The possibility of a new stimulus bill has been at the forefront for the last few months. Two new ideas should be considered which will revitalize New York and use the stimulus funds most effectively: (1) direct grants and tax credits for office rents and (2) formation of a new City Creation Corps (CCC) to fund new business ventures in urban areas.
At the outset, a brief overview is helpful to provide perspective. The United States has been supporting farmers with billions of dollars of annual subsidies for decades. Recently, they received additional bailouts due to the damage inflicted by tariffs on China, supplemented by Coronavirus funding. In 2020, it is expected that farmers will receive over $40 billion in traditional subsidies, trade-war payments, and special Coronavirus relief funds. That is a good thing. Subsidizing farmers has helped make America the greatest agricultural nation in the world, and we want our farmers to be successful.
However, the economic engine of the United States is our cities. Generally speaking, the most innovative, profitable, and important improvements to our personal and business lives are generated by entrepreneurs and large companies based in cities and major metropolitan areas. That is why 23 metropolitan areas generated half of America’s gross national product in 2018, and the top six metro areas (New York, Los Angeles, Chicago, Washington, D.C., and Dallas) accounted for over $5 trillion in economic output that year. Further, New York City, which is generally considered the epicenter of the world’s capital markets is forecast by Statista to generate close to $1.7 trillion of economic activity in 2020 on its own despite our current recession/depression.
The cities have suffered the greatest economic disaster because of the Coronavirus. Because of their density, people are understandably afraid to (1) travel on packed trains or buses, (2) walk on crowded streets, (3) ride in crowded elevators, and (4) work in crowded offices. It is no wonder work from home is so attractive now despite the negative impact on productivity and the quality of work. As the densest city in the country, New York has been particularly hard-hit with approximately 85% or more of its office workers still working remotely.
However, there will come a day when the Coronavirus is thankfully over, and we will need to build back better. Obviously, funds are desperately needed for state and local governments, mass transit, and infrastructure construction.
But that is just the beginning. There is a whole ecosystem of small businesses that have been decimated in the cities, and particularly New York because the office workers that patronize them are simply not there. As a result, the owners/managers of those office tenants need to be incentivized to return with their employees to save our cities.
That’s where fiscal and tax policy comes into play. Direct grants and tax credits are needed to subsidize office rents for several years to induce those businesses to return to dense cities like New York, San Francisco and Chicago. Critics will complain that some of this money is going to profitable companies, so how dare the government help them out when they don’t need the support.
However, that totally misses the point. It is the small businesses – the local restaurant, the dry cleaner, the small retail store, even the hot dog vendor and the like who have felt the brunt of the economic losses and unemployment in the cities when office workers stay home. Paradoxically, most of the office workers have found a workaround via technology while blue-collar workers have been devastated by the pandemic.
New York therefore desperately needs to incentivize office tenants to return in order to support the small businesses they patronize and in turn help their employees make a decent living. Moreover, the city needs its tax revenues from those small businesses as well to pay for schools, police, sanitation, and other essential services. Otherwise, New York and other large cities will suffer a vicious cycle of decline. We will leave it to the economists to figure out the exact multiplier effect but if office workers come back, they will generate billions of dollars in economic activity which benefits all concerned.
As a corollary, it is a sad reality that many small urban service in-person businesses simply cannot survive the loss of revenue from empty offices. Many will close in the coming months if they have not already. In order to revitalize our cities new businesses will need to replace those that are gone. That takes money as well.
Accordingly, the United States should form a City Creation Corps. This new entity would provide funding and loans to new urban business ventures which replace the businesses that have been lost to the pandemic. Importantly, these loans should be very light on the personal guarantees that scare off new entrepreneurs from starting new businesses and should only be as a small percentage of the loans at most.
For now, New York can’t expect any help from a president who is effectively at war with the city – at least until November 3. But let’s remember that as a coincidence Donald Trump owns or leases office buildings in New York and San Francisco and hotels in Chicago, Washington D.C., Miami and Las Vegas. Regardless of whether Trump wins or loses the election, he is going to need the income from those properties as well. As a result, these should be bipartisan ideas, after a fashion.
If we want to build back our cities better, the U.S. should
- partially subsidize office rentals for a few years; and
- form a new City Creation Corps to fund new business development.
We can and should help the farmers, but now the city folk now desperately need help as well. Helping New York’s office tenants will tremendously benefit the small businesses that have been so hard hit by the pandemic.
PPP is fine, but what small business in NYC and other cities really need now are crowded offices full of customers to bring city life back to normal again. These two simple ideas to subsidize office rents and new business development can jump-start the essential process needed to bring New York and other major American cities back to life – for the benefit of all. We shouldn’t kill the golden goose.
So that’s the way I see it. As always, I am equally interested in what our clients and friends think so please let me know your thoughts and comments. And if you have questions about your personal office situation please contact us – we represent our clients with integrity, creativity, and diligence.