Thursday, February 19, 2009
Catherine Wilson, Bureau Chief
Not Holding Their Breath
For Recovery Bailouts
Congress finally passed an economic recovery package last week, the American Recovery and Reinvestment Act of 2009, that was high on dollars but short on details. According to the Congressional website: (The) American Recovery and Reinvestment Act of 2009 - Calls for the enactment of legislation to create jobs, restore economic growth, and strengthen America’s middle class through measures that:
(1) Modernize the nation’s infrastructure;
(2) Enhance America’s energy independence;
(3) Expand educational opportunities;
(4) Preserve and improve affordable health care;
(5) Provide tax relief; and
(6) Protect those in greatest need.
The bill provides for expanded unemployment benefits, food stamps, health coverage and aid for states for school aid and other programs. In
addition, individuals who receive Social Security, Supplemental Security Income and veterans pensions and disability, will receive a check for $250 each. Middle income taxpayers would get a break of $400 per individual, $800 per couple, in their Federal taxes while lower income earners will receive a reduction in their Social Security and Medicare taxes. The Obama Administration is also proposing additional government funding in this bill, for information technology in health care, and “green jobs” to reduce the nation’s reliance on foreign oil, and $46 billion for highway, bridge, and mass transit infrastructure projects. General Motors and Chrysler will also receive additional funding
from this stimulus package, up to $7 billion in total, in addition to the $13 billion in loans they already received from the Bush Administration last year.
In tandem with the $790 billion economic stimulus plan for Americans, Treasury Secretary Timothy Geithner also announced a $2 trillion bailout package last week for the banking industry. Both plans were initially rejected by Wall Street where stocks plunged another 382 points the day the stimulus package was approved by the Senate. “Wall Street is hoping for an easy way out and there is no easy out,” President Obama noted, reacting to the stock market plunge. However, neither Obama nor Geithner provided the comprehensive details as to where all this money will end up and how it will be accounted for, that investors, taxpayers, and state and local governments are seeking at this critical time.
In a message to state residents last week, Governor Paterson addressed the financial crisis affecting New York and how the state is already acting
on this issue, without waiting for the Federal Government’s intervention: “Earlier this week, I reached an agreement with the Legislature to close a $1.6 billion deficit for the 2008-09 fiscal year. Though I have repeatedly lobbied the federal government for an economic stimulus package, New York could not afford to delay and hope for rescue any longer,” Paterson said.
Many area residents and local business owners are also taking the same approach. They are not waiting for the government to step in and are, instead, addressing their economic problems themselves. Billy Fortin, owner of Scotts Corner Market in Pound Ridge, noted that his customers are already changing their shopping habits. “People are more selective about their buying. They’re leaving the good dollar stuff on the shelves. They’ve switched from Porterhouse steak to less expensive cuts,” he told us.
Fortin believes that the solutions for the economy will come from businesses themselves. He said, “We’ve had it so good for so long. But my sales are off recently about 4-5%, which is pretty good in comparison to other businesses. So, we need to look into the intimate details of our businesses
and run them better. That’s what companies should do anyway. You should always look at how you can do better, even in good times”.
By following his own advice and keeping an eye on the details of his business, Fortin has managed to avoid the pitfalls of the economy so far. He stated, “I’ve never laid anyone off and I haven’t had to yet. I have 144 employees and they have to feed their kids, too”. Fortin also owns two other businesses in the area that are not showing the impact of the declining economy. “I own a pet store and I haven’t seen any impact there.
People love their animals. For many people, their pets are their best friends and they want to spend on them and take care of them,” Fortin noted. “I also own a restaurant in town, called Blind Charlie’s. We’re a breakfast and lunch café. I deal with a very well educated clientele. They demand value, and our café prices are good. So nothing has really changed there. But I know some friends who own fine dining establishments and their businesses are down,” he added.
Fortin is concerned about some of the government proposals to stimulate the economy and offset the declining tax revenues. He interjected, “This
is an affluent area. If the government raises taxes on high income individuals that will probably hurt businesses in this area”. But Fortin believes that the ultimate responsibility for his business rests with him and sound business practices. “I don’t know that government can help; if my business goes under, it’s my fault.
I don’t want government to bail me out. But I hate to see people lose their jobs. So if the government can help with that, I’d be for it,” he reflected. Fortin is not alone in not waiting for government intervention in the economy to help his businesses survive. Many local merchants are looking for new ways to cut costs to offset their declining sales. A common tactic the Guardian discovered among local businesses to cut costs lately is to be selective about what credit cards they will accept. Many local merchants, particularly gas stations, are refusing to accept American Express cards any longer due to their higher than average user rates. One gas station owner in Pleasantville admitted to the Guardian, “I cannot afford to accept them, American Express. They bill me 4% - 5% on every dollar the customer charges. That’s almost double what MasterCard and Visa charge.” However, this owner noted that not all MasterCard and Visa credit cards are alike. “If the MasterCard or Visa awards airline frequent
flier points, they’ll charge me almost as much as American Express. And you can’t often tell by looking at them if they are an award card,” he noted. “Besides, I have to accept them, regardless of what type of award card they are”.
The most popular card with these merchants is Discover which traditionally charges businesses the lowest rates for accepting them. However, as the Pleasantville owner noted, “Most individuals in this area do not carry Discover cards. It’s either a Master-Card or Visa for their personal
use and an American Express for their business expenses”. Local employees charging gasoline and other business expenses to their companies may have to foot the bill up front themselves on their personal credit cards as more gas stations and area businesses refuse to accept American Express for payment.
Local companies catering to mostly non-business clientele are following suit. The owner of “The Hair Stylist” beauty salon in the Galleria Mall in White Plains also stopped accepting American Express cards from her customers just two weeks ago. “I cannot afford to pay them their fees any more,” Vicky told the Guardian. “They charge far more than the other cards so I have to stop taking them.” Vicky had just posted a hand-written
sign on her cash register the day of the Guardian’s visit. “So far I haven’t had any complaints” she said. “People understand we have to cut costs.”
Even major chain stores are adopting new strategies to keep customers. When a discontinued Dyson vacuum cleaner, advertised at $449.98, discounted from $549, was no longer available last week in Kohl’s in Bedford Hills, the manager on duty offered the prospective customer a higher-priced model, one regularly priced at $599.98, for the lesser-model’s sale price, an immediate savings of over $150 for the customer.
Several sales clerks and cashiers from local chain stores admitted to the Guardian that their stores are willing to negotiate with customers, especially on high-ticket items, in order to get the sale. Kohl’s position in the market as a low-priced clothing store places it in a favorable position in this economy, it is one of the few major department store chains that is expanding and hiring. Last week Kohl’s announced the opening of another store, in West Palm Beach, Florida. At a hiring fair for that store earlier this month, scores of potential employees lined up all weekend for the 150 positions available.
While some businesses like Kohl’s are doing well in the current recession, others are struggling to survive. Adding to the economic woes are consumers themselves who are cutting back on purchases. Noting that “American families are tightening their belts and so should Washington”,
President Obama, on his first day in office, capped the salaries of White House aides who currently earn over $100,000.
Tightening our belts may not be enough; economic experts are now claiming the current “Great Recession” could last as long as three more years. As the stimulus package was being voted on, however, Obama reassured Americans by claiming the plan would “create 3.5 million jobs and get the economy back on track”.
Included in the package are tax breaks for the purchase of a new car or home to encourage growth in the housing and car manufacturing industries. But for families already hit hard by the recession, or worried about losing their jobs if the current recession continues, tax credits alone may not
be enough to encourage them to make major purchases. And area businesses are responding to the changes already visible in consumer patterns. As Pound Ridge entrepreneur Billy Fortin noted, “Businesses have to adapt to survive”.