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Summer 1993
City Journal Summer 1993.
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  N ew York Views

The Politics of Small Business
Laurence Sprung
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On April 12, 1993, Mayor Dinkins declared that New York City would crack down on illegal street vendors. “We recognize that illegal vending has become a thorn in the side of small business,” Dinkins told a City Hall audience. The following day, the mayor announced another concession to small business: Merchants in some parts of the city will no longer be fined for failing to sweep the street 18 inches from the curb in front of their stores.

Dinkins and other New York politicians are discovering that the city’s estimated 189,000 small business owners are a potentially powerful political constituency. Though they have never before managed to unite and become an effective political force, they would constitute a sizable voting bloc-and a very unhappy one. A December 1992 poll conducted for Crain’s New York Business found that 85 percent of small business owners are dissatisfied with city services, and 80 percent said they intend to vote against Dinkins in November. Only 10 percent supported the mayor.

The dissatisfaction with Dinkins resulted in part from his abandonment of a 1989 campaign promise to push for legislation that would regulate commercial rents by subjecting rent increases to binding arbitration. Steve Null of the Small Business Congress, an influential activist group formed in 1991 to lobby on behalf of small firms, calls the proposal an “antigouging bill.” But with rents falling as the real estate market declines, rent regulation would have little immediate effect.

Moreover, it is seriously flawed as a strategy for helping small business. It would benefit one group of entrepreneurs-those with existing leases coming up for renewal. But it would do so at the expense of landlords, most of whom are themselves small businessmen. And, as with residential rent regulation, some of the costs would inevitably be passed on in the form of higher rents for new tenants. “It’s really a question of the haves versus the have-nots,” says Jack Freund of the Rent Stabilization Association, a landlord group. “You don’t see any prospective tenants asking for binding arbitration.”

Dinkins and his challengers, however, increasingly recognize that many of the burdens on small companies are imposed by the city itself. In a January 1993 New York Post op-ed article entitled “Small Business Holds Key to City’s Economic Vitality,” Rudolph Giuliani blasted “the city’s entrenched culture of over-taxation, over-regulation, and crime.” Before dropping out of the mayor’s race, Andrew Stein used his position as City Council president to hold hearings on small businesses and promised to eliminate the commercial occupancy tax, viewed by many small firms as a particularly burdensome levy. (Dinkins and Giuliani also support reductions in this tax.)

“Small businessmen across the city are in trouble, because we are now second-rate citizens in a society of bureaucrats salaried by small businesses,” says Greg Etchison, owner of Brownstone Gallery, a paint store in Park Slope, Brooklyn. Statistics bear out Etchison’s complaint: small business accounted for three-fourths of all job growth in the nation during the 1980s, but less than one-fourth in the city. New York’s economic boom was primarily driven by the growth of the financial sector.

Etchison is a founding member of the Merchant and Entrepreneur Rights Coalition Inc. (MERCI), a year-old grassroots organization that represents more than thirty neighborhood small-business groups and some ten thousand businesses. MERCI is concentrating on three burdens on business that are direct results of city policy: the 18-inch sanitation law, the commercial occupancy tax, and the proliferation of street vendors.

  • The 18-inch law. Merchants are fined $50, or up to $250 for repeated offenses, if there is litter on the street in front of their store. “Businesses are being forced to provide sanitation while they are being taxed for it,” complains MERCI’s president, Peter Morisi, owner of Brooklyn’s Morisi Macaroni. Enforcement can be draconian. Armando Reyes, manager of a supermarket in Washington Heights, says he was confronted by armed sheriff’s deputies demanding that he pay $6,600 in back fines-immediately, and in cash. Reyes and his employees had to pool their money and hand it over in order to keep the store open.
  • Dinkins’s decision to relax enforcement of the 18-inch rule is a welcome step, but it only applies to 15 of the city’s 59 community board districts, where the Mayor’s Office of Operations found that at least 75 percent of the streets arc in “acceptably clean condition.” Poor neighborhoods tend to have the most serious sanitation problems. In West Harlem and the South Bronx, less than 40 percent of streets are rated acceptably clean. Merchants in these communities, therefore, will not benefit from the Dinkins measure.

  • The commercial occupancy tax. All businesses whose rent is more than $15,700, or $11,000 in Manhattan below 96th Street, must pay a levy of 6 percent of their rent. New York is the only city in the nation that has such a tax. One reason entrepreneurs find it particularly galling is that it is, in part, a tax on a tax. A commercial tenant’s rent already reflects, among other expenses, his landlord’s property tax bill.
  • Dinkins has proposed raising the thresholds for the commercial occupancy tax from $11,000 and $15,700 to $21,000 and $30,000. Such a move would exempt 28,000 companies from the tax, according to Dinkins’s estimate. But these firms would end up paying the tax again if their rent later rose above the new threshold.
    Because the commercial occupancy tax is directly tied to rent, its elimination would help relieve the pain of rent increases without imposing new burdens on landlords and prospective tenants.

  • Street vendors. Illegal vendors are “impossible to compete with,” one small business leader says. Not only are they free of overhead such as rent and utilities, but they also do not pay any of the city taxes that drive up their legitimate competitors’ prices. Some types of businesses are hit particularly hard by competition from vendors. The New York State Retail Florists Association surveyed illegal flower peddlers in the Bronx. “Wherever there’s a flower shop, there’s a satellite of peddlers around him,” says Gregory Chugranis, the association’s secretary.
  • Mayor Dinkins, who was himself a street vendor during his youth, appears ambivalent about the role of peddlers in the city’s economy. “For better or worse, street vending constitutes a thriving industry in New York City,” he said in April, as he announced his plan to expand the Police Department’s 46-member unit that enforces restrictions on peddling, by adding 36 officers and 31 new inspectors and other personnel.

    Dinkins’s opponents immediately jumped on his plan. Stein said it was too little, too late, and Giuliani told the New York Times he was “glad the mayor finally got a wake-up call on the problem, because I’ve been sounding the alarm for two years.” Much of this, of course, can be dismissed as election-year posturing. Indeed, it is difficult to avoid the cynical conclusion that New York’s politicians have simply found a new interest group to pander to.

    Cynicism notwithstanding, a city more sensitive to the needs of its small businesses would be far better equipped for the considerable economic challenges now facing New York. Entrepreneurs’ growing political clout may be the best reason for optimism about New York’s economic future.

     

     


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