What Passes For Economic Policy In New York
/In New York we have the highest taxes in the country. Local progressives get to feel good about themselves because they think that the money goes to help the poor and downtrodden. Yet somehow if you just look around you find out that despite the spending we have higher rates of poverty and homelessness than most anywhere else in the country, together with the very highest income inequality. What gives?
It's a couple of things. One that I have discussed on multiple occasions is that somehow we spend about double the national average per student on K-12 education to achieve bottom-of-the-barrel education results; and about double the national average per beneficiary on Medicaid to achieve no-better-than-average health results. Another reason for high taxes in New York is what passes for economic policy in this state.
What passes for economic policy in New York consists of shooting ourselves in the foot with a gigantic shotgun. Let's consider a couple of examples that have been in the news in the past few days.
The lead article in the business section of today's New York Times has the headline "Looking for Silver Linings: Losses Pile Up for Solar Companies, and Future May Be Stormy." It seems that in recent days and weeks various companies in the solar business have reported big and growing losses, and their stocks have tanked. Many may go out of business. Essentially, reports the Times, all the companies have business models driven by some combination of government subsidies and high prices of competitive fossil-fuel-based energy. But of course, recent months have seen plunging fossil fuel prices, and government subsidies for solar have seen some cutbacks as well (although not the principal federal tax credit, which has recently been renewed):
Many of the assumptions that underpin the financial models [of companies in the solar power business] are far from certain, analysts and experts say, and as market conditions, public policies and technologies evolve, the risks are becoming more evident. Cheap natural gas doesn’t help, making it harder for rooftop solar energy to compete in markets with low electric rates.
But, you ask, didn't the big government-backed solar panel makers like Solyndra go bust several years ago? You'll remember Solyndra as the company that got a $500+ million federal handout as part of the "stimulus" in 2009, and then a big visit from President Obama in 2010 (Solyndra "is leading the way to a brighter and more prosperous future" said our President). In 2011 Solyndra went bankrupt and the government took a total loss on its investment. Other solar manufacturers that got their start with the 2009 stimulus also very publicly went bust around the same time. How could this be an issue again now?
Easy. While you weren't looking, a new round of government handouts launched a new crop of would-be solar power handout farmers in the past couple of years. The pols learned exactly nothing from the Solyndra debacle. The focus of the Times article is a company called SolarCity, chaired by the charismatic Elon Musk. How's it going with them?
SolarCity’s revenue last year grew nearly 60 percent to $400 million from the year before. But its costs grew at much faster rate, leaving the company with an operating loss of $648 million for the year. . . . But even more troubling, SolarCity’s debt levels are soaring as cash levels shrink. Last year, the company’s interest payments on its debt totaled nearly a quarter of its revenue.
I guess that would put SolarCity's one-year GAAP loss around three-quarters of a bil. What genius handout granter got this one off the ground? You guessed it -- the State of New York! It's actually Governor Cuomo's baby. Just about a year and a half ago, in 2014, New York agreed to build these guys a gigantic factory in South Buffalo. Motley Fool here has a description of the terms of the deal, which border on the unbelievable:
The state will actually both build the building SolarCity will be housed in as well as buy the equipment SolarCity designs for manufacturing. Construction costs allot for $350 million for the building and $400 million in equipment. . . . Most notable in the agreement is that SolarCity's cost for using the $750 million capital expenditure New York is making is a whopping $1 per year for 10 years with an option to renew for another 10 years. Yes, you can read it here: Rent on the $750 million investment could total $20 over the next 20 years. To put this subsidy into context, with no direct benefit for the state for its $750 million investment, the subsidy amounts to $153,061 per job outlined in the agreement.
Oh, by the way, today's Times article nowhere even mentions the $750 million New York State handout in its long treatment of the finances of SolarCity. Meanwhile, as this company struggles near the brink of bankruptcy, the gigantic factory isn't even open yet! It's scheduled to open later in the year. For the other side of the story, here is Governor Cuomo's website touting this fiasco as a good idea. Thousands of jobs will be created!!!!! I wonder if they'll actually ever hire a single person to work in the factory before the company goes out of business?
Can we top that one as brain-dead economic policy in New York? Yes, there is a contender from here in the City -- the ongoing development of "affordable housing." The Wall Street Journal on Tuesday has a big article on the opening of a new development in Brooklyn called 250 Ashland Place. It's a big new high-rise with 568 apartments out near the new Barclay's Center and the Brooklyn Academy of Music.
This being New York, some 200 of the apartments don't go to the highest bidder as with a normal market, but rather are designated as "affordable." Those apartments get much lower rents and are allocated by a lottery. The Journal gives some information on the amounts of the discounts that go to the lottery winners: market rents start at $2800/month for a studio and $6500/month for a three-bedroom; "affordable" rents start at $801 for a studio, with the most expensive "affordable" three-bedroom at $3649. In round numbers, it's about 70% off for the lottery winners.
So these lucky lottery winners must be poor, right? Not at all. Thirty-three of the two- and three-bedroom "affordable" apartments are to be available to "a family of four with incomes up to $172,600 per year." The $172,600 would be more than triple the U.S. median income, and in the top 6% in Brooklyn. And if you have a family of six or more, you can still qualify for this lottery with income over $200,000! But don't worry. These income criteria were set back during the Bloomberg term, and our new progressive Mayor de Blasio is just as outraged about them as you are. So, in the never-ending quest to achieve perfect fairness and justice among all people, de Blasio has lowered the income criteria for "affordable" units in new projects created during his tenure. From now on, you can't get in with a family of four if your income is above $142,400. Take that, plutocrats!
I really think that these people just can't add. How anyone could think that the government can make its citizens better off by giving free three-quarters-of-a-billion-dollar factories to Elon Musk, or providing subsidized apartments to people in the top 6% of the income distribution, is just beyond me. Somehow, whatever calculations they are doing treat the expenditure of public funds as something completely free. So, a couple of years from now, when you find yourself driving past a vast, almost-new-but-completely-abandoned factory south of Buffalo, and wondering what it is, now you'll know. And you'll understand a little more why taxes are so high in New York.