The $7 billion wager: New York State’s Costly Gamble in Economic Development

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Executive Summary

New York spends approximately $7 billion annually on economic development. Dozens of different economic development programs issue subsidies such as tax exemptions, tax credits, grants, tax-exempt bonds, and discounted land to corporations, ostensibly in the name of job creation, economic growth and an improved quality of life for all New Yorkers. At such a high price tag, New Yorkers deserve to know: how is this money being spent, and what return are taxpayers getting from this investment? Are these programs actually creating good jobs and community benefits?

This report attempts to answer these questions by analyzing New York’s fifteen largest economic development initiatives and putting a price tag on each program and the system as a whole. While this report is not exhaustive, it begins the task of identifying key problems in New York’s economic development system and proposing solutions to make it better serve our businesses and communities.

Our findings show that New York’s current spending on economic development is more of a gamble than an investment. Few programs require recipients of subsidies to set performance goals such as job creation; few require project-specific reporting or monitor the success of projects; and few allow for adequate public review or recourse when corporations fail to live up to their agreements. This opaque and unaccountable system makes it impossible for the public or policymakers to determine if our $7 billion investment is working for New York.

New Yorkers need our investment to work for us now more than ever. Our recovery from the Great Recession has been slow and uneven. Unemployment and underemployment are still high, and incomes for the vast majority have stagnated, even as corporate profits have rebounded. Working families and the middle class are the engines of the economy, and we will not see a full recovery until more people have good jobs that allow them to contribute to their local economies. It is critical that New York’s job creation programs actually create the jobs that New Yorkers need.

Economic development programs should also respond to New York’s environmental needs. Hurricane Irene and Superstorm Sandy have revealed that New York has not done enough to reduce our carbon emissions or prepare our state for extreme weather events. With climate change-induced extreme weather events the “new normal,” we must improve the resiliency of communities throughout New York State. Using economic development tools to reduce sprawl and encourage energy efficiency in buildings will not only save costs in the long run, but will reduce emissions and prepare our communities for future climate events.

Since the Great Recession, localities across New York have also suffered severe fiscal crises. A report by the New York Division of Budget found that one-third of assessed localities were in fiscal distress. In response, cities have reduced spending for public safety; counties have reduced spending for health, cultural and recreational programs; towns have reduced spending for garbage collection; and villages have reduced spending for transportation. New York’s $7 billion in economic development spending should help localities to address the fiscal crunch by creating good jobs and increasing the tax revenue base. Instead, it has often served to exacerbate the revenue crisis. In several counties throughout New York State, local property tax exemptions offered through Industrial Development Agencies (IDAs) removed 6% to15% of taxable property from the tax rolls. In Greene County, 25% of taxable property is exempt from local taxes due to its IDA.

New York cannot afford to squander public resources; instead, it should marshal economic development resources to address our most pressing economic and environmental challenges head on. In the last few decades, economic development programs have proliferated, but performance evaluations have not. While some individual programs have made important strides toward greater accountability and transparency, New York’s approach towards economic development remains scattershot, and there are still no universal performance measurements with which to evaluate the success or failure of our $7 billion annual investment.

Instead, reforms have been piecemeal. For example, recent reforms aimed at IDAs have improved reporting in some localities, such as New York City’s Local Law 62 (2010), but have failed to prioritize performance. For example, there is no obligation that IDAs establish job retention or job creation goals for subsidy recipients. Of the 4,486 current IDA projects, 1,161 of them do not promise to create a single job. For the projects that do aim to create jobs, we found that 56% of these IDA projects failed to meet their job creation targets in 2011. For the rest of the economic development programs in New York State, we cannot analyze job creation data because comprehensive data is simply not available.

While we now have limited data allowing us to track the successes and failures of IDA projects, IDAs are only one small piece of the economic development puzzle. IDAs’ net tax exemptions make up only 7% of the $7 billion system, and therefore are only a small part of the problem. New York could leverage this $7 billion to improve the quality of life for all New Yorkers, but such an endeavor cannot be undertaken without a full accounting of these expenditures.

New Yorkers need a concrete way to monitor the success of economic development spending to ensure the system is creating good jobs, increasing opportunity, and fostering a clean, prosperous economy. To ensure we get our money’s worth from economic development, New York should:

  • Prioritize Performance. Economic development programs should prioritize a set of performance metrics that can be used to evaluate and monitor the success of spending in relation to key goals, including local job creation and carbon emissions benchmarks.
  • Increase Accountability. New Yorkers need increased accountability to ensure that subsidy recipients deliver on their promises and actually create jobs and community benefits.
  • Show Us the Jobs. Communities must be able to easily monitor and assess the performance of their investments.
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