Recent turbulence in financial markets has unsettled many investors and businesses about their financial well-being. The precipitous drop in the stock market has adverse impacts on government too.
Is 2016 the year that ends the weak economic recovery since the last meltdown in 2008?
In a Jan. 4 Wall Street Journal article, writers Akin Oyedele and Bob Bryan surveyed 14 of the top equity strategists on Wall Street, all of whom predicted the stock market would be higher this year.
When I read that I thought, “Really? Asking a financial analyst if the market will be higher is like asking a barber if you need a haircut!”
In both cases you will be given a biased answer not necessarily skewed to meet your own best interests.
The best advice I ever heard on personal investing was from Warren Buffet, who said the following, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
That’s just a fancy way to tell investors not to panic when markets drop, and to look for investment opportunities instead.
Sage advice, as usually the worst investment decisions are made under duress.
On the government side it’s more complicated.
For example, Nassau County’s largest source of revenue is sales tax. Sales tax receipts have been dropping because consumers are more readily shopping on the Internet, usually sales tax free, as opposed to purchasing goods at local stores.
Even retail giant Walmart is affected, as evidenced by recently announcing its closing of 154 U.S. locations because of the loss of business due to online retailers.
Pension contributions are a greater cost to municipalities as the stock market drops.
Government pays into pension funds based on a trailing five-year average of the markets. The lower the financial markets the higher the cost to governments, as they pay to make up the actuarial assumed future returns.
Another problem this year in New York State is the tax cap.
The tax cap is the lesser of 2 percent or the Consumer Price Index. The final 2015 numbers haven’t been computed but it looks like CPI will be under 1 percent and the tax cap will be based on this.
With salaries and health-care costs rising substantially above that, what can municipalities do to balance their budgets?
I recommend the following to ease the burden of the loss of future tax revenue:
· New York State should develop a template for a “Fast Track” permitting process, so it only takes a year from concept to building permit approval.
Local governments should still retain control over the process, but the burden would be on them to respond to certain deadlines. This way, a developer would know whether or not to deploy time, effort and resources, or to move on.
The quicker development happens, the more middle class jobs are created, which will in turn stimulate the economy raising much needed tax revenue.
There is no reason projects such as Garvies Point in Glen Cove or the Belleayre Resort in the Catskills should take 15 years or more to get approval.
· Now is the time for capital investment in New York’s infrastructure. Gov. Cuomo released his ambitious plan to rebuild New York’s infrastructure in his January State of the State address.
The recent drop in the stock markets have pushed the 10 year bond down to almost 2 percent as nervous investors rush to buy quality government bonds.
This means the cost of capital (borrowing) is near an all time low. Bonding to build out infrastructure will create jobs, which will stimulate the economy and raise tax revenue.
· Level the playing field for brick and mortar retail outlets.
Purchases online should be taxed at the same rate as if purchased in Roosevelt Field Mall.
Right now the law in New York is online tax is collected only if the business has a physical presence in New York State.
Otherwise it’s the customer’s responsibility to report the tax as a “use tax.” Good luck with that!
Also, services such as Lyft, Uber, VRBO (Vacation Rentals By Owner) and Airbnb should be taxed just as the taxi, limousine and hospitality industries are taxed.
The markets may be in turmoil, however prudent planning by individuals, businesses and government can soften the blow.
Hasty decisions in times of trouble usually don’t work out in the long run.
Everyone should plan long term for a strong financial future.