State governments around the country are in big trouble, ballooning deficits and dysfunctional legislators hamstring officials in confronting the financial crisis. That´s not good news for real estate players. Cutbacks hit slews of companies and not for profits, which depend on government contracts and grants to carry on business and rent space. Developers looking for support from government tax breaks or special consideration gain little traction in the chaos. Furloughs of state workers and hiring freezes portend potentially more permanent reductions in state services-when state governments have been one of the most reliable tenant sources in many markets.
Of course, plunging property values, increasing defaults and foreclosures as well as the feeble real estate transaction market all contribute to falling state government revenues. But the sad sack state of the states just digs a deeper hole.
And state government problems aren´t simply a result of depleted tax coffers. The current financial distress exposes systemic dysfunction and widespread corruption. The country´s two most important states with the nation´s biggest economic generators--California and New York-- desperately need constitutional conventions to revamp legislative process and anachronistic systems which gridlock in the face of emergency. Legislative districts need to be redrawn to reduce advantages for incumbent politicians, who comfortably play the system for their own financial gain without meaningful ethical strictures to rein them in. Earmarking run amok and legislator slush funds for local pet projects show an utter disregard for responsible budgeting.
In many states, including Pennsylvania and Illinois, rural legislators continue to wield power that siphons off funding from cities´ economic engines and disproportionally favors their less populated, lower functioning districts. It´s all part of a destructive Nero fiddling mentality.
Sales taxes, user fees and local property taxes have been increasing for years to fund all this dysfunction and now budget gaps reach scary proportions. Taxes have no choice but to go up more while services retrench to plug shortfalls. And that will stem any recovery momentum.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
