Barack Obama · Economy

New York City Communist Mayor Mike Bloomberg: Big Layoffs ~ NYC Slash Private-Sector Jobs, Drops To 13th In Nation ~ New York State Post Largest Exodus Of Any State!

New York City’s economic recovery took a sharp step backward in September as employers slashed thousands of jobs.

People wait in line for a job fair in New York City earlier this year.

A Summary of New York City’s Economy

After adjusting for seasonal changes, New York City lost 17,000 private-sector jobs in September, according to real-estate services firm Eastern Consolidated. It was the worst month since March 2009, when the city lost 18,900 jobs.

“These losses were not surprising given how sharply a number of industries had added gains over the summer,” Barbara Byrne Denham, chief economist at Eastern Consolidated, wrote in a research report.

Leisure and hospitality and professional and business services — both sectors which had been adding jobs over the year — suffered big losses in September, according to James Brown, an economist with the Labor Department. The transportation and utilities sector was one of the few areas that added a significant numbers of jobs.

Metropolis

By the end of 2008, Bloomberg had transferred almost $300 million into various offshore destinations—some of them notorious tax-dodge hideouts. The Caymans and Cyprus. Bermuda and Brazil. Even Mauritius, a speck of an island in the Indian Ocean, off the coast of Madagascar. Other investments were spread around disparate locations, from Japan to Luxembourg to Romania.

Where Does Mike Bloomberg Send His Money For Safe Keeping Against High Taxation?

The hard truth about Bloomberg’s layoffs

By

GREG DAVID

on November 18, 2010 3:33 PM

One could put together a long list of reasons why Mayor Michael Bloomberg announced big layoffs today to help close this year’s budget deficit and narrow those of the future.

The most important one, though, involves Wall Street.

In 2002, New York state collected $4.5 billion in personal income taxes and business income taxes from people who worked in the securities industry and the firms that employed them, according to a report on the industry issued by state Comptroller Thomas DiNapoli this week.

In 2009, the figure had nearly tripled to $12.3 billion. The state used that money to finance a rapid expansion of the public sector in New York, especially by greatly increasing direct aid to local governments and school districts. Direct aid from Albany accounts for 18% of the city’s budget.

In the fiscal year that ended in March 2010, taxes from Wall Street fell to $9 billion amid the fiscal crisis. That number is going to fall by almost another $1 billion in the current fiscal year.

The financial reform legislation passed this year by Congress and the public pressure to change the way Wall Street operates will probably reduce the number again next year. The Dodd-Frank bill makes the big securities firms less profitable by forcing them out of their most lucrative businesses. Bonuses are increasingly paid in stock (to deter excessive risk taking), but most stock bonuses don’t get taxes for years.

There is no way for incoming Gov. Andrew Cuomo to close the $9 billion state budget deficit without further reducing aid to New York City as well as every other local government and school district in the state. (He has ruled out tax increases and for good reason).

The same trends are squeezing city tax revenues, although less dramatically because the property tax provides such a large percentage of the city’s income.

The conclusion may be distasteful for those who keep talking about what government “needs” provide its citizens. It is also inescapable: New York parlayed the Wall Street boom to pay for an enormous public sector and now will have to shrink the public sector because Wall Street can’t support it any more.

Latest private-sector employment figures for the 100 biggest metropolitan areas in America, as released by the U.S. Bureau of Labor Statistics On November 17, 2010.


Read more: Job rankings for 100 biggest markets | Business First

Market Private-sector jobs (Sept. 2009) Private-sector jobs (Sept. 2010) Raw changeDescending Rank Percent change Rank
Washington 2,262,600 2,297,000 34,400 1 1.52% 6
Boston 2,099,300 2,120,900 21,600 2 1.03% 13
Dallas-Fort Worth 2,455,500 2,476,700 21,200 3 0.86% 18
Phoenix 1,447,500 1,468,700 21,200 3 1.46% 8
Minneapolis-St. Paul 1,450,300 1,465,400 15,100 5 1.04% 12
Austin 587,400 601,700 14,300 6 2.43% 1
Cleveland 856,500 868,800 12,300 7 1.44% 9
San Jose 745,000 756,000 11,000 8 1.48% 7
Oklahoma City 437,200 447,600 10,400 9 2.38% 2
Pittsburgh 992,600 1,001,600 9,000 10 0.91% 16
Baltimore 1,045,700 1,053,700 8,000 11 0.77% 21
Atlanta 1,932,300 1,939,300 7,000 12 0.36% 31
New York City 6,978,600 6,984,500 5,900 13 0.08% 42
Miami-Fort Lauderdale 1,846,800 1,852,500 5,700 14 0.31% 32
Virginia Beach-Norfolk 581,400 587,000 5,600 15 0.96% 15
Charleston, S.C. 223,300 228,600 5,300 16 2.37% 3
Charlotte 689,200 693,700 4,500 17 0.65% 22
New Orleans 431,400 434,800 3,400 18 0.79% 20
Augusta, Ga. 164,300 167,600 3,300 19 2.01% 4
McAllen-Edinburg, Texas 161,500 164,700 3,200 20 1.98% 5

Escape From New York

An old saying goes that the time to live in New York is when you’re young and poor, or old and rich—otherwise, you’re better off somewhere else. That wisdom is getting an update this week from a study by the Empire Center for New York State Policy that shows middle-class people leaving the state in droves.

Between 2000 and 2008, the Empire State had a net domestic outflow of more than 1.5 million, the biggest exodus of any state, with most hailing from New York City. The departures also have perilous budget consequences, since they tend to include residents who are better off than those arriving. Statewide, departing families have income levels 13% higher than those moving in, while in New York County (home of Manhattan) the differential was even more severe. Those moving elsewhere had an average income of $93,264, some 28% higher than the $72,726 earned by those coming in.

In 2006 alone, that swap meant the state lost $4.3 billion in taxpayer income. Add that up from 2001 through 2008, and it translates into annual net income losses somewhere near $30 billion. That trend is part of a larger march for New York: In 1950 the state accounted for 19% of all Americans, but by 2000 that number had fallen to 7%. The city’s main saving grace has been its welcome mat for foreign immigrants, who have helped to replace some of those who flee.

As the study’s authors, E.J. McMahon and Wendell Cox, suggest, no single reason can be fingered for a million migrants seeking their fortunes across state lines, but one place to start is New York’s notorious state and local tax burden. According to the Tax Foundation, between 1977 and 2008, New York has ranked first or second in the country for its state-local tax burden compared to the U.S. average.

In the years considered by the Empire Center study, New York’s state and local tax burden ranged between 11% and 12% of income. The peak year for taxes, 2004, was followed by the peak year for departures—as New York lost nearly 250,000 people to other states in 2005. And that’s before another big tax hike this year.

That pattern is consistent with the annual migration patterns, showing that highly taxed and economically lackluster states were most likely to end up in residents’ rear view mirrors. According to the annual study by United Van Lines, states like New York, New Jersey, Michigan and Illinois have been big losers in recent years.

In the Empire Center study, two of the top states to send taxpayers to New York—Illinois and Michigan—were also among the worst population losers overall. Greener pastures that drew New Yorkers included states like Florida, North Carolina and Pennsylvania, in addition to the usual suburban locales of New Jersey and Connecticut.

Liberals continue to insist that they can raise taxes ever higher without any effect on behavior, but the New York study is one more piece of evidence that this is a destructive illusion.

WSJ

Bloomberg’s Offshore Millions

It was a dark time for the city. In 2008, and early into the next year, morale was low, Wall Street was sputtering and Mayor Michael Bloomberg was steeling New Yorkers for pain. Brace for service cuts and tax hikes, he warned—while also pledging to find a way to keep tax money, particularly from the city’s richest citizens, from fleeing.

“I’ve said this before, but the first rule of taxation is, you can’t tax too much those that can move,” Mr. Bloomberg intoned on a radio show late in the crisis. “You know, we’re yelling and screaming about the rich. We want the rich from around this county to move here. We love the rich people.”

And yet the richest New Yorker of them all—Mr. Bloomberg himself—had been ignoring his own advice.

According to an extensive review of the mayor’s financial records by The Observer, even as Mr. Bloomberg was trying to counter the loss of taxes and other income from the richest New Yorkers, the foundation he controls was in the process of shuttling hundreds of millions of dollars out of the city and into controversial offshore tax havens that would produce nothing at all for the city in terms of tax revenue.

By the end of 2008, the Bloomberg Family Foundation had transferred almost $300 million into various offshore destinations—some of them notorious tax-dodge hideouts. The Caymans and Cyprus. Bermuda and Brazil. Even Mauritius, a speck of an island in the Indian Ocean, off the coast of Madagascar. Other investments were spread around disparate locations, from Japan to Luxembourg to Romania.

‘I’ve never seen anything like it. It’s about as opaque set of investments as you can find,’ said Rich Cohen, who covers foundations and charities for Nonprofit Quarterly.

Why was the mayor’s flagship foundation sending hundreds of millions of dollars offshore? Neither the charity nor the mayor will explain. What is clear is that the issue could get prickly for Mr. Bloomberg, in part because his investment strategies have been so closely associated with Steve Rattner, the onetime boy wonder financier who remains under investigation by Attorney General Andrew Cuomo for his involvement in a state pension controversy. Last week, Mr. Rattner’s former firm, Quadrangle Group, took the extraordinary step of excommunicating him, saying in a statement that it “wholly disavow[ed]” Mr. Rattner over his role in securing state pension contracts—conduct the company called “inappropriate, wrong, and unethical.”

On December 26, 2007—the same day that the city’s Conflicts of Interest Board opened the door for Mr. Rattner’s firm to manage the foundation’s money— the foundation immediately sent $210 million to a new fund—“QAM Select Investors (Offshore) Ltd.”—based in the Cayman Islands.

A month later, the foundation was given clearance to allow two city workers to use municipal time and resources on foundation work—on the assumption that the charity would “ultimately serve the city” and “further the interests and purposes of the city.”

And what of the benefit that was supposed to come New York’s way as a result of all of these millions? Mr. Bloomberg donated more than $1.8 billion to the foundation in its first three years of life, according to the foundation’s tax filings. About $67 million—$36 million in 2007 and $31 million in 2008—was given away. Much of it went to anti-smoking initiatives, including the World Lung Federation and an Indian anti-smoking group; other grants went to the government of Vietnam and the World Health Organization, for injury-prevention efforts. No grants went to organizations directly benefiting New York City.

Today, at a five-story Beaux Arts mansion on the corner of 78th Street and Madison, workers are putting the finishing touches on the foundation’s new headquarters, which Mr. Bloomberg purchased for $45 million. Flatbed trucks unload marble tiles for the building’s floors; electricians have installed subdued lighting and a heavy, automatic glass sliding door.

Several weeks ago, the foundation named a new 19-person board that reads like a who’s who of national politics and finance: Former Florida governor Jeb Bush, former Georgia senator Sam Nunn and former Treasury secretary Hank Paulson are among the members. It is all part of a push by Mr. Bloomberg to put the foundation on a par with other big charities and put his name on the list of America’s great philanthropists: Gates, Carnegie, Rockefeller and Ford have their foundations, and now so does Bloomberg.

BEYOND THE U.S. BORDER, in places like the Caymans, the climate for charities is much more inviting. Nonprofits like the Bloomberg Family Foundation are tax-exempt, but some investments that aren’t related to an organization’s core mission can be subject to a levy called the Unrelated Business Income Tax (UBIT, for short). So to avoid more than 40 percent in federal and local taxes on unrelated businesses, nonprofits use a legal loophole, routing investments through offshore tax havens.

“It cleanses the unrelated business taint from the total return,” Harvey Dale, of the N.Y.U. School of Law, told The Observer. “You invest in the same thing through an offshore entity. You are making the same investment; you are just putting an intermediary entity in the middle. Instead of investing directly in the hedge fund, you invest in the foreign entity, which, in turn, invests in the hedge fund.”

“Is (using the loophole) allowable under the law? Yes,” said tax expert Dean Zerbe, a former staffer at the Senate Finance Committee. “Is it something that is a best practice, particularly by an elected official? I think they should look very hard when they are engaging in this kind of activity. What does it say to the average New Yorker?”

The foundation’s tax returns indicate that Mr. Rattner’s team migrated much of its money to large hedge funds with ostensible island charters, including several in the Caymans, two of which list an address at P.O. Box 309 of the Ugland House, a building that “houses” an estimated 12,000 to 18,000 foreign businesses.

“Now, that’s either the biggest building in the world or the biggest tax scam in the world,” said Senator Barack Obama during his campaign for president. “And I think we know which one it is.”

But tax havens—despite the protestations of the president, a slew of senators and at least one district attorney—remain legal. “I made a lot of effort to shut down that loophole,” former district attorney Robert Morgenthau told The Observer.

Mr. Morgenthau said he’d spoken generally about offshore loopholes to four U.S. secretaries of the Treasury, twice to the commissioner of the general revenue and, as it happens, to Mr. Bloomberg himself. The mayor seemed uninterested in the offshore issue, he said. “I’ve talked to the mayor about it, and the budget director,” Mr.

Morgenthau said. “We did get help from the State Division of Taxation and Finance. But nothing from the city.”

In spite of the flurry of investments, it appears that for years, Mr. Bloomberg’s foundation had no office, phones, staff, Web site or public brochures. In late 2007, the mayor wrote a second letter to the Conflicts of Interest Board, looking for another blessing: Some of his staffers at City Hall, he argued, were asking him, “unsolicited,” if they could help with his foundation. Saying that the foundation would “ultimately serve city goals,” the board approved. At least three of his staffers were even allowed to use government resources, like office space, phones and Internet service, for foundation work.

One of the staffers was Deputy Mayor Patricia Harris. Aside from Mr. Bloomberg, Ms. Harris was the sole officer listed on his foundation’s tax return. A longtime Bloomberg loyalist, Ms. Harris worked at Bloomberg LP before joining the mayor at City Hall. On foundation tax returns, Mr. Bloomberg and Ms. Harris each claimed to have spent .25 hours, or 15 minutes, per week on the charity—as it gave away tens of millions.

Last month, the mayor announced that Ms. Harris would take on even more duties at the foundation, although it is unclear if she will increase her time commitment.

The mayor’s press office referred all questions about the foundation to the organization’s press office, run by former mayoral aide James Anderson. “In order to avoid conflicts, the Mayor is neither involved in nor apprised of the specific investment decisions made on behalf of the foundation—and we are therefore not in a position to discuss them,” Mr. Anderson wrote in an email.

Yet Mr. Bloomberg does often discuss his charitable endeavors. “Other than Gates, nobody’s given away this amount of money,” he boasted to the New York Post’s editorial board earlier this month.

But the Bill and Melinda Gates Foundation provides a contrast in its investment style. While the Bloomberg Family Foundation is hardly alone in embracing the savings provided by the offshore loophole—according to a 2007 New York Times piece, large universities like Yale and Duke, along with charities like the Rockefeller Foundation, engaged in the practice—The Times also reported that the Gates Foundation did not invest in offshore hedge funds.

“When instructing the investment managers, Bill and Melinda also consider other issues beyond corporate profits, including the values that drive the foundation’s work,” explains the Gates Foundation’s Web site. “They have defined areas in which the endowment will not invest, such as companies whose profit model is centrally tied to corporate activity that they find egregious.”

Mr. Rattner’s Quadrangle Group wasn’t beholden to any such strictures relating to the Bloomberg Family Foundation’s portfolio, and throughout 2008, the foundation made liberal use of the offshore loophole.

The bulk of the investments ended up in the Caymans. The Rattner team transferred more than $71 million dollars to Highfields Capital Ltd., the Caymans arm of a Boston-based hedge fund. (Last month, Highfields’ co-founder, Richard Grubman, was arrested after he allegedly beaned a Ritz Carlton valet with the keys of his BMW.) Another $67.8 million went to Brookside Cayman Ltd, the island home of Brookside Capital.

Other money decamped for even more exotic locales: $710,000 zipped to the tiny Grand Duchy of Luxembourg. Another $700,000 went to two funds on the island nation of Mauritius, about 500 miles east of Madagascar in the Indian Ocean. A Brazilian hedge fund got $304,000.

Mystique surrounds even some of the smaller foreign investments. In one, the mayor’s foundation transferred $104,000 in cash to a Cyprus-based oil services firm called Geotech Oil Services Holdings Ltd., controlled by a Russian oligarch named Nikolai Levitsky; Mr. Levitsky was once the first deputy governor of the resource-rich Komi Republic in Russia’s Northwest.

Reached by phone, Geotech spokesman Denis Cherednichenko said he had no idea if the Bloomberg Family Foundation had invested in the company, but seemed surprised. He speculated it could have been through another hedge fund. He said three American funds invested in Geotech in 2007.

In another transaction, Mr. Rattner’s team invested $560,000 of the mayor’s charitable fund in BJJ Universul, a Cyprus-based company that develops real estate in central Eastern Europe. According to its Web site, BJJ was established in Romania in 2004 and has more than 40 employees, split between Bucharest and Sofia, Bulgaria, and focused on “greenfield and redevelopment opportunities in Eastern Europe with a current focus on Romania and Bulgaria.”

Compared with those of the great foundations of America, the Bloomberg investment strategies stand out. “I’ve never seen anything like it. It’s about as opaque set of investments as you can find,” said Rick Cohen, who covers foundations and charities for Nonprofit Quarterly, and who agreed to review the foundation’s tax return. “This involves extensive investments in hedge funds offshore, where the motivation and purpose is not discernible, so you can’t tell what kind of activity it is or who is going to benefit from the investments.”

One former state official, however, defended the activity. “I don’t think there is anything unusual here,” said Bill Josephson, who headed the state’s Charities Bureau when Eliot Spitzer was attorney general, and examined the tax returns for The Observer.

“It is impossible to look at this and determine the intent of the hedge funds investments. You can’t figure it out from the 990 [tax form],” Mr. Josephson said. “The Bloomberg foundation is not that significantly different from the foundations of other individuals who come out of the investment world.”

The mayor announced some time ago that he would strip his funds from the Quadrangle Group, while allowing many of the Quadrangle managers who tended to his money to continue to do so at another firm. Quadrangle continues to manage about $100 million in New York City pension funds, according to the comptroller’s office.

As for the increasingly isolated Mr. Rattner, who remains under investigation, the mayor stands by him. “He’s a friend whose advice the mayor has, and continues to, rely on,” said a Bloomberg spokesman. Mr. Rattner declined to comment.

While almost nothing is known about the foundation’s investments since 2008, Mr. Bloomberg is now preparing to burnish his place in the annals of philanthropy. What exactly that means is not yet public.

apaybarah@observer.com, rpillifant@observer.com

Research support for this article was provided by the Investigative Fund of the Nation Institute.

LITO