Heard in the news: $6 gas a possibility?

Before we get too carried away, let me give some context:

On Thursday morning, New Jersey Governor Chris Christie was on MSNBC’s Morning Joe to talk about the presidential election, when he brought up the issue of rising gas prices and how it would play as the primary season heats up. Christie’s argument was that if gas hits $6 a gallon, it would have a huge effect on the general election because gas prices affect consumers and businesses at all levels.

Granted, one can never be sure about the validity of a statement that’s political in nature. But, adding credibility to the fear of rising gas prices, a AAA spokesperson recently told the Los Angeles Times isolated parts of the country could be seeing $5-a-gallon gas “by April or May.”

Today, the Reuters/University of Michigan consumer sentiment index for February was just barely higher than the previous month – making it the slowest consumer confidence increase in months. IHS Global Insight economists contributed the minimal gains to rising gas prices:

“Americans are going to feel pain at the pump, since given the current state of affairs it is relatively safe to say that gasoline prices will surpass $4/gallon by Memorial Day. The recent news on the jobs front is cause for some hope that the future will look brighter, but as gasoline prices rise consumer confidence takes a beating,” said IHS economist Chris Christopher in an email.

While several gas stations here in Westchester already feature $4/gallon gas, for the national average to top that bar before Memorial Day weekend would be a significant blow to the economy. Currently, the national average for a gallon of unleaded gas is $3.647 – good for a 13 percent increase compared to exactly a year ago. In New York, the statewide average is even higher, at $3.910/gallon. That’s nearly 6 percent higher than just a month ago and 13.5 percent higher than a year ago.

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Preview of President Obama’s proposed corporate tax overhaul

Stay tuned at 11:30 this morning, when Treasury Secretary Timothy Geithner will unveil a new corporate tax proposal that aims to lower the top income-tax rate for corporations to 28% (from 35%) while still generating more tax revenue by closing loopholes and deductions.

Mike Allen of Politico reported in this morning’s Playbook that the administration is pitching this as a win-win for businesses and the government, with officials saying it will simplify what is currently an unnecessarily complicated tax code, eliminate many of the tax benefits for special interests, and significantly reduce the top rate corporations pay.

According to published reports, the overhaul will:

1. Eliminate tax loopholes and corporate subsidies, such as those currently enjoyed by oil and gas companies, while lowering the top rate to 28%;

2. Enact a minimum tax rate for U.S. companies on foreign earnings;

3. Reduce the effective rate for manufacturers to a maximum of 25%; and

4. Simplify tax filings for small businesses.

Those reports also state the overhaul would not add to the deficit and would create more aggregate tax revenue by closing tens of billions of dollars in loopholes.

The timing on this announcement is very interesting: it comes on the morning of a crucially important GOP presidential debate in Arizona, the site of one of next week’s primaries. Again, stay tuned.

Drops in sales tax collections, commercial bank lending activity cause for concern?

Local angle first: today, New York Comptroller Thomas DiNapoli reported that sales tax collections grew at a slower rate on average in 2011 than in 2010, saying that continued caution with respect to the economy is the flavor of the day. In Westchester County, sales tax collections increased just 2% in 2011, marking a sharp contrast compared to 2010, when local sales tax collections increased 6.4%.

Big picture: according to Beata Caranci, Vice President and Deputy Chief Economist for TD Bank, consumer credit, which largely drives consumer spending (and which in turn largely drives economic output) dropped off in the second half of January, signifying the economy may not be as strong as some are perceiving it to be.

Caranci: “…The largest provider of consumer credit is commercial banks. They account for just over half of all private sector credit disbursement. Unfortunately, the weekly tracking of this credit is showing a reversal of fortunes since the economy-wide monthly data was released two weeks ago. Not only did commercial bank lending activity come to an abrupt halt in January, but it practically fell off a cliff…

“Simply put, for those expecting a strong rebound in consumer spending in the first half of the year based on December’s rebound in credit demand and the recent new job hiring activity, think again.”

 

The other Indian Point debate: the cost of energy

Few issues are as divisive for Hudson Valley residents as the fate of Indian Point Energy Center in Buchanan. Located within a 50 mile radius of the country’s most vibrant city and millions of residents, there are environmental and safety issues to consider. Here, though, I will touch on the Indian Point debate only as it relates to local energy costs.

I wrote in today’s Westchester County Business Journal about two separate setbacks that Indian Point owner Entergy Nuclear has experienced over the past couple of weeks in the company’s efforts to re-license the plants (the current licenses for IP2 and IP3, the two active reactors, expire in 2013 and 2015, respectively).

One of those two items I reference was a joint statement released by state Assemblymen Kevin Cahill and James Brennan, chairmen of the Committee on Energy and of the Committee on Corporations, Authorities and Commissions, in which the two conclude that based on testimony at a Jan. 12 hearing, Indian Point could be shut down “without unduly burdening New York’s ratepayers or the electric system,” in Cahill’s words.

The problem: that might not be the case. Jerry Kremer, chairman of the New York Affordable Reliable Electricity Alliance, said in response to Cahill and Brennan’s statement:

“I testified at the January 12 hearing and heard compelling evidence throughout that day from the New York Independent System Operator, Con Edison, and Charles River Associates (an independent energy consulting firm) that the loss of Indian Point would have serious ramifications on the City’s electric costs and reliability…

“It seems the committees, both chaired by known opponents of Indian Point, were using the January 12 hearing to justify pre-established positions rather than to look informatively at this important issue.”

Kremer is absolutely right and justified in saying that several experts who testified at the hearing spoke to the importance of Indian Point as a major provider of electricity to the region and as a vital link in the state’s electric grid between the upstate power generating sources and downstate consumers. It seems that in their conclusion, Cahill and Brennan chose to ignore this particular testimony.

The bottom line is this: whether or not you are a fan of Indian Point, there have been credible studies and evidence to support the theory that electricity costs would go up significantly if the plants are shut down without a source (or sources) of replacement power already in operation. Those replacement power sources, let me remind you, will not appear overnight. It is extremely difficult to secure the permits and approvals necessary to build a power plant; not to mention the time and financing that would be inherent in any such project.

Turning a blind eye to safety issues is reprehensible, agreed. But turning a blind ear to the economic facts – which Assemblymen Cahill and Brennan apparently did – is disturbing in its own right.

Tappan Zee Bridge plans move ahead but where’s the money?

It’s hump-day, which means it’s production day at the Westchester County Business Journal, so I will keep this one short and sweet.

Yesterday the New York State Thruway Authority announced the four finalists selected to bid on the Tappan Zee Bridge rebuilding contract. The announcement comes just over a week after the state released its draft Environmental Impact Statement.

With these new developments, the Thruway Authority (which owns the bridge) and its state and federal partners have accomplished something that eluded previous administrations: that is, they have kept their promise – so far. As it stands, project coordinators still expect to award a contract by July or August and still expect construction to begin on a new bridge by the end of this year, which would be a major achievement given the length of time we have had to wait so far to see any progress whatsoever.

Now, it is time for the governor to let the public know how the bridge will be financed. With an expected price tag of $5.2 billion, the public and the four finalists are entitled to know the nitty-gritty details. In his budget address, Gov. Cuomo said funding for a new bridge would come from “authorities.” Which authorities? State or federal? Will the funding be new or will it come out of existing budgets?

Until we hear those details, I will continue to be skeptical of the governor’s plan. A new bridge is necessary and will be a huge boost to the entire region’s economy. But money doesn’t grow on trees and even the popular Mr. Cuomo can’t pull $5.2 billion out of a magic hat.

A bipartisan vote for job creation

In today’s Wall Street Journal, Senators Jerry Moran (R-KS) and Mark Warner (D-VA) published an op-ed in which they tout a new bipartisan plan to boost job creating among small businesses, called the Startup Act.

Among the Startup Act’s proposals are:

  • To permanently exempt capital gains taxes on the sale of certain small business stock held for at least five years, which will, in the authors’ words, give “investors an incentive to partner with entrepreneurs and provide financial stability at a critical juncture of firm growth.”
  • To reduce the corporate income tax on certain new businesses during the first three taxable years of profit;
  • To require all government agencies to conduct a cost-benefit analysis of all proposed new regulations that have an economic impact of $100M+, so as to determine the potential effects of those regs on the formation and growth of new businesses;
  • To make it easier for foreign-born students who graduate from U.S. universities with advanced degrees in STEM areas (science, tech, engineering, math) to get a green card;
  • To expand taxpayer-funded research at U.S. universities;
  • To assess state and local policies that aid in the development of new businesses.

I’m not fully on-board with a couple of the above proposals and am skeptical of how they might be received in Washington, but am otherwise glad to see that some in government are embracing the plight of Americans and Westchester residents alike: that is, a dire need for a more small-business-friendly environment. Count me in.

Hospitals excluded from MTA tax reforms; want bill to phase out tax for all suburban employers by 2014

Good Monday morning! If you are among the many Americans struggling to snap out of the Super Bowl hangover, just think – you could be a Patriots fan. (My condolences if that happens to be the case).

In today’s edition of the Westchester County Business Journal, our bureau chief John Golden wrote about local hospitals’ exclusion from changes that were made to the MTA tax in December.

While the changes reduce or eliminate the MTA tax for hundreds of thousands of employers in the Hudson Valley and Long Island, hospitals were largely omitted – a mistake, according to NorMet’s Kevin Dahill:

“Clearly the MTA payroll tax is an issue for our members,” said Kevin Dahill, president and CEO of the Northern Metropolitan Hospital Association (NorMet), representing hospitals in Westchester and six other Hudson Valley counties, and the Nassau Suffolk Hospital Council, representing Long Island hospitals. The Suburban Hospital Alliance is the joint advocacy arm of the two groups. “We were making the case that for hospitals to have to pay a tax like this is ridiculous.”

Dahill has been a strong critic of hospitals’ exclusion from a job creation and tax reform agreement announced in December by Gov. Cuomo and leaders of the state Legislature that would eliminate or reduce the MTA tax for approximately 295,000 employers and raise the income exemption for self-employed taxpayers within the Metropolitan Transit Authority’s commuter service region.

Though the proposed changes would exempt private schools from the tax, hospitals stand to receive no relief. Dahill said the alliance’s member hospitals in the Hudson Valley and on Long Island collectively pay about $20 million annually to support the MTA tax. Hospitals are often the largest employers in the MTA commuter region, supporting 150,000 jobs and $23 billion in economic activity annually, according to Dahill.

(For the complete article, see here).

The Suburban Hospital Alliance has responded by lobbying the Legislature to consider a new bill that would exempt all suburban employers from having to pay the MTA tax by 2014. While small businesses have clearly suffered the wrath of the economy over the past several years, hospital revenue has also plummeted, which means Albany had best consider the Alliance proposal.