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Community Corner

FASNY: SMAYDA FINANCIAL FOLLIES

To: Mayor Roach and Common Council Members

Common Council Member Ms. Beth Smayda has claimed financial expertise in several public hearings I have attended.    Ms. Smayda mentions that she “crunched” the numbers on the City purchasing the Ridgeway Country Club (“CC”) back in 2009.    Ms. Smayda has stated some novel financial theories in writing in response to constituent inquiries about the taxes associated with the Ridgeway CC.   Ms. Smayda asserts that since no taxes have been paid on the Ridgeway CC since 2010, that the various public entities that these taxes are paid to have adjusted their expenditures accordingly and therefore these taxes should no longer be a part of the decision to issue a special permit to FASNY.    In technical terms, Ms. Smayda asserts that the loss of Ridgeway CC as a taxpaying entity is a sunk cost to White Plains.  This is wrong.  

Like many people with some facility with quantitative finance, Ms. Smayda is able to maneuver around an excel spreadsheet, she can add up columns of numbers but it is clear, and there are many like her, that she does not understand what the numbers are telling her.  Ms. Smayda does not understand fundamental concepts like sunk cost and opportunity costs and what comes down from her should be taken as a grain of salt.  Ms. Samyda scolded the audience in attendance at the Common Council meeting on SEQRA approval that they were misinformed and had incorrect information. 

You be the judge.  From the Common Council perspective if we are looking at finances, the correct analysis should be concerned with what White Plains is giving up in terms of alternative uses of the Ridgeway property if FASNY develops the property as a regional mega-educational complex.   The analysis in the FEIS is fatally flawed (I missed this) when it comes to the discussion about alternative uses of the property.    For instance, in 2007 the Ridgeway property generated over $441,000 in local taxes.    Additionally, following a conservative methodology (unlike the far-fetched and fanciful mandatory busing estimates), if the property maintains its residential  single family zoning, the construction of 40 homes of similar value to the existing neighborhood would generate $25,000 annual taxes or over $1million in total revenue to White Plains. 

These are the baselines to judge FASNY in financial terms.   The opportunity cost to the community of a decision by the Common Council to issue a special permit is a minimumannually of  $441,000 and in reality through the construction of new homes at least $1million annually in direct lost tax revenues.  In response to an inquiry by my astute and financially savvy neighbor Monica Cahill, Ms. Smayda produced the following discussion and spreadsheet:

Dear Ms. Cahill,
I reviewed all of the Country Club's tax bills when the course was up for sale.  The City does collect property taxes for all governments within the city borders, although then passes the tax proceeds along to the appropriate levels of government for their use.I had put together a spreadsheet at the time which I have included below.  As you can see, the city share (or the amount that goes to the City budget) was $57,193.  Again this was taken directly from the actual tax bills that were sent to the Club and included in the diligence materials that I reviewed.  Additionally the school property tax amount will always be higher than the City's because they do not get the sales tax and are, consequently, more reliant on the property tax base. Best regards,Beth
2007 2008 2009 2010 
Property taxes
441,402380, 557,285, 627,289,121   County
71,471, 59,683, 47,538, 48,534   City 85,159, 71,892, 53,527, 57,193   School 284,772, 248,982, 184,562, 182,202   Fire 1,192 

Ms. Smayda commented that in 2010 Ridgeway CC property paid only $289,121 total taxes and that the City’s take was only $57,193.   Ms. Smayda went on to assert that the School Board had already adjusted their expenditures from the loss of tax revenues since it occurred in 2010.    Ms. Smayda indicated in her response that since the city didn’t miss the paltry $57,000 in taxes and that the Schools were (I guess) spending $182,000 less on students, that FASNY would have no adverse impact on the community.    
This is nonsense and any student in her first course in finance should be able to tell you that this is nonsense.

All bodies of government have already absorbed the reduction since the Club has been off the tax rolls for some two years now, i.e., everyone has already felt the impact in their property tax as a result, whether at the school, county or city level.
Regards,Beth

Some questions about Ms. Smayda’s spreadsheet.    How was the Ridgeway CC able to decrease their taxes by 35% from 2007 through 2010?    I was not able to do this on my property.   What the heck is going on here with the tax assessor and collector?    These are pure property taxes.    If the economic bust is the reason then all right, but then the “normal” state of affairs is $447,000 in property taxes per year or maybe higher based on data from normal economic conditions.   

Ms. Smayda can input numbers into a spreadsheet and add them up but she has egregiously misinterpreted the information that she has before her.   An example may help those still skeptical of how opportunity costs affect the rational decision-making of competent financial analysts. The iconic Thru-Way diner in New Rochelle was sold in 2008 to make room for a Walgreens pharmacy.    http://dinerhotline.wordpress.com/2008/07/14/new-rochelles-thruway-diner-closes/.    The diner was profitable but the decision was made to lease the property because the lease would provide more cash than the profits from the diner.   

The mayor and Common Council have a responsibility to consider the opportunity costs associated with FASNY in continuing to affirm and what looks like issue a special zoning permit.   FASNY’s development in White Plains does not represent a net economic benefit to the community.   I demonstrated this in my own report rebutting FASNY’s claims and my criticisms have gone unchallenged or been ignored.   Nevertheless, the “Findings” from the Common Council also observe that FASNY does not represent on balance a net economic benefit.    

Mayor Roach said recently of White Plains finances in the WP Examiner on January 7th:
“People who live here love this city,” Roach said. “Everyone on this council is focused on what is in the best interest of this city. We brought fiscal stability to this city. We’re seeing an interest in development of our downtown parcels. It is a city that gets right to work. We have a lot of great things coming. Our best years are ahead of us.

How can this statement square with the omission of considering opportunity costs in the evaluation of FASNY proposals and application for a special zoning waiver and permit?    Is granting a special permit to a non-profit and therefore non-tax paying organization on such a large development responsible fiscal policy? 

However, it seems that Common Council is relying on the estimable spreadsheet maestro, Ms. Smayda, and her misguided analysis that does not take into account the lost tax revenues generated from former and alternative uses of the property.    

Deny the special permit and the property will be sold to another buyer for a different use.   FASNY is not entitled to a special permit.   They are only entitled to apply for a special permit.    In every real-world context, considering opportunity costs drives decision making.  Charles Diamond, Ph.D. (Economics)

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