Wednesday, April 20, 2011

Fighting His Third Term Curse Bloomberg Now Uses His Own Money To Promote Mega-Projects That Aren’t Happening

Noticing New York already has already once covered the growing public perception that Mayor Michael Bloomberg is having problem-cursed third term with mounting public awareness of his accumulating mistakes. (See: Saturday, April 9, 2011, Add To Bloomberg’s Other Mistakes: Mistakes In NOT Acknowledging Mistakes, Including A Certain Ratner Mega-Monopoly.) In doing so, consideration was given to a New York Time’s article on the subject: News Analysis, Ever-Growing Image of a Stumbling Third Term for Bloomberg, by David M. Halbfinger, April 7, 2011.

Not mentioned in the previous Noticing New York post is that the Times article had this very interesting tidbit:
For his part, Mr. Bloomberg seems aware that symptoms of “third-term-itis” have manifested themselves. For weeks now, he has been using his own money to pay for campaign-style advertisements, nominally to bolster his battle with the teachers’ union, but widely taken as an effort to lift his sagging approval ratings.
I caught one of these personally financed Bloomberg “campaign-style advertisements” the other day (it ended with the legend: “Paid for by Michael R. Bloomberg”). Whether it was nominally or otherwise intended “to bolster his battle with the teachers’ union” or “an effort to lift his sagging approval ratings” it, surprisingly, prominently devoted precious moments of its 30 seconds to promoting Bloomberg’s big, city-assisted real estate developments. We are able to discern that the ad is talking about such real estate developments from the assisting visuals (see above/below) even though the projects are euphemistically referred to obliquely only as “critical job creation projects.”

Bloomberg announced just today that he is forming a "campaign committee" to oversee his spending to promote his positions and that his spending, to date, is in the "upper six figures." Does that sound like it's about to hit one million dollars? Mailers have also been landing in peoples mail boxes but, so far, not ours.

Surprise: The Best Defense for lack Of Project Headway?

It is a surprise that Bloomberg should be promoting his city-assisted real estate developments given that Bloomberg, now into his third four-year term, has made so little headway with any of his mega-development dreams. Truth to tell, most of the `jobs’ they have so far created have been only for those in the demolition trades. With all the demolition it is perhaps not so surprising that New York is not growing anywhere near as fast as Bloomberg expected. After all, the necessary corollary to “if you build it they will come” must certainly be, “if you tear it down they will leave,” certainly if you don't replace what you tear down.

During the era of Robert Moses, another famous tear-down artist (or should we say tear-down “mad scientist” rather than “artist”) the population of the city shrank dramatically. To be completely fair, Moses was also building a lot during this era, though much of it for cars that helped accelerate the departure from the city Moses' other policies were helping to foster.
The projects initiated under Bloomberg have all so far involved mostly just destruction: Atlantic Yards, Willets Point, the Columbia University’s takeover of West Harlem, Coney Island. Hudson Yards on the West side of Manhattan does not involve destruction except to the extent that its oppressive scale will likely detract from the benefit it will provide long term. But even though that particular mega-project did not require any Bloombergian-brand destruction to proceed, it has not preceded.

Even the most necessary projects that Bloomberg was handed as relatively ready to go when he took office have languished, Moynihan Station (which could be helping to jump-start the languishing Hudson Yards) is one key example. The very slow-proceeding replacement of buildings at the World Trade Center site should also be mentioned as one of the most unfortunate examples of a blank slate. We are now approaching the tenth anniversary of that site’s demolition and Bloomberg, who took office only months after 9/11 has been in office almost that entire time. Bloomberg’s focus in that neighborhood was: i.) sending federal Ground Zero funds to his pet Waterfalls project, and ii.) the special benefits and variances his administration gave allowing an extra large Goldman Sachs building to go forward across the street from the Ground Zero site where it would override and diminish the quality of the carefully thought-out Battery Park City plan while competing with the Silverstein Ground Zero buildings.

Similarly, Brooklyn Bridge Park was ready to proceed when Bloomberg took office but Bloomberg only got started with it when he was electioneering for his third term. See: Monday, May 24, 2010, Looking a Gift Horse in the Mouth? An Examination of Brooklyn Bridge Park in Terms of the Politics of Development, Part I. And attention to proceeding with building upon the vacant riverside expanse at Queens West was neglected while the Bloomberg administration preoccupied itself with the Olympics bid and what it might tear down elsewhere.

Surprise: The Best Defense for lack Of Jobs?

It is also surprising that Bloomberg is advertising his languishing city real estate projects as “job creation projects” given that, for instance the Atlantic Yards arena is now mainly famous for the jobs it isn’t creating while the housing to be constructed is now conspicuously in the news for the cutback in jobs associated with the developer’s announced intention to shift to modular construction, building the tallest modular building in the world (if this pushing-the-limits of technology is permitted), and perhaps making the densest area of North America a forest of such units.

Even if one focuses on the construction industry jobs stimulated by the Bloomberg administration’s massive up-zonings of certain areas around the city, those temporary construction jobs must, in areas like Williamsburg, be weighed against the many blue collar jobs were simultaneously lost with the abrupt and total zoning changes that were passed. Now in Williamsburg there is an oversupply of new luxury units along the water while just a little further inland we witnessed a wholesale abandonment of new residential construction projects (caused by the financial crisis) lying fallow on formerly occupied industrial sites that provided the kind of jobs and economic activity that would likely have survived that downturn.

How NOT to Produce an Affordable City

It is true that economic growth fosters population growth, but perhaps more important, population growth (and sometimes economic growth) is spurred by affordability. There are only so many wealthy people in the world. The parts of the country growing the fastest are generally where new residential units can be produced quickly and cheaply. In theory, the Bloomberg administration is interested in generating many new units in order to foster growth. But Bloomberg’s destructions do not necessarily result in an increase of affordable units. They are more of a churn, or something worse. Atlantic Yards provides a sorry example.

Atlantic Yards involves tearing down existing housing units, many of them exceedingly affordable, and replacing them, in time, with a greater number of less affordable units. While those units will be replaced in time, in the interim they are being replaced with nothing at all. (The interim will involve several decades during which we can measure an associated population drop.) Even if the units are eventually replaced as planned they will be replaced by diverting and misallocating housing subsidies from other projects where those subsidies could be more effectively used to provide more affordable housing (more of it and at lower cost) without the destruction of existing units involved at Atlantic Yards.

The Percolated Popping of the the Population Projection

Bloomberg’s preoccupation with a predicted growth of the city’s population began at the very beginning of his second term. At his second inauguration on January 1, 2006 (lack of progress building at Ground Zero was already an issue) Bloomberg made the point then that, “our population is at an all-time high.” That same month Bloomberg disclosed that city planners were drafting a strategy to deal with this expected growth and then in mid-February the administration officially announced that the population was expected to go from what the administration then estimated was a record 8.2 million at that time to nearly 9.4 million in 2025. (See: By 2025, Planners See a Million New Stories in the Crowded City, by Sam Roberts,
February 19, 2006.)

Was the city’s population then really the 8.2 million the administration says it was in January of 2006? The brand new census figures state that the city’s population grew only 2.1% in the last decade and is currently 8.175 million, lower even than what the administration estimated in 2006. The Bloomberg administration is disputing the new census figures, in part because the lower than predicted numbers found by the census may cause the city to lose aid, but there is thinking that these numbers may be right. Back around the time the city promoted its 8.2 million estimate it had also been disputing lower numbers found by the census and lobbying the Census Bureau for revisions to adjust the numbers upward, with success. According to the Times, writing in early 2006:
The latest official census figures actually showed a slight decline in New York State's population. But, on the basis of housing construction, the city has successfully challenged recent city estimates, and the Census Bureau has accepted the city's figure of 8,168,338 as of 2004.
No matter whose figures you take that would mean that the city population has been hovering at a nearly unchanging level since 2004.

The census had accepted the boost to that 8,168,338 in the fall of 2005 based on statistical work done by the director of the population division of the Department of City Planning, and his colleagues in other branches of city government, Joseph J. Salvo, and according to the Times, “his colleagues in other branches of city government.” (See: With New York Help, Census Finds 64,000 New Yorkers, by Sam Roberts, October 4, 2005.) These administration officials found another 64,259 New Yorkers (“as many people as live in all of Santa Fe, N.M.,” points out the Times) not by use of statistical sampling, but instead uncovering “housing units and people that the census had missed.”

The Times article quipped:
The revisions have also propelled Dr. Salvo's name into the lexicon of American demography. John H. Mollenkopf, director of the Center for Urban Research at the City University of New York Graduate Center, called it "the Salvo effect."
The problem, in retrospect is that the census is unlikely to have missed the same units all over again when doing the new census just out. Also, back then the figures were interpreted to mean that as contemporaneously reported by the Times, “between April 2000 and July 2004, the number of New Yorkers grew by a total of 160,060, or 2 percent.” In other words, in four years the city was supposed to have grown the same 2 percent it is now suspected the city actually grew in the entire last decade.

The census now estimates that the city grew only 2.1% in the last decade. At that rate, it will take the 8.175 million population the census now estimates to be the city’s population until the 2080 decennial census to reach the 9.4 million figure the Bloomberg administration, in 2006, estimated the city would reach in 2025.

When in February 2006 the Bloomberg administration released its prediction that in the next 19 years the city would grow by another 1.2 million those projections were closely linked with Bloombergian rhetoric calling for major development throughout the city. In April of 2007 the Bloomberg-projected growth was included in the unveiling of the what is referred to as Bloomberg’s 2030 Plan or PlaNYC Although the Estimate of Growth Was Ever So Slightly Moderated. (See: Mayor to Unveil 25-year Outline for Greener City, by Diane Cardwell and Charles V. Bagli; William Neuman contributed reporting, April 20, 2007.) The Cardwell/Bagli times article about the mayor’s Earth Day hyped new plan opened with the population projection:
With New York's population expected to grow by one million in two decades, Mayor Michael R. Bloomberg will call on Sunday for a raft of ambitious and sometimes contentious proposals that are intended to ease traffic congestion, reduce air pollution, build housing, improve mass transit and develop abandoned industrial land.
Let’s see: 2007 plus two decades would be a population of about 9.4 million by 2027. The Mayor’s actual website for the plan is only a tad more circumspect in its estimates:
Our spectacular recovery has catapulted population to a record high - 8.2 million. By 2030 more than nine million people will live in New York.
Interestingly, since the new contradictory numbers were released by the Census Bureau the city has changed neither this text nor the accompanying chart showing the city reaching about 9.12 million in 2030. (See image below.- If corrected the second green triangle approximately over 2010 should be down more or less level with the blue square over the year 2000.)
(Chart from PlanNYC website.)

Bloomberg's Record on Statistics

Inaccurate representation population statistics should be added to a growing list: While the Bloomberg administration proudly revels in its image of having a hard-nosed statistics orientation, in October of 2009 the Times ran three separate stories about different areas where figures being provided by the administration diverged from reality. Its numbers were reportedly off in the areas of: School test score improvements, addition of affordable housing units (as many were being lost as created), and the lack of job creation and quality job creation.

Bloomberg’s police statistics are also in question.

Arguments For Growing the City Are Good

It is not that development and growth in New York City isn’t a good thing. It is. Among other things, more people living more densely in cities is good for the environment. Also, as Jane Jacobs pointed out in her Economies of Cities, city dwellers are also more economically productive and creative of new technologies. Much of the entire world economy takes place in very short list of the world’s largest cities. The world’s largest 150 cities account for only 12 percent of the global population right now, but they account for 50% of global GDP (“Gross domestic product”) or economic activity and that percentage is headed even higher. (See: How much global GDP do the world's 150 largest cities account for?, Marketplace Morning Report, Wednesday, April 13, 2011.) GDP isn't a perfect measure of value but that figure does communicate the gist of the idea that cities are productive places.

So there are reasons to strive to allow New York City to grow. But there are plenty of opportunities for the city to grow without the accompanying Bloomberg-style destructions.

The Absence of Population Growth Under Bloomberg

Why hasn’t the city grown significantly under Bloomberg even as he announced that this is what he has been directing his efforts towards? The February 2006 Times story initially announcing Bloomberg’s grand projections contain a clue, a quote from Robert D. Yaro, president of the Regional Plan Association:
“One way to keep these forecasts from happening is to make it prohibitively expensive to live and work here.”
This is essentially a pithy recap of what we reviewed earlier in this post with the precept that population growth (and sometimes economic growth) is spurred by affordability.

Is New York getting to be a more expensive city? Here is another window into the economy from September of 2007 to help answer that question:
Since Mr. Bloomberg took office in 2002, the city budget, adjusted for inflation, has swelled faster than it has under any other mayor during the last 27 years, increasing by 23 percent, to $60 billion.

By contrast, spending rose 8 percent during Mayor Rudolph W. Giuliani’s eight years, and 4 percent under Mayor David N. Dinkins, who served one four-year term. Mr. Bloomberg’s spending also outpaced that of Mayor Edward I. Koch, who increased the budget by 19 percent over his last two terms.
(See: Under Bloomberg, Budget and Revenues Swell, by Diane Cardwell, September 17, 2007.)

The point is not that Bloomberg increased spending 23 percent when the population was increasing less than 2 percent. The point is that he was able to do it and how he did it. He increased borrowing (which was appropriate after 9/11) and eventually raised taxes, fines and fees. The thrust of the above Times article is that Bloomberg’s salvation for all the extra spending was on the revenue side:
“He does look to the revenue side to meet needs,” said Charles Brecher, research director at the Citizens Budget Commission, a business-backed research group and a co-author of “Power Failure,” which studied New York politics and policy from 1960 to the early 1990s.
The revenue came mainly from the economy which is to say that it came from the concurrent Wall Street and real estate booms. Much less came from new fees and taxes:
Although the rise in revenues is overwhelmingly due to growth in the economy, roughly 15 percent of the increase resulted from Mr. Bloomberg’s imposition of new taxes* and fees, primarily the property tax increase, according to an analysis by the Independent Budget Office, a publicly financed research and policy agency that does not report directly to the mayor.

(* On of the subheads that appeared on the screen during Bloomberg-financed commercial was “No New Taxes”.)
Ironically, at the time Mark Page, then the city’s budget director, posited that there was “a major increase in revenue that has enabled us to cut taxes and spend more” resulting from a growth in the economy and the population. There have been a few things Mark Page wasn’t right about but given that it now looks like the population apparently wasn’t growing significantly, for Mr. Page to be at least partly right about this assessment of the city’s budget dynamics which he was in charge of understanding, revenues must have grown without the population growing.

There are two not so comforting answers to how this could be so. One is that, as Noticing New York assessed before, much of the revenues were short-term, up-front revenues derived from the real estate building boom. That is a problem because this short-term revenue is taken in all up front and as it is fluctuating or volatile it can at any time cease for long periods. It is also a problem to the extent that the revenues are derived from (and place a premium on continuing) a churn where existing city assets that are torn down are not necessarily replaced with assets that are equal to or better than those being lost. (Remember that with Atlantic Yards and the Columbia takeover of West Harlem there will be long intervening periods when we will get nothing.)

The other discomforting answer is that the revenues have been coming from the super-hyped up Wall Street economy. That economy, which faltered briefly during the financial crisis before it was saved by a rescue package targeted to its preservation, may one day suffer more permanent setbacks. Some of the ubiquitous new hedge funds may be creating and exporting world-wide value depending upon their particular operations. But surely others may be better compares with high-stakes gambling operations that reshuffled wealth to those spinning the wheel. How long are we to rest assured that these routines will be permitted to continue?

Surely push-back against the industry is a possibility when the operations of our urban financial centers are viewed as exporting to the rest of the country, and other nations like Iceland and Ireland, the impoverishment of crashing bubbles.

More Rich New Yorkers, A Group Apart

In the meantime those hedge funds pay taxes and generate some very rich New Yorkers. That does not necessarily mean that the city is more affordably attractive for the rest of us. Though the Wall Street incomes are going up, New York Area Median Income (the mid-line income level that 50% of us are above and 50% below) has been relatively stable. The annual median income figures that HUD uses to determine housing program eligibility have the New York area’s median income going up 10.85% (before adjustment for inflation) from year 2000 to year 2010, from $56,200 to $62,300. (The HUD figures involve occasional anomalies too complicated o explain here but these figures are fair and representative for the discussion here.) Meanwhile, according to figures from Edward L. Glaeser, whom we will say more about in a minute, average per worker income in Manhattan (total salaries divided by population) has been going up at a far faster rate than nationally and far faster than the area median income figures just recited:
Between 2000 and 2008 (the latest year available from County Business Patterns) payroll per worker in Manhattan increased by 35 percent (7.8 percent in real terms — that is, after adjusting for inflation) to $102,000. Over the same period, national payroll per worker increased by 25 percent (for no real gain) to $42,000.
Glaeser’s figures are only the 2000 to 2008 years available to him. The HUD New York area median income figures for those same years went up from $56,200 to $59,700, or 6.22% compared to the 35% average income figure increase presented by Glaeser. Glaeser points out that in real terms, after adjusting for inflation his figures represent a 7.8% increase. After adjusting for inflation the HUD figures represent a 14.2% decrease in buying power. While these figures may be challenged as less than perfect for exact comparisons they clearly do well enough make a point that people probably generally sense anyway, that measurable incomes are going up at the upper end of the New York income spectrum with the average salary being dragged up by Wall Street’s salaries but declining for the typical Joe.

Edward Glaeser, an economics professor at Harvard, blogging in the Times notes three things about the residential unit count in New York City that explain the population’s rise by a mere 167,000 individuals in the last decade:
1. “the city ended up adding only 170,000 units over the decade, a 5.3 percent increase”

2. “Typically, population increases by a few percentage points less than the housing stock increases because of shrinking household size”

3. “the city’s measured vacancy rate increased to 7.8 percent in 2010 from 5.6 percent in 2000, which means 80,000 fewer units being occupied” (In other words of the only 170,000 units added over the decade there was a net addition of only 90,000 occupied units.
(See: March 29, 2011, The Census Surprise in New York, by Edward L. Glaeser.)

One thing to note about the 7.8 percent vacancy rate Glaeser cites is that it is an average vacancy rate and that, because of rent regulation, vacancy rates tend to be higher at the upper end of the market where market prices prevail more often rather than being held artificially low in the case of many regulated units. That means that an even greater proportion of the vacant units are likely to be amongst the new supply of luxury units added by the Bloomberg administration policies.

Luxury living also suppresses population in relation to the housing supply in another way: Disproportionate increases in wealth can also effectively empty space (akin to what you get with shrinking family size) when, for example, the wealthy hedge fund manager decides to empty a Brooklyn Heights building that was previously occupied by ten families in order to reoccupy it with his or her family as a private townhouse, or similarly when a wealthier family buys and intends to occupy three apartments in a cooperative rather than one. If the market isn’t building additional units for the people getting pushed out the result will be higher housing prices and/or people leaving the city.

There is a theory about adding to the housing supply known as “filtration.*” It is a rough cousin to the theory of “trickle-down economics.” The idea is that the superior purchasing power of those in the upper end of the market can be harnessed to generate the construction of additional new housing units (much like construction the Bloomberg administration considers it is fostering) and the rest of society can benefit as older units are cast off by the upper classes. But this theory isn’t going to work the way it is supposed to if disproportionate increases in income at the upper end of the spectrum result in proportionately greater consumption of housing by the wealthy, say for example by buying infrequently occupied pied-à-terres.

(* “A survey that he conducted when he was a city housing official, Dr. [Frank S.] Kristoff [formerly chief housing economist in the Wagner and Lindsay administrations] said, showed that there were 2.4 moves within the city for each unit constructed. `If you build for the market, very effective filtration takes place,’ he said.” - See: Private Sector Is Paralyzed In Housing Slump Here; Nonsubsidised Housing Still In Slump,
by Alan S. Oser, February 15, 1970.)

Show Me the (Lack of) Money!

(Note: The Albany Times Union story selected for its headline about state fiscal woes appeared just days after this Atlantic Yards Report story about how Bloomberg appointees had neglected their fiduciary duties as board members in raiding funds from the MTA for the developer of Atlantic Yards.)

Bloomberg’s self-financed commercial (that we originally started talking about) begins with a whiny complaint focusing on how New York City has run out of money and positing that it's not Bloomberg’s fault:
New York City: For decades we’ve sent billions more of our tax money to Albany than we got back. Now a state budget crisis is leading to hundreds of millions in budget cuts, cuts that threaten New York City teacher layoffs.
“Billions” . . “hundreds of millions”: It would be good to put such figures in perspective.

Bloomberg called the state budget an “outrage” when upon its announcement the city estimated that it got only about $200 million in benefits from the state budget of the $600 million the city requested. And, as highlighted in an ensuing City Hall press release, Bloomberg focused in on $300 million in revenue-sharing funds directed to the city that the new state budget was cut out.

The federal budget cutbacks in progress will also affect the city but, unlike the state budget cuts, the Bloomberg administration has gone low profile about criticizing them. Prior the April 8, 2011 compromise that averted the threatened shutdown of the federal government there were estimations that the city would be sorely affected by the federal cutbacks. (See: Republican Federal Budget Would Force Huge Spending Cuts On New York City, Gus Lubin, Jan. 25, 2011.) After the compromise there were brief announcements passed on via local radio that Bloomberg officials were studying the effect of the cuts on the city but subsequently there has been no New York City follow-up (although the projected negative effect on New Jersey cities across the river has been covered). Is Bloomberg’s low profile on this related to presidential ambitions?

Pending what more we might hear about this from the Bloomberg administration, here are the kinds of figures from proposed federal cutbacks that were of concern prior to the compromise: $150 million more cuts for the MTA, a $5 million cut for law enforcement, and a $9 million loss in pre-K Head Start funding.

All of these figures, the $300 million loss in state aid, the proposed $150 million + $5 million + $9 million cuts in federal aid are offered to put in perspective the $2-$3 billion being spent on a mega-monopoly like Atlantic Yards. Atlantic Yards is all being handed to one developer without bid. (See all the piles of cash in the Bloomberg commercial image above?)

It is true, the exact figures of what Atlantic Yards will cost haven’t been recently re-calculated (with shifting facts they ought to be) but the casualness with which the duty to calculate such figures has been ignored by the Bloomberg administration is part of the problem, together with the fact that the administration has never forthrightly and honestly presented these costs to the public. $2-$3 billion, my own calculation (that allows substantial room for error within the $1 billion range stated) is still accurate.

Not all of that $2-$3 billion will be spent in one year, as with other figures cited earlier which are annual budgetary amounts. It is also true that not all of the $2-$3 billion is city money (it is a co-funding mixture of city, state and federal money) or that it will all be spent during the three terms of the Bloomberg administration, but it is true that through his actions as mayor Bloomberg is seeking to commit the public to a totality of expenditures in that amount while he is in office.

The Core of the Problem With Bloomberg's Mega-Projects

These expenditures are a red flag advertisement to state and federal officials that the city doesn’t seriously need money, that when we have it we can afford to spend it frivolously even when we are advancing the most substantial portion of that for a basketball arena (the Ratner/Mikhail Prokhorov arena) which it has been calculated will result in a net loss to the public. That net-deficit-to-the-public arena was recently declared the “core of the project” in the state senate hearing testimony of Kenneth Adams, the man nominated to run ESDC, the state agency theoretically overseeing the project, thereby with Bloomberg’s aid, getting around the city reviews of and public participation that would otherwise have been required.

Merriam Webster provides these definitions for what Mr. Adams likely meant when he referred to the arena as the “core of the project” (I don’t think he was analogizing to the stripped-away inedible remainder of piece of fruit somebody might hand you):
• a central and often foundational part usually distinct from the enveloping part by a difference in nature
• b : the essential meaning : gist
• c : the inmost or most intimate part
The "most intimate part" sometimes means or implies the most `honest' or part or part most honestly representational of the whole.

Or similarly from
• the central, innermost, or most essential part of anything.
If such a money-losing frivolity as the arena is “the core” of the significant large-scale expenditures Bloomberg is mobilizing, why then should the state and federal government send more money our way? And with money being spent so frivolously by Bloomberg, is it any wonder that the city, pursuing policies with the rhetoric of intending growth, has become too expensive for a growing population to reside here?

Bloomberg self-financed a 30 second advertisement to laud his accomplishments. Imagine what we might have had to talk about in this post if the ad we were considering had run a full minute.

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