Leaving New York: why people with money go to other states

Brenan Hefner came to New York 20 years ago to pursue a career on Wall Street. Having achieved everything he dreamed of here, he decided to move with his family to Texas. It was not only the coronavirus pandemic that contributed to this. There are many like Brenan. The publication told about them CNBC.

What makes people leave

Brenan Hefner took a job at an asset management firm in Manhattan, found love, achieved career success, and eventually moved to Pelham, an upscale Westchester city, to start a family.

He would still be living there if it were not for the coronavirus pandemic. When Hefner, co-founder of a research platform called Analyst Hub, sold his home to a London couple this summer, he explored the surrounding area in search of a new home. And in September, he moved the family to Dallas, Texas.

Hefner is one of thousands of highly paid professionals who left New York in 2020. The exodus of such specialists heightens fears about the projected budget deficit of $ 9 billion. While the city is no longer the epicenter of COVID-19 as it was at the beginning of the year, those leaving are citing concerns about the region's economy and quality of life, as well as a belief that taxes will rise. Last month, business leaders publicly denounced Mayor Bill de Blasio for "worsening conditions in commercial districts and five boroughs."

The pandemic has forced many to shift to remote work and robbed many of the benefits of urban life; it stimulated migration from expensive, densely populated areas to states with cheaper living conditions, including Texas, Florida and Nevada. Nearly half of New Yorkers who earn more than $ 100 a year said they have been thinking about leaving town recently; with the cost of living being the main factor, according to a study by the Manhattan Institute. “The cost of living is much lower here,” Hefner said over the phone from his new home. - No income tax. I will not take public transport in the midst of a global pandemic to get to the subway and to WeWork or anywhere else. "

During the pandemic, Hefner realized that for those in financial services, New York's gravitational pull is still there, but much weaker. He says he runs his business about as effectively through the Slack and Zoom apps, and plans to fly to New York every month to meet with clients. Founded in 2018, his company helps celebrity Wall Street analysts leave big banks and start independent research companies. “I'm just not sure if it's necessary to stay in the city,” Hefner said. - This does not mean that I do not like the city, I do. It's an amazing place, but for a family of five, I'm not sure if this is the right place for us at the moment. "

No longer the "greatest city in the world"

Hefner has 19 employees. Caroline Goodson, his director of sales, left Manhattan after a homeless camp was set up outside her home. She also moved to Dallas.

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Co-founder Michael Kronenberg, a downtown Manhattan apartment owner, spent most of the pandemic outside New York, renting a number of homes in places like Scottsdale, Arizona; Vail, Colorado; and Sullivans Island, South Carolina. Moving to lower tax states has never been more attractive for senior financial professionals not tied to the marketplace, he said. “Everyone I know is leaving,” Cronenberg said. “It's not just New Yorkers. My partners, longtime clients and investors in Connecticut or New Jersey, are used to commuting to and from the city. They will never commute to work five days a week again. ”

The coronavirus pandemic has caused the worst global economic crisis known to date. It claimed the lives of 230 Americans, with New York accounting for one tenth of that grim figure. Downtown downtown business districts remain shadows of themselves, depriving local businesses and the city of much-needed income. Record daily US cases and surges in Europe are forcing New Yorkers to prepare for a harsh winter.

But since this summer trucks to store the bodies of victims of COVID-19 began to appear on city streets, New Yorkers began to worry. Now the place that Mayor Bill de Blasio calls "the greatest city in the world", in their opinion, was no longer such. A post by a former LinkedIn hedge fund manager declaring New York "NYC is Dead Forever" drew a sharp reaction from Jerry Seinfeld.

Many who remain say the city is more livable than it used to be, with streets closed to traffic and restaurants taking up more outdoor space.

Of course, New York City has recovered from all the disasters in its history, from the Spanish flu of 1918 to the 11/2008 terrorist attacks and the XNUMX financial crisis. So he will deal with this crisis as well. But it is hard to deny that the most difficult part of its restoration is yet to come.

Fall of the real estate market

Data from the U.S. Postal Service, relocation companies, and tech companies tracking smartphone data indicate an increased churn of New Yorkers. Since March 2020, more than 246 New Yorkers have filed a request to change their address to zip codes outside of the city - nearly double the number last year.

The decline in demand for Manhattan apartments, where average monthly rents in the third quarter fell 7,8% to $ 2, are part of a citywide decline not seen since 990, according to StreetEasy.

Undoubtedly, New York City suburbs have become a major migration destination: home sales in Westchester jumped 112% in July, according to evaluator Miller Samuel Inc. Sales in Greenwich, Connecticut were the most successful in over a decade.

For those in finance, it is difficult to ignore the simple mathematics of lower tax regimes. New York State charges 8,8% on the wages of high-paid workers, while New York City charges an additional 3,9%, or nearly 13% combined. Meanwhile, other states, including Florida, Texas, and Nevada, do not tax salaries. The more people earn, the greater their incentive to relocate, as living in New York they can lose hundreds of thousands of dollars after taxes.

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Many of Wall Street's wealthy New Yorkers have already decided to move. Hedge fund billionaire Paul Singer has moved from Manhattan to Florida, Bloomberg reported this month.

His move follows the move of another billionaire, notable corporate raider Carl Icahn, who moved last year to avoid New York taxes.

The largest churn of professionals in 40 years

“My concern is not that they are leaving, but that they are taking their cases with them,” said Mark Klein, New York-based tax attorney and chairman of Hodgson Russ. The relocation of business owners worries those who remain in the city, he said.

At the same time, Klein says he now has ten times more clients than before the pandemic began. He helps people who make more than $ 800 a year move to low-tax states, often bringing businesses with them. In addition to hedge funds, Klein says a range of professional service operators are leaving, including public relations and accounting firms. “I've never had so many clients wanting to leave New York and Connecticut, high tax states, in my 40 years in the industry,” he said. “As soon as COVID-19 hit New York and people realized they could work from anywhere, the floodgates opened.”

The stakes are even higher in an election year. Many financiers are confident that if Joe Biden wins and the Democrats take over the Senate, taxes will rise.

But among those who decide to move are not only hedge fund traders and managers. There are also many employees of high-tech firms among internal migrants.

Last year, Rhino startup CEO Paraag Sarva bought a home in Bucks County, Pennsylvania. He decided to rent it out most of the time. But a few months after the pandemic, when it became clear that his children would hardly be able to attend school in New York, he moved into this house permanently.

Two other families from New York recently also moved, he said, and they brought their business with them.

His startup is still based in Manhattan. But Sarva is rarely there, managing affairs remotely. In the summer, the company doubled its workforce to 90 and raised additional capital of $ 14 million.

His taxes in Pennsylvania are 10% lower, he says. “As soon as we made the decision (to move - Ed.), We consulted with our tax and legal advisers,” says Sarva. - I am officially a resident of Pennsylvania. I voted here, registered my car here, I have a Pennsylvania driver's license. I have moved from my former home and am not going to return. "

In some financial circles, people who are hesitant to move to other states insist on tax breaks. As a rule, these are urban residents who moved to their second homes with the onset of the pandemic. “I have many acquaintances who are trying to free themselves from New York taxes. To do this, they live in Hampton, Westchester, Connecticut or New Jersey, ”said the chief executive of a large global investment bank. He refused to give his name because he is afraid of being identified, speaking too frankly about taxes.

He owns condominiums in Manhattan and homes in Sag Harbor. However, during the pandemic, he spent most of his time in New Jersey.

After meeting with a tax advisor, the chief executive plans to file his tax return as a Jersey resident to avoid New York's 3,9 percent tax.

At the same time, he fears that his expensive Manhattan real estate will lose up to 40% in value in the coming years. “No one will spare me,” he said. "The good news is that the city may become less boring."