Insights

View from the Back Nine

  • January 16, 2014

    New Years is a reflective time. When I left my office just before Christmas, I thought of the 50 times I have left an office at year's end. What's different about the 12 months that passed? What have I not accomplished in the past year? What lies ahead?

    Celebrating a 75th birthday didn't seem like such a big deal. It does make me wonder, however, whether I have become a 20 year bond with annual sinking funds. Worse, my bond could be redeemed early. Oddly, this isn't a morbid thought, but it does concentrate the mind. There is a lot left to do. What can my contemporaries and I get done and what will we leave to our children and grandchildren? I am comforted by the inkling that in 2013, I had one of my most productive years. At my age, that is a surprisingly pleasant thought.

    Susan and my families continue to enjoy good health and the maturing of their offspring. It's hard for me to understand how I suddenly became Abraham. Susan and I have ten grandchildren springing from our five happily married children. Age has provoked reflection. I have written over 100,000 words of a memoir which is undoubtedly more interesting to me than any other reader. Travel, hobbies, government service, volunteer involvement, theatre, collecting, for profit adventures and curiosity have led me to many places. I am fortunate to have scores of close friends, involved myself in a range of activities and given myself much to recall and describe.

    Friends have enlivened my life, and for the most part, they are still moving. I have a rule in Florida that you can only discuss one organ a day. Funny how knee and hip replacements are like orthodontia for the aging - everybody seems to have them.

    I try not to think too often of those pals whose deaths over the past few years have left a void in my life. Ed Koch, Edgar Cullman Sr., Scott Hedrick, Joe Flom and Irving Rabb were five friends with whom I spent many hours. It's hard not to mourn my nephew, John Solomon, who died of leukemia three years ago at 47. His widow, Abby Solomon, and their two girls, Sara and Rebecca, are moving forward in their lives which softens the loss.

    For years I wrote a year end letter about our investment banking firm, Peter J. Solomon Company, L.P. Now, I will leave that to my colleagues. We are celebrating our 25th Anniversary which seems almost impossible. In 1989, when I formed the firm with an assistant and a driver, I hoped to build a small firm of perhaps 8 people. I had hoped that there would be enough owners and chief executives who were concerned about their treatment from the larger firms that I could sustain a business solely giving advice on mergers and acquisitions. For years, no one had the slightest idea of what an "independent" investment bank meant.

    Today, we occupy a 44,000 sq. foot office space, have 75 colleagues and no longer compete primarily against Goldman Sachs or JP Morgan but against the cacophony of "independent" firms that have followed our lead. Our firm represents companies throughout the globe. While we are best known for our clients in the retail, e-commerce, catalog and wholesale distribution worlds, we have an investment banking practice that stretches from media, entertainment and financial services to agriculture. In 2013, we had our most successful year.

    I am proud of my colleagues who, beyond being expert advisors to clients on how to achieve their financial and strategic goals, are able to accomplish these objectives without conflicts and with what I believe are the highest ethical standards.

    I spent a large part of the year co-chairing Governor Andrew Cuomo's Commission to make the New York State Tax Code more equitable, less opaque, more conducive to employment and less complex. Our independent Commission of 9 distinguished New Yorkers worked for 11 months issuing a Report of over 200 pages. We are justifiably proud of the Report, particularly the research contained in its appendices. Little of the information was previously available. New York State had not had a comprehensive review of its tax code in over a generation. If you are interested, the Report can be found in the Chairman's Corner of the PJSC website, www.pjsc.com. (Please click here to access the report.)

    New York's tax code has 150 exemptions to its sales and use taxes costing the State $3.2 billion of tax revenues, 80 modifications to the Federal AGI and $1.7 billion of credits and incentives for business. We proposed the elimination of $1.75 billion of the $3.2 billion in total tax exemptions to the sales tax and a material scale-back of the business incentives. We proposed major changes to the corporate tax both to modernize it and reduce its burden and recommended an increase in the estate tax exemption to exempt 73 percent of all estates. A number of our proposals simplified the code and removed hundreds of thousands of individual and corporate taxpayers from the tax rolls. We proposed that industry groups meet with the State tax department to modernize and rationalize definitions contained in the code.

    The legislative fate of these proposals is uncertain. Governor Cuomo appointed a second Commission to be more responsive to his immediate election year political concerns. He showed little enthusiasm for extending the sales tax or for curbing corporate incentives. The second Commission did, however, endorse extensive reductions in the estate tax, property tax and the corporate tax rate which the Governor mentioned in his 2014 State of the State Address.

    Our proposals were well received by progressives and conservatives. The press that did pay attention praised the research and the balance of the conclusions.

http://www.pjsc.com/announcements/gov-cuomo-begins-his- campaign

    We hope that after the State's election next fall, the Governor and the legislature will make a serious effort at tax reform. It will require pressure from the business community and good government groups.

    New York City has turned dramatically to the left. Mayor de Blasio ran a brilliant primary campaign focusing on the chasm between the rich and poor.

    New Mayors have grandiose plans, but initially they are judged on pragmatic issues such as crime and domestic tranquility. What will be the form of de Blasio's pragmatism? Koch saved the City from bankruptcy. He did a lot for housing later in his tenure, but he gave up ideology. Giuliani focused on crime and security. Bloomberg rebuilt the City and tried to make us healthier.

    Despite his rhetoric, I am not worried about the new Mayor. His proposed tax increase on the rich is clearly an antagonistic signal and is not necessary to fund his education program. It is just rudimentary populism, but it is not large enough to make a fuss over. The group to worry about is the new, more liberal City Council. The City Council has always been susceptible to legislation rooted in ideology. Usually, the Mayor is rational and strong enough to deflect the more outrageous legislation. This Mayor may not be able to veto without offending his supporters. New York City will not benefit from more complexity.

    For those of you who remember my comments on President Obama early in his term, you will not be surprised that his inability to explain his positions in simple declarative sentences continues to confound. Since he can't articulate his goals clearly, it doesn't surprise me that the legislation promoted by his Administration is so convoluted.

    I am still unable to grasp how most of the provisions of Dodd-Frank work. The latest 900 page legislation embodying the Volker Rule seems ridiculous. It addresses a problem which didn't cause the financial crisis and would seem to limit liquidity in the markets.

    Attempts by vocal minorities to tyrannize the majority are not a new phenomenon in the Republic. Wilson, Lincoln, Roosevelt, among other Presidents, were confronted by intransigent opposition. The job of the President is to figure out a way to circumvent gridlock and lead. The prospects for Executive leadership in the immediate future are dim.

    We may have to get more personally involved, and supporting candidates in Congressional races throughout the country may be a way to influence outcomes. Over the last few years, with a small group, we have supported senators in states where fewer than 225,000 votes win. Alaska, Montana and New Hampshire are such states. A phenomenon of these states seems to be that retail campaigning can be decisive and mass intervention from political PACs seems to have more limited effect on the outcome.

    An analysis of Congressional races shows that most representatives are elected with fewer than 140,000 votes. For example, the current Speaker, John Boehner, was re-elected with 140,000 votes when he ran opposed in 2010.

    Taking a lead from the first district of Alabama and the election of Bradley Byrne last November, it appears that it might be worthwhile to begin to support Republicans and Democrats who are, in football terms, practically between the 35 yard lines. To do so clearly requires supporting primary candidates because of the low turnouts and usually more ideological nature of primaries. Over a period of time, it seems that this strategy, if successful, might redress the centrist imbalance and make our Congress a more effective body.

    I look forward to 2014. A good friend asked me recently whether I am still an optimist. Unequivocally, I responded that I am. We have survived a difficult period economically. We have endured several Presidents who have fallen short of expectations. We are winding down two wars.

    Our best for a healthy New Year. 2014 could be fun.

Peter J. Solomon
January 16, 2014