How To Help Small Businesses In New York City

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1 THE CATSIMATIDIS COMMON SENSE PLAN Supporting New York City s Small Businesses August 13, 2013

2 Overview It is critical to New York s future that the city creates and nurtures the growth of small businesses. Although there has been a recent uptick in the opening of independent businesses (particularly in food services), more needs to be done. Small businesses are the life- blood of every city neighborhood, providing jobs and economic advancement. As older businesses become obsolete, or fall victim to economic downturns, new businesses and industry must come to New York to replace them. Over- taxing and over- regulating independent businesses creates insurmountable obstacles for start- ups and new industries. New York must incentivize attracting new businesses, as well as support homegrown ones. Entrepreneurship is crucial to a city s growth and success. By providing employment, and increasing the city tax base, new small businesses are one key to New York s economic future. Increased employment benefits more than just the individual workers hired. Small businesses multiply their economic impact by creating stronger, safer neighborhoods, and increased stability for everyone across the city. The Problems Relatively large firms and businesses currently dominate New York. The average firm in NYC is 25% larger than the nation s as a whole. Financial firms are responsible for nearly 40% of the city s payroll. Consequently, local government creates regulatory and taxation policies that are designed with these larger, high wealth businesses in mind. However, saturation by these firms alone drives up real estate pricing, while government regulation and taxation policies discourage and drive out smaller businesses and start- ups. Burdensome regulations and high taxes depress the entrepreneurship the city needs. The hurdles a small business owner faces are often onerous and counter- productive. Simply to begin the process of creating a start- up, goods- producing company, an owner must: 1. Acquire and process at least 10 separate permits 2. Acquire a Fire Department- issued Place of Assembly permit 3. Acquire a Certificate of Occupancy permit 4. Obtain city parking card for each vehicle 5. Obtain special city commercial licenses for every driver associated If a business needs to modify an existing space, even internally, a host of other permits are required. The time and cost associated with each of these permits is often too expensive and cumbersome for a small business owner to undertake. Other problems: 1. Employee health care costs 2. Energy costs 3. Real estate pricing 4. City taxes 5. Employment payroll taxes 6. City regulations 7. Regulatory red tape and complex application processes 8. The affordability and access of financial capital 9. Access to city programs and support 10. An adequately trained workforce 11. Confusing worker classifications (employee versus contractor)

3 12. Lack of communication and response from city agencies With low job growth comes lower consumer spending. Lower consumer confidence creates a decline in spending and in consumer demand for goods. This in turn leads to increased unemployment, resulting in a vicious cycle of high unemployment, low business growth, and decreased consumer spending and demand. Only by growing employment through a diversity of smaller businesses will the city experience new economic life and growth. Entrenched bureaucracy, outmoded requirements, and harsh taxation inhibit new businesses coming to and opening in New York. The Background In New York, small businesses have always been fundamental to the city s economy. As of 2006, New York State was second in the nation in its number of small businesses. Nearly half a million of those businesses employ fewer than 100 workers. The city ranks second in the nation as a hot- zone for small businesses (behind L.A.). More than 200,000 firms qualify as small businesses and they account for 2/3rds of the city s private sector jobs. Small businesses are classified as those that employ fewer than 500 employees. However, 96% of the city s small businesses employ 50 workers or fewer. Despite the Bloomberg Administration s efforts to create a more business friendly environment, the last few years have been increasingly difficult for owners. The credit crisis and Hurricane Sandy have taken a toll. The ability to secure financing has been severely restricted, and many major banks in the city continue to shrink their small business and recovery loans. Regulations and rules have increased, hampering rather than enabling businesses to open or re- open. New York has traditionally been a tough place to be an independent business owner. Concerns about taxes, fines, and regulations have long been stumbling blocks to growth. A survey by the Citizens Budget Commission and the Federal Reserve Bank of New York revealed that about 1 in 7 business owners would move out of NYC for a cost of less than 10%, and about 4 in 10 would relocate for a cost savings of greater than 20%. The high costs of doing business, and the overwhelming amount of taxes and regulations were also cited as factors that discourage small companies from opening in NYC. Owners concerns about opening in NYC included policy regarding taxes, new regulations, fees, zoning rules, utility costs, affordable rents that provided access and proximity to a customer or client base, and access to a skilled labor force. In June 2013, a coalition of small business owners organized to try to influence legislation and policy regarding many of these issues. Under the leadership of The Partnership for New York City, these owners have formed GoBizNYC to be the voice of small businesses in the city s political and legislative process. They are seeking to create a small- business caucus in the City Council to help publicize and push for their concerns. In particular, these owners are deeply frustrated with the sky- high increase in the number of fines the city has been issuing over the last few years, and the number of new city policies that have hurt rather than helped their businesses. These policies range from mandated paid sick leave days to the endless parking fines issued while trying to pick up or deliver goods and services.

4 The Catsimatidis Plan A combination of stimulus, incentives, and programs designed to boost job creation are all needed. The city should provide new tools and techniques for small business growth and support. The city needs a Small Business Advocate, answering directly to the Mayor who will act as an ombudsman for our small business community. We have a consumer advocate in the Public Advocate, it is time our small business community had a similar advocate in city government. The culture of fines as punishment also needs to be changed. Fines need to be a result of infractions, not a result of quotas. Small business owners need to be adequately educated by the city agencies involved, and a reasonable appeal process needs to be implemented so that the city is not fining businesses out of New York City. The city also needs to undertake real regulatory reform and reduce red tape. The process should be streamlined, and the requirements and compliance made easier. By consolidating the various business permit departments and agencies, a new small business would have just one regulatory stop to gather and file all the necessary permits. The rules must be re- evaluated and re- designed to encourage simpler requirements and ease of operation. Efficiency and speed must be a priority of such a consolidated agency. The costs- benefit of this kind of agency reform must be constantly re- evaluated to ensure that it remains effective and current with a changing business landscape. A special office of regulatory affairs should be responsible for vetting new rules and examining the efficacy and relevance of old ones. In easing some regulatory restrictions, the city can provide oversight and productive compliance on existing requirements by creating a Voluntary Regulatory Compliance System, which would provide regulated businesses with the information and training they need to keep their businesses up to city standards, regulations, and laws. This program could use enforcement methods that are fair and transparent. The enforcement methods would include education and dispute resolution. Although NYC.GOV does have a website called NYC Business Express, it still does not provide a useful, detailed, and uncomplicated manual that a new business can access for a wide range of information and advice. The city should create an additional and up- to- date How To Do It In NYC guide to help small businesses and entrepreneurs educate themselves quickly and easily about all that s necessary to start their small business in the city. It should include a directory of city and state resources, B- to- B resources, websites, financing information, tax code information, permit filing forms, lending advice, hiring advice, etc. The city should create a business information phone line, similar to the 311 system. Called , (for Open Your Business !) it would provide information and guidance to any small business owner, answer their questions, or connect them to the proper agency or resource that can help. It could be available M- F, 9 AM 5 PM and would be under the purview of the Small Business Advocate. The access of affordable and targeted financing is a major obstacle for small businesses. The city can address this by: 1. Creating a small business revolving loan fund 2. Creating a city- supported capital seed fund, and support early- stage financing 3. Expanding eligibility of loan programs to allow debt refinancing 4. Creating a small business interest rate subsidy program 5. Improving the knowledge and efficiency of city lending programs.

5 Additionally, within the office of the Small Business Advocate, the city should: 1. Create programs to refinance existing high interest debt 2. Create programs to provide operating capital 3. Create programs to provide capital to early stage businesses 4. Create programs to make available loans from $50,000 to $250,000, as these loans are often too large for many CDFIs (community development financial institutions) and too small for many banks 5. Create better underwriting for some existing small business loan programs 6. Create greater diversity in the criteria used to evaluate financial assistance 7. Create a city Linked Deposit Program (similar New York State s), that lowers interest rates to businesses on qualifying bank loans, and expand the eligibility for this program Although providing public services is expensive, NYC nonetheless needs to reduce the punitive corporate tax burden on small businesses. Rather than focusing corporate taxes on a moving target a small business that can move elsewhere if the city is too expensive taxation should shift to landowners and building owners. Additionally, if employers receive tax credits, they can decrease the taxes they pay for each worker they hire. Thus hiring can become less expensive, allows the businesses to hire more workers, increase pay, and grow. To create tax incentives the city should: 1. Offer various tax holidays to businesses that set up shop in NYC 2. Give existing businesses tax credits of up to $15,000 when they hire unemployed city residents 3. Offer a subsidy from the city if a business retains a previously unemployed worker for 18 months, and increase it if the worker is retained for 3 years 4. Offer a payroll tax exemption for the business s share of Social Security taxes up to $1,000 if a business hires a formerly unemployed worker 5. Establish criteria for employees to meet in order to ensure quality business tax credits 6. Allow businesses to write off equipment investments of up to $250,000 in their initial year of opening 7. Rent unused city office space at below- market rates to encourage business opening and moving into a neighborhood (amending the current law to allow the city to lease its own space at a discount) To address other issues owners face the city should undertake: 1. Developing consistent and uniform worker designations (employee versus contractor, etc) 2. Reducing the impact of health care costs and work with insurance companies to allow small businesses to group together to obtain health insurance 3. Providing greater access to city purchasing opportunities through procurement assistance 4. Integrating economic development and workforce training through a sector- based strategy 5. Develop educational approaches to encourage voluntary compliance that reduce the need for punitive enforcement of regulations 6. Allow for husband & wife businesses with no other employees to receive a disability insurance waiver for the spousal employee 7. Create groups for small/micro businesses to reduce minimum insurance premiums and provide affordable healthcare insurance 8. Reduce filing frequencies for businesses below a minimum threshold 9. Create special rules and dispensations based on business size

6 Creating a favorable and friendly small business culture is essential to encouraging enterprise and entrepreneurship in the city. Individual owners starting and opening new businesses that will employ residents and create economic demand is critical to job growth and economic viability. Only be reforming the business culture and practices in the city will this be possible. # # #