Whither New York?

When I was writing yesterday’s post about the projected future of New York City, I thought it right to be fair and balanced. Some believe that New York City is dead. Others say that its renaissance is just around the corner.

Soon after I posted, I came across an article on the CNBC site. It offers a decidedly bleak picture of New York City’s future prospects. In the the interest of objectivity I bring it to you, unadorned.

The story begins with a tech entrepreneur named Brenan Hefner. He was living in the suburbs and commuting to Manhattan. Now, he has relocated to… take a deep breath… Dallas, Texas.

As it happens he is one among many wealthy individuals who have left the Big Apple.

CNBC  reports:

Hefner is one of thousands of high earners who've left New York this year, an exodus that is deepening concerns over a projected $9 billion budget shortfall. While the city is no longer the national virus hotspot it was earlier this year, those leaving cite anxiety over the region's economy and quality of life and a conviction that higher taxes are coming. Last month, business leaders publicly upbraided Mayor Bill De Blasio for "deteriorating conditions in commercial districts and neighborhoods across the five boroughs."

You will see that the concerns begin with high taxes, though the issue seems to be that all the taxes do not translate into better quality of life. They seem to translate into worse quality of life. It has been a wake up call for New Yorkers, tough people who put up with a great deal in order to be at the center of the action.

And let’s not forget the rioting, the looting of Soho boutiques, and the homeless resettlement projects that have damaged many formerly prosperous neighborhoods. Boarded up storefronts are not a great look.

CNBC continues:

By forcing the mass adoption of remote work and crimping many of the advantages of urban life, the pandemic has turbocharged migration from high cost, high-density places to lower-cost states including Texas, Florida and Nevada. Nearly half of New Yorkers earning more than $100,000 a year said they considered leaving the city recently, with cost of living being the top factor, according to a Manhattan Institute survey.

"The cost of living down here is significantly less," Hefner said by phone from his new home [in Dallas]. "There's no state income tax. I'm not riding mass transit during the middle of a global pandemic to get to a subway to live in a WeWork or something."

Some of Hefner’s colleagues are also leaving New York:

Even within his 19-person start-up, Brenan has company. Caroline Goodson, his director of corporate access and sales, left Manhattan after a homeless encampment popped up outside her apartment building. She also moved to Dallas.

His co-founder Michael Kronenberg, who owns a downtown Manhattan apartment, has spent most of the pandemic outside of New York, renting a succession of houses in places including Scottsdale, Arizona; Vail, Colorado and Sullivan's Island, South Carolina. For senior finance professionals not chained to a trading floor, moving to lower-tax states has never been more appealing, he said.

It’s becoming a mass exodus:

"Everybody I know is leaving," Kronenberg said. "It's not just New Yorkers. My partners, long-time clients and investors of mine that live in Connecticut or New Jersey, they are used to commuting in to the city. They're never going to commute in five days a week ever again."

And then there are the numbers. Statistics tell us that the exodus is real:

But it's hard to deny the signs of pain ahead. Data from the U.S. Postal Service, national moving companies and tech start-ups tracking smartphones all show an elevated outflow from New York City this year. More than 246,000 New Yorkers filed a change-of-address request to zip codes outside the city since March, almost double the year-earlier period, for instance.

That's reduced demand for Manhattan apartments, where median monthly rents fell 7.8% to $2,990 in the third quarter, part of a city-wide decline not seen since 2010, according to StreetEasy.

To be sure, the New York area's suburbs have been the primary beneficiary of the exodus: Home sales in Westchester jumped 112% in July, according to appraiser Miller Samuel Inc. Sales in Greenwich, Connecticut just had the strongest quarter in more than a decade.

Many of the leavers are in financial services. For them, taxes are the main issue. After all, they did not get rich by allowing the government to confiscate-- and mostly waste-- large amounts of their income:

For those in finance, the simple math of lower tax regimes is hard to ignore. New York state levies 8.8% on wages for high earners, and New York City takes another 3.9%, or nearly 13% combined. Meanwhile, states including Florida, Texas and Nevada don't tax wages. The more people make, the greater the incentive there is to leave, and the difference could easily mean hundreds of thousands more dollars in after-tax pay.

Two billionaire hedge fund managers have moved to Florida:

Hedge fund billionaire Paul Singer is moving the headquarters of Elliott Management to Florida from midtown Manhattan, Bloomberg reported this month. His move follows that of another billionaire, famed corporate raider Carl Icahn, who made the switch last year to avoid New York taxes.

But, business is great for tax attorneys like Mark Klein:

"My concern isn't that they're leaving, it's that they're taking their businesses with them," said Mark Klein, a New York-based tax attorney and chairman of Hodgson Russ. The flight of business owners is worrying for those remaining in the city, he said.

Still, it has kept him busy. Klein says he has ten times more clients now than pre-pandemic, helping advise people who make more than $800,000 a year move to low-tax states, often bringing their businesses along. 

Besides hedge funds, Klein said that a spectrum of professional services operators are leaving, including public relations and accounting firms.

"I've never been as inundated with people leaving New York and Connecticut, any of these high-tax states, in my 40 years of doing this," he said. "Once Covid hit, with the recognition that people can work from any location, the floodgates opened."

And then there is the politics of it all. Finance professionals are voting for Biden because they expect him to bail out New York City and State governments. 

Besides, they are not happy that the Trump tax cuts eliminated most of their state and local tax deductions-- a sizeable amount of money.

The stakes are higher in an election year, with many in finance convinced that higher taxes are coming if Joe Biden wins and Democrats take the Senate. Within Goldman Sachs, multiple traders have told me they are voting for Biden "against their own financial interests" because of his stated plan to raise taxes on those earning more than $400,000 – an easy threshold to exceed on Wall Street.

And to a person, high-earners I spoke with said that the $10,000 cap on state and local tax deductions from President Trump's 2018 overhaul hurt them personally and believe that local governments are going to seek more money from them in coming years.

There you have it. We like to think positively, even optimistically. But, the signs are not good for New York.