Good Jobs New York

11 Park Place 7^th Floor  New York, NY 10007

tel. 212.414.9394  fax 212.721.5415

www.goodjobsny.org  gjny@ctj.org

 

Comments by Bettina Damiani

Project Director, Good Jobs New York

 

Public hearing of the New York City Council Committee on Economic Development

on proposed improvements to the city’s subsidy disclosure law

 

May 3, 2005

 

My name is Bettina Damiani, Director of Good Jobs New York, a joint project of the Fiscal Policy Institute with offices in Albany and New York City and Good Jobs First, based in Washington, DC. Good Jobs New York promotes accountability to taxpayers in the use of economic development subsidies.  Our website, (www.goodjobsny.org) contains the only publicly available database of the city's large corporate "retention" deals, and last year we released a report Know When to Fold `Em: Time to Walk Away from NYC’s “Corporate Retention” Game,[1] detailing the failure of commercial subsidy agreements negotiated by the New York City Industrial Development Agency (IDA) in the 1990s to produce job growth. 

 

Thank you for the invitation to speak to you today about the city’s annual report on corporate and industrial subsidy agreements.  Since 1999, when Good Jobs New York was founded as an accountable development clearinghouse, we have documented how corporate retention deals failed to live up to expectations, especially in terms of jobs.  Good Jobs New York strongly supports the effort by this committee to improve transparency in what is currently known as the Local Law 69 report. The LL69 report was brought into being by the City Council in 1993 as a way to better understand the fiscal and employment impacts of economic development deals negotiated outside of the budget process by the IDA and the NYC Economic Development Corporation (EDC).

Gaining a better understanding of these costs and benefits is especially crucial during this time of budget uncertainty and ambitious, large-scale economic development proposals.

Deals included in the most recent LL69 report (Fiscal Year 2004) cost the city over $500 million in tax revenue. And this figure is almost certainly too low, since restrictions on the report limit the number of active deals that are included.

 

Improved transparency will help the Council make more effective decisions about appropriating public funds by providing better information on outcomes when revenue is forgone in the name of economic development. An improved subsidy disclosure report would not only shed light on the city’s development subsidy programs, it would generate information that can help policy-makers improve the economic prospects of city residents, diversify and expand the tax base, and maintain a supportive business environment, especially for the small businesses that make up the backbone of neighborhood economies.

 

Transparency Gains

Below are highlights of the information that an improved annual report would provide to the council, allowing policymakers and the public to have a better understanding of the extent to which the firms receiving tax breaks benefit our economy.

 

• Are New York City residents benefiting? The proposed bill requires reporting on the percentage of employees at subsidized sites that are New York City residents. This would show the extent to which NYC residents are benefiting directly from city subsidy policy. It may also help public officials to improve the link between economic development policy and workforce development policy; future subsidies can be steered towards companies that are most likely to, or have a history of, hiring and training locally.

 

·        Job quality. For the first time, public officials would be able to review information on (A) whether the jobs at subsidized companies come with health benefits – especially crucial at a time when so many NYC residents are uninsured – and (B) the level of wages being provided. It is important to emphasize that the job quality provisions in this bill would not act as a screen to exclude companies that do not offer health benefits or that pay below a certain wage level. The proposed disclosure provisions would simply allow a more informed discussion about the quality of the jobs being provided by subsidized firms.  

 

·        Public Costs. Currently, the annual subsidy disclosure report is structured so that the accuracy of the cost-benefit analysis presented is questionable at best. Provisions in Intro 373-A would improve accuracy by, for example, mandating reporting on the entire life of a subsidy agreement, rather than the current eight-year window and by listing the source of data on job numbers. The new report would also include information on the possible costs to the city of tax-exempt bonds and whether benefits had been reduced or recaptured as a result of a job reduction. These improvements will boost the report’s usefulness and credibility. Pointing to the need for such a boost, our research has shown that for some of the largest subsidy deals, significant discrepancies exist between the cost and job numbers in the annual report and those in the internal documents that companies file annually with the IDA.

 

It should be noted that the proposed improvements do not require exact figures on the actual tax benefits of each deal, i.e., the city taxes actually paid by recipient firms and their additional employees. Rather, the EDC makes use of a model that takes in information about job numbers or new construction, for example, applies formulas relating to hypothetical multiplier, or “ripple,” effects, and then generates a projection of estimated tax revenue to be generated from the project. We note this not to criticize the proposed bill, but to point out that the reporting improvements mandated here are modest compared with what could be required. In addition, the formula-driven nature of the cost-benefit analysis used by the EDC to evaluate deals will always involve gaps, margins of error, and room for further improvement.

 

·        Ongoing independent review. Best practices on how to evaluate the risks, costs, and benefits of discretionary tax break deals continually change. The methodology committee proposed in Intro 373-A could serve as a valuable tool for the Economic Development Corporation to evaluate the direction of its programming and make subsidy investments more productive.

 

Looking Towards the Future

In the current format, Bank of America’s 1993 subsidy deal appears in Attachment I. As you can see, the “total project assistance” listed in the top right hand corner box is zero. The number of employees to be retained at the project site is 1,700. However, the only years for which the company actually reported having 1,700 jobs were 1994 and 2001, the year from which this report form was taken. The following four forms in the report, all pertaining to the Bank of America project’s bond issuances, add bulk while showing bafflingly little information; most fields are filled with zeroes.

 

What these forms do not reveal is that in March of 1998, the IDA terminated its agreement with the Bank of America because the bank had sold off its trust operations and cut its staff at the project site by over half. The form also fails to indicate the benefits already received by the Bank of America (roughly $1.7 million, according to internal IDA documents) prior to the project’s termination.

 

By contrast, if the proposed new reporting provisions applied, the Bank of America project form for 2001 might have looked something like Attachment II.

 

We hope you agree with us that the proposed changes would allow the public and policymakers better access to information on subsidy projects. Improved reporting is especially important for agreements such as the Bank of America’s, which involve large sums of public money. However, they can also be very useful to smaller projects, by showing trends, highlighting possible problems, and allowing for evaluation of entire programs as well as individual deals.

 

Reporting on development subsidies: increasingly common safeguard   

As with any accountability improvements, the provisions mentioned above may spark concerns that added sunshine will drive away businesses seeking assistance from the city or otherwise detract from the “business climate.” It’s a claim that has been heard – and debunked – all over the country. To address these concerns, GJNY would like to draw the council’s attention to the many other areas of the country that already have strong subsidy disclosure laws. In fact, we are actually behind the curve when it comes to transparency on economic development deals. Examples of states with disclosure requirements as strong or stronger than the ones proposed here include:  

Connecticut – Companies must report on actual jobs created, projected jobs created, number of jobs when companies apply for benefits and the amount of assistance (94 PA 231 - §32-450 through 32-457 – passed in 2000)

Illinois – Companies must report on the type and amount of development assistance, the projected and actual number of jobs created or retained, and the average wages paid by job classification. Development agreements must contain specific recapture provisions. (Public Act 93-0552 – passed in 2003 and taking full effect this year)

 

Maine – Companies must report on the amount of assistance received from all assistance programs, the number, type and wage level of jobs created or retained, number of employees in each job classifications and the average wages and benefits for each classification. Companies must give an assessment of how well they are meeting the public purpose each recipient must commit to before benefits are approved. (Public Law 1997 c. 761 – passed in 1998 and strengthened in 2000)

 

Minnesota – All subsidized projects must have a specific, measurable public purpose including a specific wage floor. Job retention is only a permissible criteria “where job loss is imminent and demonstrable.” All local deals must be approved by an elected body. Companies that fail to meet job goals and other targets must re-pay benefits received (with interest) at a pro-rated level. Companies that fail to make recapture payments are banned from receiving new subsidies for the next five years. Company reports, all of which are posted online, include: employee wages in specified wage bands, the specific wage of any new jobs created; the per hour cost of employer-provided health benefits; and all benefits received from multiple agencies for a project. (MN Statutes 116J.993; 116J.994; 116J.995 – passed in 1999 and strengthened in 2000)

  

Ohio – All projects receiving Empowerment Zone benefits are detailed in a searchable online database at: http://www.odod.state.oh.us/ez/base/. Online information includes job numbers and tax incentive amounts as well as details on performance and compliance with agreement criteria. (Ohio Revised Code 5709 Reporting rules governing EZs first established in 1994, most recently strengthened in 2004)

 

Additional states with similar disclosure systems include Texas, North Carolina, West Virginia, Washington state, Nebraska, and North Dakota.

 

We commend the council for moving forward with these transparency improvements. They will lay the groundwork for continued improvements in program effectiveness, and, we hope, provide New Yorkers with a better understanding of how economic development policy affects them. We look forward to continuing to work with each of you as these improvements take effect. Thank you for considering our comments.