RE Transaction Revenue Down 61% - Hits MTA Funds

A: The decline in real estate transaction produced tax revenue has hit the MTA's kitty and is playing a role in today's decision to hike rates. Between the loss of collected tax revenue from Wall Street & real estate transactions, the city will be forced to either cutback on services or hike other rates to fill the void; or combination of both. Today's news confirms the illiquid nature of this market, and likely shows the buyer strike starting at or around the September time frame. Markets and investor psychology is funny like that, sometimes the writing is on the wall but until that spark comes, you won't see any drastic change. It seems rational to now declare that the fall of Lehman Brothers & rescue of AIG were the sparks that really started the buyer strike here in Manhattan.

If collected real estate transaction taxes are down 61%, or down $63,000,000.00 from $103M to $37M compared to the same period from last year (collected mid month), that pretty much reflects the contracts signed activity from SEP & OCT (given 2-3 months closing time from contracts signed), and any delayed closings from new development purchases. This is why I can say that the 'buyer strike', or 'illiquid market', or whatever you want to call it likely was sparked at this time; coincidentally the time when Lehman declared bankruptcy and AIG was rescued by the government. To me, these credit crisis events was the spark that lit the illiquid fire.

The NY Times reports, "M.T.A. Approves Cuts but Seeks Help":

The authority said this week that an important source of revenue — taxes on real estate transactions — was running well below recent forecasts, which had already been revised downward several times to account for the economic downturn.

Those real estate and mortgage taxes brought in $37 million this month (the proceeds are received by mid-month), compared with $103 million in the same period last year, Gary J. Dellaverson, the authority’s chief financial officer, said at a meeting of the board’s finance committee on Monday.

“This is a really sobering number,” Mr. Dellaverson said. “This does show how frightening this economy can be in terms of our sensitive taxes.”

He said the authority had tried to be very conservative in predicting real estate transaction tax receipts as the economy worsened, basing its forecasts on projections made by the city.

He said that projections of December’s tax receipts had repeatedly been reduced as the year progressed, falling to $88 million from $99 million before finally being revised down again only a month ago, to $64 million. But the reality was even worse, missing the mark by $27 million.

This just shows how the slowdown trickles into the main economy and ultimately leads to decisions that are very tough to make, yet necessary. Between wall street revenue taxes and real estate transaction taxes collected, we are in for at least a year of collections being sharply down from past years. Lets hope the powers that be can manage this budget problem effectively and minimize the damage.

Gov. Patterson's proposed 'doomsday budget' includes higher taxes on a host of products/services as well as 'deep cuts' in spending. According to Newsday.com's "Bloomberg says Paterson's NYC budget cuts unfair":

Mayor Michael Bloomberg said yesterday he understood Gov. David A. Paterson's task of closing a $15.4-billion deficit, but called it unfair for Albany to cut the city proportionally "more ... than anyplace else."

The cut in state aid would amount to harsher budget cuts for the city already suffering a worsening fiscal crisis.

In response to a projected $4 billion deficit through 2010, Bloomberg in November proposed tax hikes, cancellation of the incoming police cadet class of 1,000 officers and shrinking the city's workforce by 3,000 people. Last week, Bloomberg last week asked city agencies to find $1.4 billion in cuts for 2010.

This is the dark period after any severe economic crisis. There is no reason to avoid acknowledging it, and nothing wrong with discussing it. We have to go through this to come out the other end, so lets be prepared for changes we may face, adapt accordingly, and hopefully these guys know what they are doing!