Schrödinger’s Mayor: For Inequality, Against Inequality

Background

The Kingstonian is a proposed $57 million development consisting of 143 apartments, boutique hotel, garage and retail space. In hopes of securing a $30 million tax break, the developers produced an assortment of job creation and economic activity projections. In response to public outcry, Ulster County officials brokered a new agreement that reduced the tax giveaway to $28 million and raises total payments-in-lieu-of-taxes (PILOT) to about $5 million.

January 15, 2021

A few decades ago, the Metropolitan Museum of Art held an exhibit of early 20th century art from Germany, and one memorable pencil drawing featured a handsome youth sauntering alongside a fair Fräulein, whispering sweet nothings in her ear. Perhaps the air bubble spoke of marriage, or love’s purity. Meanwhile, the young man was twisting his body away from the target Mädchen in hopes of concealing his erection.

This perfect image of duplicity came to mind as I read Mayor Steve Noble’s New Year’s State of the City address deploring inequality in Kingston. How priceless the handwringing, the tender concern, the attempts to twist himself into the very picture of love for his equality-challenged constituents, when this hypocrite has done everything in his power to grease the wheels for one of the most toxic inequalities to ever hit Kingston: a $28 million tax break purloined from the public purse and headed straight into the pocket of his wealthy Opportunity Zone crony investors.

Let’s dispense with the fictitious cover story that this tax giveaway for luxury housing is “at no cost to taxpayers” and will benefit all, or the majority, or even a substantial minority of Kingston residents.

Noble and the developers say the project will generate economic activity that will more than make up for the lost property tax, and they cite projections issued by economic development companies that buy software to calculate direct and spillover activity.

But the projections circulated by the developers and their cheerleaders are so rosy as to defy credulity, and in fact, the developers note in the small print of publicity literature that the numbers are “for discussion purposes only.”

A recent conversation with a source at a tech company that makes one flavor of this software dispelled any notion that the problem lies in the program. Instead, it lies in the input numbers selected by the developers or their allies in economic development. Sure, if I assume that 300 tenants will each spend $100,000 a year locally and create a dozen businesses, yes, I can produce crazy spillover numbers that hundreds of new jobs will be created and hundreds of millions of dollars in sales will take place, leading to millions of dollars in tax revenue.

“Garbage in, garbage out,” said Cornell economist David Kay, noting that not only can the input numbers be ginned but also that there can be “systemic biases in economic impact analyses.” He stressed that he had not looked at the Kingstonian and therefore had no opinion on this particular project. His email included links to his papers on multipliers and economic development.

Mayor Tim Rogers of New Paltz dealt with this problem when he fended off a PILOT for SUNY housing by poking holes in developers’ inflated estimates of adjunct professor spending. In fact, this study found that a quarter of adjuncts required some sort of public assistance. And that was back in 2015, when inequality was less severe than it is today.

In a related development, see this clear explanation released yesterday of why PILOTs entail either higher school taxes or cuts to education.

According to the software company source, the economic impact of the Kingstonian’s new residents will derive from household spending, and that multiplier is fairly low, notching under 2 in small cities like Kingston.  Bruce McLean’s excellent analysis showed that to make up for the $293,590 in property tax that would be lost to the City of Kingston each year, almost $67 million of sales would be required.

Consider the impossibly optimistic scenario where 300 new tenants each spend $30,000 on local business. Using a multiplier of 2, which is also optimistic, that would generate only $18 million in sales, far below the amount required to compensate for the lost property tax.

Even the IDA’s own internal cost-benefit analysis says the bulk of the (wildly exaggerated) direct and spillover benefits is destined for private interests. See P. 5, with $73.956 million in benefits predicted to flow to private individuals, versus a paltry $1.788 million for the public.

The real payoff will come when the investors sell the property. If they hold until the Opportunity Zone cutoff date of Dec. 31, 2047, and if current trends continue, they will take home at least $200 million.

The Vindicator has reached out to economists to compile realistic spillover impacts for the storefronts, garage and boutique hotel. Studies by impartial economists have shown that the ripple effects predicted by development proponents fail to materialize, and moreover, that tax breaks play only a small part in business decisions.

As such, it is worth mentioning that the developers have said many times that this project will proceed with or without the PILOT. While the project may or may not be a bad idea, it will NOT spark the economic activity and job creation the developers are touting, and even after spillover effects, on balance the PILOT will be a financial loss to the public, making it harder for government to see to the welfare of its less-privileged citizens – in other words, a recipe for inequality on steroids.

For a fact-checking of a recent over-the-top radio infomercial for the Kingstonian, see here. (Coming in the next few days.)

Project supporters may not be aware of the false promises in this PILOT, as evidenced in a flurry of letters to the editor with content lifted right out of the developers’ PR manual.

The problem is not PILOTs per se, but rather, their abuse. After all, it’s hard to find fault with a property tax exemption for UPAC, a century old Classical Revival jewel of a theater on Kingston’s Broadway.

Stripped of its tax revenue and job creation fiction, the Kingstonan PILOT reveals itself as an inequality boost on a par with the boondoggles for the Holiday Inn on 9W in Lake Katrine, a hotel owned by a multinational corporation whose largest investor is Jamie Dimon’s JPMorgan Chase; or the two for Amazon warehouses in Dutchess and Orange counties, which benefit Jeff Bezos, who was the richest man in the world until he was overtaken last week by Elon Musk (also a recipient of huge tax breaks).

Our 100-year-young Mädchen still possesses choice: so long as museum archivists protect her paper beauty from the ravages of time, she can escape at worst a potential rapist and at best a love’em and leave’em Lothario.

She may have more options than do our citizens. This PILOT is a vehicle for local kingpins to have their way with the people of Kingston and affected townships while their wingmen in the Common Council, Legislature and executive branch of Ulster County avert their gaze.

What choice do we the people have? We can vote out the shapeshifters in local government and replace them with true public servants, who will in turn insist that the IDA stop pandering to rich grifters who promise bogus economic numbers.

Your hypocrisy fools no one, Mayor Noble. Stop twisting your torso to hide your true self and save the sweet nothings for the cronies to whom you’ve sold out your City and your constituents.

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