The Hole Truth and Nothing But

Cash-strapped Albany enforces obscure tax targeting bagel shops in New York – maybe it’s time to take another look at the Marcellus?

Few states have been hit harder by the nation’s protracted economic downturn than New York, but here’s how you know the budget situation up there has gone from serious to critical: Starting this month, the state will assess a separate tax on the purchase of bagels that have been sliced.

Here’s how it will work: You walk into Louie Thompson’s Terrace Bagel shop in Brooklyn, N.Y. and ask for a whole blueberry bagel. No tax assessed there. But ask Louie to run his Ginsu through it, or possibly even dare to consume that bagel within the confines of his store, and in the eyes of Albany, you’ve just been issued a “prepared food” item – with the appropriate levy attached. Think we’re kidding around? Here’s how the Wall Street Journal addressed the issue in the paper this week:

State tax officials, under orders from cash-strapped Albany … have begun to enforce one of the more obscure distinctions within the state’s sales tax law. In New York, the sale of whole bagels isn’t subject to sales tax. But the tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it’s never been touched by a knife, it’s also taxed.

So how much are we talking here? According to Kenneth Greene, who owns several Bruegger’s Bagel franchises throughout the state, the levy amounts to about eight cents a bagel. Doesn’t seem like much — until you consider that more than 200 million bagels are bought and sold in America each year.

Just for argument’s sake, let’s assume New York accounts for 20 percent of that total. At eight cents a pop, you arrive at a collection figure of $3.2 million a year. Nothing to sneeze at, for sure. But not exactly in the same league as the potential revenue that could be generated through the responsible development of the Marcellus Shale in New York. For those numbers, let’s take a look at a recent report on the subject commissioned by API and produced by professor and economist Tim Considine:

Total gross output in New York would increase $3 billion in 2015 if Marcellus development would be allowed. Value added impacts displayed in Table 11 are $1.7 billion. … Marcellus development would be quite significant to the regional economy of upstate New York. Employment would increase by more than 15,000 in 2015. Finally, local and state tax revenues would increase more than $214 million in 2010 dollars.

You read that right: Even applying the most conservative estimates related to the number of Marcellus wells developed in the Southern Tier, we’re still talking about the potential to generate more than $200 million a year for state and local governments in New York. Good news for sliced-bagel lovers across the state, potentially – but even better news for the nearly 900,000 folks currently on the state’s unemployment rolls, right?

Unfortunately, the prospect of leveraging the enormous potential of the Mighty Marcellus into jobs, revenue and opportunity for New York has yet to be fully appreciated by those charged with representing the interests of New Yorkers in the state Senate, with that body earlier this summer approving a bill that seeks to ban the use of a commonly used energy technology known as hydraulic fracturing all across the state – whether it’s deployed in the Marcellus or not. Their reasoning? Hydraulic fracturing is new, and untested, and unregulated. Never mind that it’s been used safely in New York for more than a half-century. Or that the state’s DEC has aggressively regulated and overseen the practice almost before we even had a name for it.

Now comes word that the same folks who promoted that legislation in Albany are actively enlisting small business owners in New York to carry forth that same campaign of misinformation on their behalf. Their latest victim? None other than our friend Louie Thompson from the Terrace Bagel shop in Brooklyn. In a video posted recently on a website maintained by Riverkeeper, Louie explains the process of making his no-doubt-delectable rolls-with-a-hole. But it’s the little tag line he attaches to the end that got our attention:

Gas drilling – or fracking – in New York will ruin our water and our bagels. So go to DontFrackNewYork.com [sic.] and tell Albany: ‘Don’t frack with New York’s water.’

All of which begs a simple question: Would Louie take the same position on the Marcellus if he knew that hydraulic fracturing isn’t a “gas drilling” process (fracture stimulation occurs after the drilling procedure is complete)? Would he be more supportive if he knew that fracturing operations have been going on safely and responsibly in New York for decades? Could he be convinced to reevaluate his stance if he knew that prospective Marcellus exploration isn’t slated to take place anywhere near the borough of Brooklyn? What if we told him the sliced-bagel tax could go the way of the dodo if even a fraction of estimated Marcellus-related revenue is generated by producers, and dutifully collected by Albany?

We don’t know Louie, so we don’t know the answer to that question. But here’s what we do know: The opportunities the Marcellus Shale present to New York are historic – especially at a time with 900,000 residents unemployed, and a $9 billion hole in the state budget. We also know it’s going to take decades of hard work to fully make good on those opportunities, as well as a renewed commitment to doing this work in the best, safest, cleanest and most efficient manner possible. Sound regulation is a fundamental part of that equation — always has been, always will be. Now it’s time for the facts to make their way to the scene as well. Preferably with a little cream cheese in tow.