during the pandemic that is incorrect. Further, repurposing spaces for non-office use will take years if not decades, and would be far more expensive.
In fact, we can’t afford not to offer companies a tax credit to incentivize employees to return to the office. Just because hybrid work is here to stay, New York City should not go down without a fight. It’s only common sense to support your city’s major industry – in New York’s case real estate – with forward-looking tax policy. Look at the millions of dollars plowed into development of the technology industry on Roosevelt Island as an example, and nobody is questioning that investment.
Further, this is not a zero-sum game. Every job that comes back supports the return of small businesses with retail, restaurant and other service jobs which in turn will generate additional tax revenues. A recent report by New York City controller Brad Lander stated that the city lost 425,000 private jobs between February 2020 (just when the pandemic started) and December 2021. We need to be open to some fresh ideas to bring some of those jobs back.
Encouraging employees to return to the office will have a knock on effect of increasing business travel as well. With a low percentage of employees in the office, there is no reason for business people to visit their customers. However, as more employees return, there are more reasons to gather in person, which will in turn benefit the hotel trade.
As a corollary, cities and states routinely offer a fortune to preferred companies like Amazon to encourage them to build or relocate there. The idea of tax credits to return to the office is better and simpler and it does not favor any particular company or sector.
Tax credits supporting a return to the office are an idea whose time has come – and there’s not a minute to spare. Let’s give it a try.