Small Business Survival: Government Gridlock Stymies Solutions
Editor’s note: This is Part 2 of an eight part series on Small Business Survival, the centerpiece of a yearlong reporting project partially funded by our readers and community partners. A version of the following article also appeared in our October print magazine.
David Owens Vintage is a survivor of the Lower East Side’s rocky retail landscape. Fourteen years ago, when Owens first set up shop at 154 Orchard St., there were two dozen or so vintage stores in the immediate area. Most of them are long gone. Owens could have suffered a similar fate earlier this year when his landlord delivered an unwelcome surprise: a bill for more than $40,000 to cover a portion of the past decade’s property taxes. Saddled with a new financial burden on top of rising monthly rent payments, the determined clothing retailer did not fold. Instead he found a cheaper, smaller space a few blocks away on Rivington Street. While continuing to make payments to his previous landlord, Owens made the move a few weeks ago and is now starting over. As his wife told us, “We will start, once again, the process of carving out a retail operation among the ruins of local culture… I see us independents as a dying part of retail culture.”
Across the city, small businesses are being crushed by rapidly increasing rents and other fees many landlords pass on to their commercial tenants. Last month, in Part 1 of our special series on Small-Business Survival, we heard from business owners as well as landlords about the vexing issue of rent escalation. This month, in Part 2, we take a closer look at some possible solutions, including property tax relief, special zoning districts and proposals giving commercial tenants negotiation rights during lease renewals. These are remedies that have all been proposed in the halls of government—in some cases year after year—without much forward progress. But they present, at least, a starting point for addressing the problem of small- business extinction.
Solution: Property Tax Credit
Status: Resolution awaits a vote in the City Council
Oftentimes greedy landlords are blamed when a longtime local business shutters. On an almost weekly basis, we hear about mom-and-pop stores being forced to close when their rents are doubled or tripled. It was big news earlier this year when Pearl River Mart, the beloved Chinese department store, revealed its closure when the Soho institution’s monthly rent quintupled to $500,000.
Price gouging is, no doubt, a real problem. But as local property owner Michael Forrest argued in our first story, the economics of running many small tenement buildings on the Lower East Side are pretty complicated. Keeping rent-regulated residential tenants in place, as well as mom-and-pops in ground-floor commercial spaces and covering ever-increasing property tax bills, can be challenging. Sometimes, retail rents rise, he said, because the building owner has no other place to turn for revenue.
Tim Laughlin, executive director of the Lower East Side Business Improvement District, floated the idea of property tax relief. “We would like the city to look at potentially setting a tax rate for small tenement buildings that is different from their larger counterparts,” he said in our initial story. “If owners agree to (voluntarily) preserve rent-stabilized apartments and to maintain affordable rents for mom-and-pop stores, they’d be eligible for the lower rate.”
We asked several business owners how their building’s property taxes are impacting them.
The taxes are passed on to both residential and commercial tenants in the form of higher rents. But many commercial leases also require small businesses to pay a percentage of property tax increases. Those provisions are individually negotiated and can vary widely from building to building. In the case of David Owens, he said his landlord, Abraham Noy of Helm Management, repeatedly told him “not to worry” about the payments, but then sprung a huge bill on the small business covering several years. [Noy did not respond to a request for comment for this story.]
Elsewhere in the neighborhood, specialty food shop Malt & Mold pays 10 percent of the increase at 221 East Broadway, a property with several retail tenants. Most businesses are reluctant to talk on the record about their deals. The owners of a bar located in a small tenement with two commercial spaces said they paid 40 percent of the increase. In one year, that translated to a $50,000 bill in addition to their already substantial rent payments.
While there’s widespread agreement that property taxes are imperiling small business, few concrete solutions have been offered. In the City Council, there is a proposed resolution urging the State Legislature to create a property tax credit for building owners who “voluntarily limit the amount of rent increases to small business tenants upon lease renewal.” The resolution cites examples of businesses that have been forced out of their spaces due to rent hikes, including legendary Lower East Side spots such as the Second Avenue Deli and CBGB. But even this modest proposal (resolutions carry no legislative weight) is going nowhere. The legislation has been languishing in the Council’s finance committee since being introduced in February.
For decades, New York’s outdated property tax system has been described as overly complex and inequitable. Last year, Mayor de Blasio called it a “big, sprawling area of concern” and pledged reform. The Council allocated $400,000 for a commission to study the issue, but Speaker Melissa Mark-Viverito has yet to create it. Heading into a tough re-election campaign, no one has much confidence that de Blasio will have an appetite for pushing the issue in Albany, where his relationship with Governor Cuomo has gone from bad to worse.
State Sen. Daniel Squadron, who represents the Lower East Side, took a look at the City Council legislation. During a recent interview, he expressed misgivings: “We don’t want to give away incentives” without making sure that they are having the intended effect (in this case providing rent relief for mom-and-pop businesses). Perhaps more to the point, Squadron voiced serious doubts about the chances of pushing a small-business tax break through the Republican-controlled Senate, noting its dubious track record of enacting “thoughtful, well-balanced legislation related to the real estate industry.” [The Senate president has proposed the idea of a tax cap in Manhattan.] In response to concerns about New York government dysfunction, Tim Laughlin of the Lower East Side BID said he’s “encouraged by the City Council’s leadership on the issue” adding that “legislative gridlock in Albany should not prevent innovative solutions from becoming a reality here in the city.”
Solution: Create a Special Zoning District
Status: Community Board 3 is drafting a proposal
But Squadron maintains a better tactic is to look at creating a special district in support of small-scale retail. “The zoning code,” he said, is the right place for solutions. It happened on the Upper West Side. It’s happened in other cities, including San Francisco.”
In 2012, then City Council member Gale Brewer (now Manhattan borough president) pushed through new zoning on Amsterdam and Columbus avenues limiting the width of storefronts to 40 feet. Banks along those commercial corridors and on Broadway were held to 25 feet. In explaining the rationale for the change back then, Brewer said, “The mom-and-pops get squeezed because the banks come in… The banks are dead space. … The small mom-and-pops are the heart and soul of the neighborhood.”
San Francisco has probably done more than any major American city to protect mom-and pops from the chain store onslaught. In 2006, a city law was enacted requiring businesses with 11 or more stores nationwide to win approval from the Planning Commission before locating in neighborhood commercial districts.
In recent months, Community Board 3’s economic development committee has been trying to shape a proposal for a special-purpose district to protect the neighborhood’s distinctive retail character. The goal is to curtail chain stores and nightlife establishments through a variety of restrictions. Although committee members haven’t made any firm decisions, limits on stores with multiple locations, store size, types of uses and operating hours are all on the table.
Community Board 3 includes the East Village, Lower East Side and most of Chinatown. The committee has struggled to define the boundaries of the proposed district, in part, because each section of the neighborhood carries its own set of unique challenges. Addressing all of them is a tall order.
The area above East Houston Street, for example, is dotted with chain stores. According to an annual report from the Center for an Urban Future, there were 164 chain store locations above East Houston Street in 2014, more than any Manhattan neighborhood besides the Garment District. On the Lower East Side and Chinatown, meanwhile, there were 47.
Community Board members recently discussed the zoning initiative with local City Council representatives Margaret Chin and Rosie Mendez. According to the CB3 representatives, they offered general support, but wanted to make sure the proposal is specifically focused in terms of boundaries. At the moment, the committee has drawn a rough map bounded by East 13th Street on the north, Avenue D on the east, 2nd Avenue on the west and Grand Street on the south. Major commercial strips—14th Street, East Houston Street, Delancey Street, Allen Street—would likely be excluded.
This past month, Committee Chairman Bill LoSasso shared the preliminary plan with the board’s land-use committee. A range of problems, including vanishing independent businesses, long-term vacancies and an erosion of local services such as dry cleaners and tailors, are “getting worse by the day,” he said. But it quickly became apparent during the meeting that, even within the community board, achieving consensus will be difficult.
Cathy Deng, a Chinatown activist, telegraphed a potential border battle. Advocating for expanded boundaries, she noted that people are increasingly worried about small-business survival on East Broadway, Essex Street and other commercial stretches below Grand Street. Damaris Reyes, executive director of the community organization Good Old Lower East Side (GOLES), voiced another concern. Her organization is part of an effort to revitalize the Clinton Street shopping corridor, and, she said, GOLES cares about supporting longtime local businesses. But Reyes said she’s worried about Community Board 3 taking on a new rezoning campaign. Right now the committee is trying to convince the city to adopt another zoning initiative advanced by a coalition known as the Chinatown Working Group. “I don’t want to jeopardize existing plans,” she said. Other constituencies, mainly local landlords, are expected to push back against any proposal limiting what they see as their property rights. Some bar owners believe the proposal is little more than a veiled attempt to shut down nightlife establishments.
Even if the community board settles on a unified proposal, it’s uncertain whether the city will support a special-purpose district on the Lower East Side. In running for mayor in 2013, Bill de Blasio said, “We can use zoning laws and tax policy over time to support family-owned businesses.” He even called the Upper West Side zoning plan a model for other neighborhoods. In initial overtures to the Department of City Planning, officials have kept the door open. At the moment, however, they are preoccupied with outer borough rezonings in support of the mayor’s signature initiative to create and preserve affordable housing. It is by no means clear that the board will have the bandwidth to champion a small-business initiative on the LES.
Solution: Giving Businesses Lease Renegotiation Rights
Status: City Council hearings have not yet been scheduled
In the past year, the idea that has grabbed the most media attention is the Small Business Jobs Survival Act (SBJSA), city legislation reintroduced in June 2014 by Bronx Council member Annabel Palma. The proposal would change the way lease renewals are handled, requiring mediation and, if necessary, arbitration between landlords and tenants. Versions of the bill have been floating around the City Council since the mid-1980s. City Council member Margaret Chin, who represents the Lower East Side and Chinatown, previously sponsored the SBJSA in 2012.
The grassroots advocacy organizations Take Back NYC and Save NYC have vigorously championed the legislation, lobbying every member of the council to co-sponsor the bill. (23 have signed on.) Take Back NYC argues that “any legislation proposed to help small businesses that does not address exorbitant rent increases, unfair month to month lease terms and extortion of immigrant business owners is a non-starter.”
In March of this year, Manhattan Borough President Gale Brewer came out with a proposal of her own. Along with Robert Cornegy, chairman of the council’s small-business committee, Brewer is advocating a more modest lease renewal program. The legislation would require property owners to give commercial tenants six months’ notice before long-term leases expire. It would also institute non-binding mediation and one-year lease extensions to give tenants time to find new storefronts when negotiations fail. But there would be no mandatory arbitration.
Take Back NYC is sharply critical of the Brewer plan, saying it is no solution to the city’s small- business crisis, but merely a way “of maintaining business as usual.” But the longtime elected official, who has always seen herself as a champion of mom-and-pops, believes the time has come for a dose of reality. This past spring, Brewer told The Lo-Down, “I’m pushing a workable plan that will make a difference for both existing and new small-business owners, rather than rallying around a bill that’s spent decades collecting dust.”
The Real Estate Board of New York has repeatedly called the SBJSA illegal. “The legislation represents an unconstitutional intrusion on the use and disposition of private property,” Steven Spinola, the organization’s former president, told Gotham Gazette. But council member Palma, the bill’s sponsor, disagrees. In an interview with The Lo-Down last month, she said, “That’s the cover some folks like to hide behind. Many lawyers have looked at it. The Council’s legal department has vetted it in the past and the Speaker [Melissa Mark-Viverito] supported it [before ascending to her leadership position].”
Four months ago, The Villager newspaper questioned Mark-Viverito about the legislation during a public appearance in the East Village. “The bill gets introduced once the [council] staff do their due diligence,” she said. “Then there are hearings to hear from all sides. And then we figure out what the next steps will be—because sometimes options are being explored that legally we don’t have the ability to implement as a city or as a legislative council.”
As the seasons changed from spring to summer and now to fall, Palma continued to hold out hopes for a hearing. She has not been briefed by council staff regarding any legal concerns. A spokesperson for the speaker confirmed this week that no hearing has been set on the issue. Meanwhile, a spokesman for Brewer said late last month that her alternative lease-renewal proposal is in “the bill creation phase” at the City Council and has not yet been published. Council member Cornegy has not yet responded for our requests for a status report on small business legislation.
As for the Lower East Side’s own council representative, Margaret Chin is still a co-sponsor of the Small Business Jobs Survival Act. She also supports the pending resolution to enact a property tax credit in Albany. In a statement, she called for a comprehensive approach. “We cannot stand back,” she said, “and watch as more and more of our small businesses disappear, taking with them the unique character, vital services, and bustling street life that our neighborhoods desperately need.” She added, “I remain committed to pursuing multiple legislative and community-based solutions to address the affordability crisis for small business owners.”
At the moment, however, legislative proposals at every level are stuck in neutral or, at best, proceeding at a painfully slow rate. There is no shortage of angst when a beloved business is forced to close. But only recently have New Yorkers concerned about the loss of authentic local institutions mobilized to lobby their elected officials and to demand action. Whether these advocacy efforts are a blip or a sustainable political movement remains to be seen.
Many people believe the best solutions for small-business survival will come not from government but from local communities. Next month, we’ll be looking at the most promising home-grown ideas for stabilizing independent business on the Lower East Side.