Leaving New York: High earners in finance and tech explain why they left the 'world's greatest city'
- Brenan Hefner is one of thousands of high earners who've left New York this year, an exodus that is deepening concerns over a projected $9 billion budget shortfall.
- Data from the U.S. Postal Service, national moving companies and tech start-ups tracking smartphones all show an elevated outflow from New York City this year.
- For those in finance, the simple math of lower tax regimes is hard to ignore. New York state levies 8.8% on wages for high earners, and New York City takes another 3.9%, or nearly 13% combined.
Like many before him, Brenan Hefner arrived in New York 20 years ago in search of a career on Wall Street.
His journey will sound familiar to those drawn to the nation's financial capital. Hefner got a job at an asset management firm in Manhattan, found love and career success, and eventually moved to Pelham, an upscale town in Westchester, to start a family.
He would still be there if it wasn't for the coronavirus pandemic. When Hefner, co-founder of a research platform called Analyst Hub, sold his house this summer to a couple from London, he wondered if it made sense to look beyond the surrounding neighborhoods for a new home. He ended up moving his family to Dallas last month.
Hefner is one of thousands of high earners who've left New York this year, an exodus that is deepening concerns over a projected $9 billion budget shortfall. While the city is no longer the national virus hotspot it was earlier this year, those leaving cite anxiety over the region's economy and quality of life and a conviction that higher taxes are coming. Last month, business leaders publicly upbraided Mayor Bill De Blasio for "deteriorating conditions in commercial districts and neighborhoods across the five boroughs."
By forcing the mass adoption of remote work and crimping many of the advantages of urban life, the pandemic has turbocharged migration from high cost, high-density places to lower-cost states including Texas, Florida and Nevada. Nearly half of New Yorkers earning more than $100,000 a year said they considered leaving the city recently, with cost of living being the top factor, according to a Manhattan Institute survey.
"The cost of living down here is significantly less," Hefner said by phone from his new home. "There's no state income tax. I'm not riding mass transit during the middle of a global pandemic to get to a subway to live in a WeWork or something."
For Hefner, the pandemic showed that for those in financial services, the gravitational pull of New York still exists, but is far weaker. He says he is about as effective operating his business over Slack and Zoom, and plans on flying to New York monthly for client meetings. His company, founded in 2018, helps star Wall Street analysts leave big banks to form independent research shops.
"I'm just not sure it's a requirement to be in the city anymore," Hefner said. "That doesn't mean that I don't love the city, I do. It's an amazing place, but as far as a family of five, I'm not sure if it's the right place for us at this time."
'Everybody's leaving'
Even within his 19-person start-up, Hefner has company. Caroline Goodson, his director of corporate access and sales, left Manhattan after a homeless encampment popped up outside her apartment building. She also moved to Dallas.
His co-founder Michael Kronenberg, who owns a downtown Manhattan apartment, has spent most of the pandemic outside of New York, renting a succession of houses in places including Scottsdale, Arizona; Vail, Colorado and Sullivan's Island, South Carolina. For senior finance professionals not chained to a trading floor, moving to lower-tax states has never been more appealing, he said.
"Everybody I know is leaving," Kronenberg said. "It's not just New Yorkers. My partners, long-time clients and investors of mine that live in Connecticut or New Jersey, they are used to commuting in to the city. They're never going to commute in five days a week ever again."
The coronavirus pandemic has caused the worst global economic crisis in living memory and taken 230,000 American lives so far, with New York City claiming one-tenth that grim figure. Downtown and midtown business districts are still a shadow of their former selves, depriving local businesses and the city of much needed revenue. A record daily case count in the U.S. and surges in Europe have New Yorkers bracing for a tough winter.
But since moving trucks began clogging city streets this summer, New Yorkers have been incensed by the idea that the place De Blasio refers to as the "greatest city in the world" is on the cusp of a multi-year decline. An ex-hedge fund manager's LinkedIn post that declared "NYC is Dead Forever" prompted a withering response from Jerry Seinfeld.
Many of those who remain say the city is more livable than before, with streets closed off to car traffic and restaurants taking up more outdoor space. Of course, the city has bounced back from every calamity in its history, from the 1918 Spanish flu to the suburban flight of the 1970s, the terror attacks of 9/11 and the 2008 financial crisis.
Falling rents
But it's hard to deny the signs of pain ahead. Data from the U.S. Postal Service, national moving companies and tech start-ups tracking smartphones all show an elevated outflow from New York City this year. More than 246,000 New Yorkers filed a change-of-address request to zip codes outside the city since March, almost double the year-earlier period, for instance.
That's reduced demand for Manhattan apartments, where median monthly rents fell 7.8% to $2,990 in the third quarter, part of a city-wide decline not seen since 2010, according to StreetEasy.
To be sure, the New York area's suburbs have been the primary beneficiary of the exodus: Home sales in Westchester jumped 112% in July, according to appraiser Miller Samuel Inc. Sales in Greenwich, Connecticut just had the strongest quarter in more than a decade.
For those in finance, the simple math of lower tax regimes is hard to ignore. New York state levies 8.8% on wages for high earners, and New York City takes another 3.9%, or nearly 13% combined. Meanwhile, states including Florida, Texas and Nevada don't tax wages. The more people make, the greater the incentive there is to leave, and the difference could easily mean hundreds of thousands more dollars in after-tax pay.
That's a trade that some Wall Street titans have already made. Hedge fund billionaire Paul Singer is moving the headquarters of Elliott Management to Florida from midtown Manhattan, Bloomberg reported this month. His move follows that of another billionaire, famed corporate raider Carl Icahn, who made the switch last year to avoid New York taxes.
Busiest in 40 years
"My concern isn't that they're leaving, it's that they're taking their businesses with them," said Mark Klein, a New York-based tax attorney and chairman of Hodgson Russ. The flight of business owners is worrying for those remaining in the city, he said.
Still, it has kept him busy. Klein says he has ten times more clients now than pre-pandemic, helping advise people who make more than $800,000 a year move to low-tax states, often bringing their businesses along. Besides hedge funds, Klein said that a spectrum of professional services operators are leaving, including public relations and accounting firms.
"I've never been as inundated with people leaving New York and Connecticut, any of these high-tax states, in my 40 years of doing this," he said. "Once Covid hit, with the recognition that people can work from any location, the floodgates opened."
The stakes are higher in an election year, with many in finance convinced that higher taxes are coming if Joe Biden wins and Democrats take the Senate. Within Goldman Sachs, multiple traders have told me they are voting for Biden "against their own financial interests" because of his stated plan to raise taxes on those earning more than $400,000 – an easy threshold to exceed on Wall Street.
And to a person, high-earners I spoke with said that the $10,000 cap on state and local tax deductions from President Trump's 2018 overhaul hurt them personally and believe that local governments are going to seek more money from them in coming years.
Leavers aren't limited to hedge fund traders and portfolio managers; New York is also home to a growing ecosystem of fintech firms.
When fintech CEO Paraag Sarva bought a weekend home in Bucks County, Pennsylvania last year, he figured he'd probably rent it out most of the time. But months into the pandemic, after it became clear that full-time, in-person schooling in New York was unlikely for his small children, he made it his permanent residence.
His new neighborhood, studded with horse farms and multi-acre estates, is vastly different from his old home by the expressway in Brooklyn. Two other families from New York have moved in recently, he said, and they have brought their businesses.
His start-up, Rhino, which replaces renters' security deposits with a small recurring fee, is still based in Manhattan. But Sarva rarely returns; he has managed the firm's explosive growth from afar. During the summer, the company doubled its employee count to 90 and raised $14 million in additional capital.
While schooling and quality of life were the main drivers of his move, the lifelong New Yorker wasn't going to "leave money on the table." His taxes are 10% lower in Pennsylvania, he figures.
"Once we made the decision, we did consult our tax and legal advisors on what exactly that would mean," Sarva said. "I am officially a Pennsylvania resident. I voted here, registered my car here, have a Pennsylvania driver's license. I've moved out of my former home and have no intention of returning."
'Less boring'
In some finance 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 full time to their second homes once the pandemic struck.
"There are a bunch of people I know trying to get out of the NYC tax, they're living in the Hamptons, Westchester, Connecticut or New Jersey," said a managing director at a major global investment bank. Another colleague who worked mostly in New York moved her residence to Delaware, he said. He declined to be identified speaking frankly about taxes.
The executive owns condos in Manhattan and houses in Sag Harbor, but has spent most of the pandemic in New Jersey. After a three-hour meeting with his tax consultant, he plans on filing taxes as a Jersey resident to avoid New York's 3.9% city tax. He and his friends are risking an audit, which can happen three years after he files his 2020 taxes.
In the meantime, he's worried that his expensive Manhattan properties will lose as much as 40% in value in the coming years.
"Nobody's gonna feel sorry for me," he said. "The good news is, maybe the city will get less boring."