Rochester's Achilles Heel - Property Tax

Rochester has plenty of plenty of things going for it that would attract people from outside the area, so what is it that holds us down. I don't believe it's the Kodak layoffs, the sky high sales taxes, or even the flight of manufacturing jobs to China. To misquote a popular campaign slogan, it's the property taxes stupid.

Rochester is in the best position for an economic recovery it has seen in twenty years. No, I'm not crazy. Our missing the property value bubble that has occurred during the past 15 years was the best thing that could have happened to us. We are completely hedged against any major down turn in the housing market, and we are one of the few affordable housing markets left in the country that isn't in the sticks. With the highest paying jobs in the nation being the most conducive to telecommuting we are in a fantastic position to attract high income workers tired of commuting three hours a day. The single biggest factor stopping someone from moving here is the property tax.

The D&C today has a great article that addresses this crisis and paints a clear picture of the problem. This excerpt about a Massachusetts family with Rochester ties illustrates this point perfectly.

But he's not coming home. The reason: property taxes.

"If the taxes were close to similar, we'd be back," he said. "It would be a no-brainer."

Here's the math: His present 2,600-square-foot house is worth about $525,000. Taxes are about $4,400 a year.

He could buy a similar house in a Rochester suburb for $300,000 to $350,000. But the taxes in, say, Canandaigua would be about $9,100. They would be even more in Webster — closer to $12,000, he figured.

"We're staying put," he said.

This is by no means an isolated case. In fact, one of my best friends moved to the Boston area to attend MIT. From there he got a job as a Microsoft consultant and settled in to a house roughly an hour west of the city. His average commute is three hours a day and his wife suffers the same fate. We spoke two months ago about his thoughts on moving to Rochester. With both of their parents living in Penfield, they are eager to return to the area. The quote above was nearly identical to our conversation. There was no way my buddy was paying a 300% tax burden for the "privilege" of living in NY.

Comparing the proportion of the average home's value that is paid in taxes annually, Monroe County ranks #2 in the Nation! Unbelievably, school taxes account for 60% of our property tax burden. I firmly believe that education is one of the highest priorities in American society, but this is an outrage. How efficiently do you think school funds are spent? The Rochester city school budget of $582.9 million is nearly 50% larger than the entire city budget of $403 Million. Why is it that serving 34,000 students costs that more than serving 219,000 residents? Why are Rochestarians not demanding the Teacher's Union reevaluate their belief that more money equals better education? I challenge any Teacher's Union member to graph the city school budget with graduation rates, average GPA, or any other success indicator and try to make the argument that giving more money to that bloated institution equals improvement. Without a union, we could probably demand that salaries of administrators had some performance based indexing... Sadly, to a union that's unthinkable.

We need to fix our property tax problem, or face economic collapse. The city schools are the first place to look for efficiency. Too bad Spitzer has decided to not ask for spending caps from schools... Must be that Teacher's Union endorsement has him out of crusader mode. Go Figure.

Unions Holding Rochester Back?

In his controversial speech this week, Joe Klein fingered unions as one of the causes of Rochester's woes. Are unions really that bad, and how does an organization of employees hurt us? Let's do a brief recap of American unions.

During the 1800's and early 1900's employees as young as 5 worked 18 hours a day in conditions so horrendous that is was not uncommon to see bodies carried out of the jobsite with some regularity. If you were injured, you were fired and likely starved to death. By the 1970's labor unions had made tremendous contributions to America's working class and had won 8 hour work says, workers comp for injured employees, a minimum working age and numerous other worthy benefits. This rich history of fighting for the little guy was hijacked in the mid 19th century by the mafia. Corrupt union leaders and politicians realized the massive voting power of these labor groups. If you disagree I have two words: Jimmy Hoffa. Hoffa was a corrupt union leader whose mafia connections netted him a pair of cement shoes in the 70’s.

In the year 2006 we find the working world very transparent and employers are frequently honored for their working conditions. Employers who treat employees like crap can't keep good employees in this new fluid information age. Barriers to switching employers are almost nonexistent. Now unions seem to function primarily as voting blocks that politicians will sell their soul to win the support of, and as a tool to extort employers to the point of financial collapse. This is not to implicate that every union is corrupt or detrimental to business, but that it is a pervasive problem. One of my first encounters with a union employee was at the MCC automotive school in Henrietta. Much to my RIT College of Business colleagues’ amusement I elected to take a brakes and welding class. There I met a 25 year old guy we’ll call Steve.

Steve and I talked often about his job as a union employee at Delphi. Steve told me about the first few weeks on the job when the more senior employees demanded he slow down his productivity so as not to make the others look bad. His production in his first few weeks on the job far outpaced guys who had been there for years. On more than one occasion, while showing off his brand new red Corvette, Steve bragged about having only changed a few tires all day on the job. Needless to say, this pissed me off. I was paying $25,000 a year to get a degree that would land me a finance job that I drove to in a car that barely functioned. The job started at $28,000. Steve, 25 years old with no degree, was making $52,000 and shared with me that in short order he would be making nearly $90,000 as a journeyman. Clearly the union was working, employees were excellently represented. But then something happened. They priced themselves right out of a job.

A recent D&C article read, “Delphi Corp.'s bankruptcy could change the U.S. auto industry, experts say, ratcheting up pressure to produce cheaper parts overseas and forcing deep cuts in union wages and benefits and manufacturing employment. Delphi, the largest U.S. auto supplier, expects to close many of its 31 domestic plants as part of its reorganization.” The airlines are dominated by unions and are constantly going back to the taxpayer trough to get bailed out because they can’t make the business decisions needed to stay profitable. Soon GM will be in bankruptcy because of management’s blind allegiance to the internal combustion engine, inability to innovate, and the labor union’s crushing influence over tactical business decisions. UAW workers will scream about layoffs of their employees being paid $60,000+ to sit next to a robot and ensure it keeps chugging along, blind the real cause of their plight. To be sure I will investigate and discuss the platforms and impacts of our local labor organizations in future entries.

Klein's Comments on State's Woes Praiseworthy

An article in today's Democrat & Chronicle highlighted the RBA Small Business Council's Businessperson of the Year, award winner Joe Klein. Mr. Klein is a native Rochesterian who has built a customized steel manufacturing company here, Klein Steel, which employs about 135 people. During his acceptance speech he criticized specific legislators, union officials and companies doing business with state government whom he felt made New York, "not a fair, honorable state to live in." Amen!

New York has been hijacked by a bunch of power hungry, self righteous, pork barreling goons. They have managed to turn the state completely upside down. We are currently rated as having among the worst state governments, sales tax rates, property tax rates, income tax rates, highest, workers comp rates, and overall business climate. Why the heck is everyone else in the business community taking this lying down? I don't know Mr. Klein well, but I did have the privilege of serving with him on Bob Duffy's Economic Development Transition Team. Joe Klein loves this community and has been fighting hard for years to keep a business growing despite the obstacles of doing business in this state. I applaud Joe for standing up and making the case that New York is on its knees and unless more people stand up against the status quo, we're in for some serious hard times.

The Rochester Business Alliance and the Small Business Council president, Thomas Ioele, both distanced themselves from Mr. Klein and his remarks after it became clear that feathers were ruffled. It is a shame to see an organization created to help businesses thrive in Rochester, NY pass on the opportunity to build support around Joe Klein's comments.

Admittedly I have not yet heard the full content of the speech and will be making every effort to find it and make it available to you.

New York: 4200 Local Governments and Growing

One of the primary goals of this blog is to identify critical problems that keep our region stifled from its true potential. It is no mystery that New York State has been consistently rated among the worst and most inefficient governments in the Nation. There are so may areas for improvement that I could write an article a day for the rest of my life and not run out of topics. We need to look for the big ones, use that paretto principle - the 80/20 rule - and pick our battles.

Former Mayor Bill Johnson was a lot of things, and nearly all of them left me wanting more from Rochester’s leadership. One of his more controversial proposals was to begin merging parts of county and city governments. On the surface this sounds innocuous enough, but it is really an excellent way to streamline government. There are nearly 30 towns and villages in Monroe County alone. Nearly every one of those has zoning boards, fire departments, police forces, and countless other layers of government. Here are some interesting statistics on New York from a recent D&C article about this topic:

· 932 towns
· 554 villages
· 62 cities
· 57 counties
· 700 school districts
· 867 fire districts
· More than 1,000 special-purpose local

How is it possible that we need 1500 different town and village governing bodies in one state? Consider that the town of Penfield’s web site lists 20 departments. If each of these governing bodies had 20 departments with only one employee in each that’s a minimum of 30,000 state employees… who do largely redundant tasks. If New York was a company it would be long overdue for some major restructuring. Until our citizenry actually gets disgusted enough with our government to turn up at the polls, we will just have to keep on being the highest taxed people in the country.