Leaving New York: Excessive earners in finance and know-how clarify why they left “the world’s best metropolis”.
Analyst Hub co-founder and chief operating officer Brenan Hefner and his family outside their former home in Pelham, NY.
Source: Brian Hefner
Like many before him, Brenan Hefner came to New York 20 years ago to seek a career on Wall Street.
His trip will look familiar to those drawn to the nation’s financial capital. Hefner got a job at a Manhattan wealth management firm, found love and career success, and eventually moved to Pelham, an upscale town in Westchester, to raise a family.
Without the coronavirus pandemic, it would still be there. When Hefner, co-founder of a research platform called Analyst Hub, sold his house to a London couple this summer, he wondered if it made sense to look for a new home beyond the surrounding areas. He moved to Dallas with his family last month.
Hefner is one of thousands of high earners who left New York this year. This exodus deepens concerns about a projected budget deficit of $ 9 billion. While the city is no longer the national virus hotspot it was earlier this year, those who leave the city cite concerns about the region’s economy and quality of life, and a belief that higher taxes are coming. Last month, business leaders publicly accused Mayor Bill De Blasio of “worsening conditions in business districts and neighborhoods in the five boroughs”.
By forcing the mass adoption of remote working and limiting many of the benefits of urban living, the pandemic has turbo-charged migration from high-cost, high-density locations to lower-cost states, including Texas, Florida, and Nevada. Nearly half of New Yorkers who earn more than $ 100,000 a year said they recently left the city, with the cost of living being the most important factor, according to a survey by the Manhattan Institute.
“The cost of living down here is significantly lower,” said Hefner over the phone from his new home. “There’s no state income tax. I’m not using local transit to get on a subway to live in a WeWork or anything in the middle of a global pandemic.”
For Brenan, the pandemic has shown that New York’s appeal to financial services companies is still there, but far weaker. He says he’s about as effective in running his business through Slack and Zoom, and plans to fly monthly to New York for customer meetings. His company, founded in 2018, helps Star Wall Street analysts leave large banks to set up independent research shops.
“I’m just not sure if being in town is a requirement,” said Hefner. “That doesn’t mean I don’t love the city. It’s an amazing place, but for a family of five, I’m not sure if it’s the right place for us at this time.”
Brenan also has company within his 19-strong start-up. Caroline Goodson, its director of corporate access and sales, left Manhattan after a homeless warehouse appeared outside her apartment building. She also moved to Dallas.
Its co-founder Michael Kronenberg, who owns an apartment in downtown Manhattan, has spent most of the pandemic outside of New York and rented a number of homes in Scottsdale, Arizona, among others. Vail, Colorado and Sullivan’s Island, South Carolina. For senior financial professionals who are not tied to a trading venue, moving to lower-tax countries has never been more attractive, he said.
“Everyone I know leaves,” said Kronenberg. “It’s not just New Yorkers. My partners, longtime clients, and investors of mine who live in Connecticut or New Jersey are used to commuting to the city. They’ll never commute five days a week again.”
The coronavirus pandemic caused the worst global economic crisis in living memory, killing 230,000 Americans to date, with New York City claiming one-tenth that dismal number. The downtown and downtown business districts are still a shadow of their former selves, robbing local businesses and the city of much-needed revenue. New Yorkers are getting ready for a tough winter.
But since trucks clogged the city’s streets this summer, New Yorkers have been outraged by the idea that what De Blasio calls “the world’s largest city” is on the verge of multi-year decline. A former hedge fund manager’s LinkedIn post declaring “NYC is Dead Forever” sparked a withering response from Jerry Seinfeld.
Many of those left say the city is more liveable than it was before as the streets are closed to car traffic and restaurants take up more outdoor space. Of course, the city has recovered from every calamity in its history, from the Spanish flu of 1918 to the suburban flight of the 1970s, the September 11th terrorist attacks, and the 2008 financial crisis.
But it’s hard to deny the signs of pain. Data from the U.S. Postal Service, national moving companies, and tech startups tracking smartphones shows increased outflow from New York City this year. More than 246,000 New Yorkers have applied for a change of address for out-of-town zip codes since March, nearly double the number a year earlier.
This is lower demand for Manhattan apartments, where median monthly rents fell 7.8% to $ 2,990 in the third quarter. This is part of a citywide decline that StreetEasy says has not been seen since 2010.
However, the New York area suburbs were the main beneficiaries of the Exodus: Westchester home sales rose 112% in July, according to surveyor Miller Samuel Inc. Sales in Greenwich, Connecticut, just had their strongest quarter in more than a decade.
For those in finance, the simple math of lower tax systems is hard to ignore. New York State takes 8.8% of wages for high earners, and New York City collects another 3.9%, or nearly 13% combined. Meanwhile, states like Florida, Texas, and Nevada don’t tax wages. The more people make, the greater the incentive to leave, and the difference could easily mean hundreds of thousands more after-tax dollars.
That’s a deal some Wall Street titans have already made. Hedge fund billionaire Paul Singer is moving Elliott Management’s headquarters from midtown Manhattan to Florida, Bloomberg reported this month. His move follows that of another billionaire, famous corporate raider Carl Icahn, who made the move last year to avoid New York taxes.
Busiest for 40 years
“I’m not worried about them leaving, but about them taking their business with them,” said Mark Klein, a New York-based tax attorney and chairman of Hodgson Russ. The business owners’ escape worries those who remain in town, he said.
Still, it bothered him. Klein says he now has ten times more customers than before the pandemic and is helping advise people who move more than $ 800,000 a year to low-tax countries and who often bring their businesses with them. In addition to hedge funds, Klein is leaving a spectrum of professional service providers, including PR and accounting firms.
“I’ve never been so inundated with people who left New York and Connecticut, one of those high-tax countries, in my 40 years,” he said. “As soon as Covid hit, with the realization that people can work from anywhere, the floodgates opened.”
There is more at stake in an election year, and many finance professionals believe that if Joe Biden wins and the Democrats take over the Senate, there will be higher taxes. Within Goldman Sachs, several traders told me that they were voting for Biden “against their own financial interests” for declaring that he would levy taxes on those who earn more than $ 400,000 – a threshold that is on the wall Street is easy to cross.
And to one person I deserved high income with, high earners said the $ 10,000 cap on state and local tax deductions in President Trump’s overhaul in 2018 hurt them personally and they believe local governments in the will require more money from them in the years to come.
Leavers aren’t just limited to hedge fund traders and portfolio managers. There is also a growing ecosystem of fintech companies in New York.
Paraag Sarva, CEO of the fintech company Rhino.
Source: Paraag Sarva
When fintech CEO Paraag Sarva bought a weekend home in Bucks County, Pennsylvania last year, he thought he’d probably be renting it out most of the time. But months after the pandemic, after it became clear that full-time schooling in New York was unlikely for his young children, he made them his permanent home.
His new neighborhood, dotted with horse farms and more acres of property, is very different from his old home on the Brooklyn freeway. Two other families from New York recently moved in and brought their businesses with them.
His start-up Rhino, which replaces tenant security with a low recurring fee, is still based in Manhattan. But Sarva rarely returns; He has mastered the company’s explosive growth from afar. During the summer, the company doubled its workforce to 90 and raised additional capital of $ 14 million.
While education and quality of life were the main drivers behind his move, the lifelong New Yorker would not “leave money on the table”. In Pennsylvania, its taxes are 10% lower.
“After we made the decision, we consulted our tax and legal advisors what exactly that would mean,” said Sarva. “I’m officially a Pennsylvania resident. I voted here, registered my car here, got a Pennsylvania driver’s license. I’ve moved out of my previous home and have no intention of going back.”
In some financial circles, even people who may not have permanently uprooted their families, like Hefner or Sarva, are pushing for a tax break. They are typically city dwellers who moved into their second homes all day after the pandemic.
“There are a lot of people that I know are trying to get out of NYC’s taxes. They live in the Hamptons, Westchester, Connecticut or New Jersey,” said an executive director of a major global investment bank. Another colleague who worked primarily in New York moved to Delaware, he said. He declined to be identified and to speak openly about taxes.
The executive owns condos in Manhattan and houses in Sag Harbor but has spent most of the pandemic in New Jersey. After meeting his tax advisor for three hours, he plans to file taxes as a Jersey resident to avoid New York City’s 3.9% city tax. He and his friends risk an audit that can come three years after filing his 2020 taxes.
Meanwhile, he fears that his expensive Manhattan real estate will lose up to 40% in value in the coming years.
“Nobody will feel sorry for me,” he said. “The good news is that the city may become less boring.”