Recession Is Just About Over, But Norwalk Faces Challenges

One of the more perplexing things about local politics these days is the complete lack of understanding most people have about basic economics. And by most people, I not only refer to the people who come out of the conspiracy closets to rail against one thing or another, but the people who are elected to serve as our governmental leaders.

Let’s take the Waypointe project. There are still people out there who think that the City of Norwalk have just written a check to Seligson properties for $104 to buy garages. The City of Norwalk has not. The thing that most people don’t understand is that timing is everything. If a bunch of things happen, which are the equivalent of winning gold medals in slalom skiing in the 2010 and 2014 Olympics, then the City of Norwalk will buy chalet where all the skiers hang out at the pre-negotiated price from 2009. If the bunch of things don’t happen, well then, no one, that is the City of Norwalk, will not be buying anything with those bonds.

There’s been much grumbling about the recent vote to authorize the purchase of the former Globe Theater of Wall Street for $1.5 million. Especially from the Norwalk Redevelopment Agency, whose director, point blank stated that the Council directed him to over pay for the building because they specifically took eminent domain off the negotiating table. You have to understand what eminent domain actually means to recognize what the economic issue is. A municipality can use eminent domain to force a purchase of a property at the prevailing market rates. It eliminates the uncertainty of price because no one will pay more for a property that could be subjected to eminent domain because in the end, the market value of the property is now transparent. Anyone who sells anything should understand that the value of an object is only set when there’s a transaction to sell that object, or the price that someone is willing to pay. Ebay has served, for example, as a great equalizer on the price for antiques because now bids are transparent and the number of bids, the number of times an antique appears on the market are visible to all interested parties.

Why would the Common Council, with a supposedly Republican majority, pay a higher price for a property than they had too? Because the Republican Common Council members really don’t understand economics. I’m sure others will look for greater conspiracies here, but the evidence of bad economic decisions are just too numerous to conclude anything else.

Take the dire economic news that the City of Norwalk’s finance director has been saying for the past 18 months. Revenues are down, so the City of Norwalk needs to reduce spending and increase revenues. The Common Council has not figured out that they play a role in increasing revenues, yet. They’ll hide behind statements like they are protecting small businesses and seniors, but they absolve themselves of making the critical authorizations to raise revenues like transfer station fees, parking fees, registration fees and so on. And they’ll tell you how they furious with the deficit spending that the federal government is doing without owning up the the fact that it was a Republican administrations that created the ginourmous deficits we have, and  entering into the recession it was the Bush administration that got us there.

A chart depicting the truth in federal numbers:

The next few weeks will show how badly the local Republican Common Council members grapple with the economic realities of the City of Norwalk. Already they are not off to a great start, but there is hope. The only real fiscal conservative that has a handle on economics is Mayor Moccia. The rift between Moccia and the council Republicans on economic issues is growing daily.

But now back to the economy. On February 11th, Moody.com’s Mark Zandi has predicted that the economy will shift from a financial recovery to a “self sustaining expansion.” From Governing Magazine:

Zandi, who keynoted Governing’s Outlook 2010 conference today, has a good track record with these things. When he spoke at last year’s Outlook conference, he accurately predicted — to the day! — when the recession would end and economic recovery would begin (Sept. 15, 2009, for those of you keeping score.)

But while the economy may be in a period of recovery, and while it may be expanding a year from now, states and localities are (as my father used to say) still in for a world o’ hurt. “The recession is over, but the recovery will be a bit of slog,” Zandi said, calling the situation for state governments “dark.”

Zandi praised the role that the government played in mitigating and ending the recession. “The end of the recession, in my view, is largely due to the policy response,” he said. One of the most important policy elements, Zandi said, were the bank stress-tests conducted last spring. “That was a successful effort at reestablishing confidence. They were more than symbolic; they were substantive.”

The other major policy element, of course, was the federal stimulus. “I don’t think it’s any accident that the recession ended at the same time the stimulus was delivering its maximum impact” in the states, he said. States and localities have certainly had a tough fiscal year, Zandi said, “but it would have been a complete mess without that stimulus money.”

The economic principals at play at the federal level play out at the local level as well. Tom Hamilton will report that Norwalk’s Grand List will be flat. This is really bad news. Westport’s 2009 grand list grew by 1.35%. Weston’s total only went up .25 percent, while Fairfield saw a .62 percent increase, thanks to CL&P’s new power lines. In Norwalk, despite an increase in the real estate  side of the grand list calculation going up, the personal property value side significantly decreased. According to Mayor Moccia, businesses leaving Norwalk were significant enough to offset the real estate growth.

It’s not hard to trace back the stalled developments in Norwalk as the symbol of why corporations are leaving Norwalk for places like Stamford. Stamford has made an investment in its transportation infrastructure, it’s commercial real estate, downtown, and added urban residential housing to make the case to corporate employers that you can really live, work and play in downtown Stamford.

The Common Council is now faced with making decisions about following the recommendations of the Mayor and Finance Director Tom Hamilton, or ignoring them. They are presently ignoring them. Each 300k revenue decision they make ends up adding a quarter point to the mill rate increase. Expect sparks to fly at the budget hearings.

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  • Anon

    I don’t follow all this stuff with the rigor of some. But, as just an overtaxed taxpayer, this is the way I see it. The Globe Theater was one of the linchpins of the redevelopment of Wall Street and that development needs to begin. From what I’m told, Wall Street has looked like a piece of junk since 1950 because of some flood that happened long before most Norwalk residents were born. Enough, fix it. The city could have tried eminent domain but how much would it have cost the city in legal fees to defend a lawsuit? Maybe as much as they overpaid the same people who seem to relish litigation? Did you add in the lost time, what would that cost Norwalk in quality of life? Remember too that Wall St is where our illustrious US Post Office without parking is and the underfunded library. Move on it! Fixed up and as a place more people want to visit, Wall St property values will increase, vacant storefronts will have property tax paying businesses, that provide jobs that provide taxes, that provide more people using Wall St. Fix it, enough 60 years of rot.
    For raising parking fees, NO! A visit to the Maritime Center, 1 1/2 hours, cost $7 in parking. So what is this, NYC? Who can afford that, I skipped buying the stuffed animal, who can afford both? Don’t raise my fees, my taxes are already killing me. What’s a raised fee? A TAX. Figure out how to do more with less. I don’t know much about economics, but I’m very clear on what it means to be overtaxed.

    • turfgrrl

      Anon: Saying you are over taxed is understandable. But the issue always at hand is whether you want to pay one lump sum, call it property tax, for all of government operations, or pay per use. Take your parking example. You don’t want to pay $7 to park there. Okay, so if it costs $1 million a year, are you willing to pay approximately 1 more mill rate point on your property taxes so that everyone could park there for free? To put some context on that, let’s say you pay $5k a year in property taxes based on a mill rate of 15 points. Would you be willing to pay approximately $300 in taxes to support that?

      The legal fees in defending eminent domain could be an issue, but since when has the Connecticut Supreme Court sided with a property owner? Any legal fees would have likely come from the property owner.

  • Anon

    In answer Turfgirl, I don’t think that’s the issue at all. It’s not an either/or. One suggestion, don’t raise any taxes for Norwalkers (let them park for free)–raise the rates and costs for out of towners who use the parking garage (and the affordable housing tenants) and who pay less in property taxes than Norwalk since Norwalk foots the bill for all their social services.
    And, I wish my taxes were only $5,000/year—that’s a Westport or Wilton tax bill.

    • turfgrrl

      Anon: You’ve got a couple of issues there.
      By affordable housing tenants, you would be referencing the nurses, interns, secretaries, teachers, and office workers who use exactly what social services? You seem to not realize that in Fairfield County, the people who qualify for affordable housing are likely young professionals who find it difficult to afford $2000/month rents on $45k /year salaries. And yes, I’m generalizing here, as you did. As for people in affordable housing paying less in property taxes, I’d disagree. They still pay the same mill rate on their cars as anyone else. But they likely don’t own their housing, so it is a business that does and they are in fact the property owner who may or may not be paying less property taxes. But I’ll provide another example or business owners who pay less in property taxes. Property owners who tear down buildings and leave vacant lots pay less property taxes. Property owners who let buildings sit vacant and in disrepair pay less property taxes. And I’ll bet, and this is one bet that I have sort of unfair advantage over because I keep tab on the numbers, that there are more property owners who pay less in property taxes on commercial property than those that pay taxes on residential.

      Onto your next point. As policy goes, the current situation of having people pay per use, gets to your policy point most efficiently. You could technically implement something along the lines of resident stickers get you free parking, but then you’d have an enforcement cost of checking who occupies what space and whether they were Norwalk residents or not. But what do you think the local business community say about a policy like that? Particularly the businesses that depend on tourists and visitors to spend money? I would guess that they would seriously think about relocating to other cities because businesses realize that in order to be successful you need a vibrant regional economy. And all those office workers who come into Norwalk daily who might want to rethink spending money locally is they were singled out as having to pay more for parking.

      I should add, that while you objected to paying $7 for 1.5 hours at the Maritime Garage, you could have spent $1 /hour on the street or in Webster, Haviland or North Water street lots. So there are choices in parking out there.

      • anonymous25

        I don’t know any nurses, teachers, etc… who are in affordable housing. Most of them live north of here where it is more affordable. Affordable housing is mostly associated with those on public assistance like Section 8 and other social services.

  • Anon

    Touche, good points, (except you don’t explain why our neighbors don’t embrace your affordable housing argument if it’s such a great deal) and, agreed, to do something that scares away business is not a good idea. You can out-argue me. Just don’t raise my taxes or my fees.

  • parklover

    Good article. You are correct-Stamford is filling up its dowtown office and residential space because of the visible signs that the city cares about its quality of life, by not only investing in its transportation infrastructure, but also in its public spaces. It is spending millions in private and public capital on a major new park called Mill River Park, with acres of grass, trees, wildlife habitats, playgrounds, state of the art athletic fields, and revenue generating restaurant, carousel, and skating rink to provide year-round amenities the public wants, and a way to help fund the improvements and maintenance.

    And what do we have to offer companies and residents in the way of vibrant open spaces? A completely empty and crumbling Vets Park as our premier downtown open space, basically a deserted waterfront with more geese than people. And a deserted Mathews Park with empty lightpole bases, crumbling infrastructure, and a bathroom thats only open a few months a year.

    Why?

  • Dave Davidson

    In case your readers missed the letter to the editor of The Hour:

    To the Editor:

    I was very disappointed to read your editorial supporting the action of the Common Council approving the signing of the letter of intent with the owners of the Globe Theatre property. While I fully understand the positive motives of the Council-persons who voted for the resolutions, I think it was a serious mistake. As I said during the public comment portion of the Council meeting:

    1) Is it appropriate for the city to borrow $2,000,000 dollars to purchase a property that its own assessors have valued AT LESS THAN HALF that amount?

    2) If a property requires re-mediation of approximately $400,000 and one reduces the assessed value by that amount, is it appropriate to pay a property owner almost THREE TIMES, that reduced amount to acquire the property?

    3) When negotiations between a developer and a property owner fail to reach agreement, and one party is being unreasonable, is it appropriate for the city to BAIL OUT the property owner and pay the unreasonable demand?

    4) And most importantly, does this action by the city set a TERRIBLE PRECEDENT, that when a property owner and a developer are unable to reach an agreement, the city will step in to BAIL OUT the UNREASONABLE party?

    While I also am not supportive of the CASUAL use of eminent domain by the city to acquire property for private development, when faced with as UNREASONABLE a price as this is for the Globe Theatre, I believe the City should have considered this alternative.

    While I am sure the City will now go ahead with the letter of intent, I am hopeful that the Council will get another opportunity to consider these issues when the report on the re-mediation requirements are defined. Hopefully they will NOT make the same decision.

    Respectfully,

    • turfgrrl

      Dave Davidson: Good advice to the council, but will they understand it?

    • ENW

      Great letter, Dave.

  • anonymous25

    According to your article the recession ended on Sept 15 2009. I am just making sure that is what you said. When I look out the window it sure seems as if we are still in a recession. Maybe you should step away from the computer for a few minutes and take a walk outside.

    • turfgrrl

      anonymous25: Looking out the window it appears to be sunny and warm, but the weather reports say it is 30 degrees out there. Hrmm… The point is that an economic recession is a pretty technical term, and whether you look out the window or not, the economy is in fact no longer contracting, and economists say the date that economy stopped contracting was September 15, 2009.

  • BLARNEY

    YEP! The recession is over, you can tell by the rampant inflation as people spend all the disposable income they have hidden for the past 2 years. Banks lend hundreds of millions to home buyers, the local papers list dozens of “Help wanted” ads. Merchandise is flying off the shelves at an alarming rate, and business is booming.

    GOOD TIMES ARE HERE AGAIN…

    Even the laws of physics are called into doubt at a singularity, but we can say without a doubt that there will be a pot in every chicken………….

  • anonymous25

    Thanks for your response Turfgirl but let’s not sugar things with technical terms, we are still in a recession and it is getting worse. More and more people are out of work and dropping off the governments radar screen; and how about the self-employed person. No one has addressed their fate. They don’t get the pleasure of being on any “unemployment line” for assistance.

    Our govt is spending massive amounts of money they (we) don’t have. The dollar will is losing its value daily, banks are NOT lending money to potential home buyers; superinflation is right around the corner… what will the technical term be for the days ahead? Someone will find one!

    • turfgrrl

      anonymous25: Well calling something a recession is a technical term. You can call it a bad economy, or whatever, but the standard definition of a recession is:
      The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.
      This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.

      Recession: The BCDC Definition

      The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.