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Audits and Critiques of Development Subsidy Programs in New York State and New York City Annotated Bibliography Good Jobs New York has created this bibliography to publicize the extensive body of research and analysis of development subsidies in the city and state. Much of this analysis finds a need for greater accountability in the State's and City's economic development subsidy programs. New York State Programs Empire State Development: Performance of Job Development Programs
Empire State Development (ESD) lacks adequate performance measures to assess its job-development programs and to ensure the State's investments in these programs are worthwhile. ESD must improve the reliability of the data it maintains to track projects’ employment levels. ESD officials, in their response to the audit, claim they can not set overall program goals because several factors outside their control, such as national and regional economic forces and tax and regulatory policies, impact programs’ performance. ESD officials, therefore, do not agree that they need to develop more meaningful measures and processes to assess the performance of their programs. ESD staff are correcting and completing project database records in response to some of the report's recommendations. The complete report (98-S-7) is available at www.osc.state.ny.us/audits/ State of New York Empire State Development Corporation: Administration of Selected Projects Funded Through the Regional Economic Development Partnership Program State Comptroller H. Carl
McCall The auditors reviewed the Empire State Development Corporation's (ESDC's) implementation of the Regional Economic Development Partnership Program (REDPP) in which grants and loans are made to municipalities for infrastructure projects linked to economic development activities. They found that taxpayers may not be getting their money's worth from these projects. The job creation projects are funded based on the commitments to create and retain new jobs, but ESDC received employment information for only four of the nine projects reviewed by the auditors. ESDC did not even require that employment data be reported for one third of the reviewed projects. When information was collected, ESDC never confirmed the accuracy of the information reported by the companies. The Comptroller recommends that ESDC require all grant recipients to report job creation and job retention information, and that the data be independently verified. McCall said "We have to stop investing in job creation programs that don’t create new jobs." Auditors also found that ESDC had not effectively monitored compliance with terms of job training grants, nor did it confirm that trainees had found and kept jobs. In fact, some groups did not provide the training they were paid to provide. ESDC officials largely agreed with the findings of McCall's audit, and agreed to implement most of the recommendations. The complete report (96-S-39) is available at www.osc.state.ny.us/audits/ Consolidation of the State's Economic Development Entities and Programs
This report assesses the efforts since 1995 to merge the operations of four state economic development agencies -- the Department of Economic Development (DED), the Job Development Authority (JDA), the Urban Development Corporation (UDC), and the Science and Technology Foundation (STF) -- under one umbrella called the Empire State Development Corporation (ESDC). The auditors find that much of the restructuring has been implemented, but the state lacks adequate data and performance measures to assess the effects of the merger. In particular, the agency provides no analysis to substantiate claims that employment gains and other indicators of economic growth are the result of ESDC activity. Comptroller McCall said, "If taxpayers’ dollars are going to be invested in economic development programs -- as I believe they should -- then there must be tangible measures to ensure that the dollars are being invested wisely." Auditors also expressed concern that ESDC's board of directors is not independent from its executive management. The Commissioner of Economic Development is both board chairman and Chief Executive Officer of ESDC, an arrangement that may limit the oversight of the board of directors which in turn may lead to management problems, as noted in a 1995 audit of JDA management (see below). The complete report (96-D-19) is available at www.osc.state.ny.us/audits/ Job Development Authority: Management of Loan Portfolio
This audit finds that poor oversight by the Job Development Authority's (JDA's) Board has led to a deficit of over $57.8 million, mainly from major losses on loans, guarantees and foreclosed property. The Authority's Board had been warned of growing financial problems in two previous audits, yet the failure of the Board to provide sufficient oversight led to increased vulnerability to financial losses resulting from loans to firms unable to repay their debt. Board members rarely if ever denied a loan application proposed for approval, even when important financial information was missing. JDA management did not verify financial information submitted by applicants nor did they follow standard loan review practices. The complete report (95-S-13) is available at www.osc.state.ny.us/audits/ New York City Programs Audit Report on the Administration of Job Retention Agreements by the Economic Development Corporation
Firms participating in EDC programs must report their employment levels periodically. Benefits are to be reduced if employment falls below a pre-determined "penalty threshold" and may be raised if employment exceeds the firm's "job creation threshold." Auditors found that EDC does not adequately monitor compliance with employment reporting requirements. In several cases, firms had failed to submit required employment reports, but EDC did not follow-up on any of these firms to obtain employment reports. EDC relies entirely on employment numbers reported by the firms themselves. Without these reports, EDC can not monitor whether firms have fallen below their penalty threshold and should have their benefits reduced. Similarly, several firms had failed to report their savings in sales tax exemptions, yet EDC was not aware of their failure to do so. EDC does not have a system that tracks report filings. In several cases a second bond issuance -- and sometimes a third -- had been approved despite the firm's failure to file the required reports. EDC does not verify the employment information it is given. EDC occasionally has independent accountants verify companies’ sales tax exempt purchase information, but usually it relies on companies’ reports. Independent verification of sales tax figures is less effective than it might be, since the accountants are not required to verify by physical observation that the capital goods purchased are located at the authorized location in New York City. The auditors did find that the employment reports were generally accurate. The auditors found a few instances in which there were discrepancies in the sales tax exemption reports. The City Comptroller's recommendations include the following: that EDC begin to strictly enforce contract provisions, develop a system to track report submission, perform site visits to companies to verify reported employment and capital purchase information and require independent reviews of employment and sales tax exempt purchases every two to three years. For the full report (MH96-183A), call GJNY at (212) 278-0879. New York City Economic Development Corporation: Improvements Needed to Strengthen Industrial Development Agency Program
This audit reviewed Industrial Development Agency (IDA) files for twelve of the 124 companies for which IDA bonds were issued prior to June 30, 1993. Of these twelve companies, four lacked documentation to support the employment levels they reported in their applications. EDC is not adequately monitoring IDA participants to ensure they are meeting job creation and retention goals. Of the seven companies for which auditors conducted field visits, four did not achieve their project job goals and two others understated their actual employment levels at the time of application. With such weak monitoring of employment levels, there is little assurance that IDA is achieving one of its principal goals. Auditors found that there was no relationship between the benefits each company was granted and the number of jobs they committed to retain or create. Benefits per job retained/created vary widely, and EDC needs to document its decision making analysis to justify the pro rata tax benefits awarded. EDC needs to enhance its outreach efforts, since many officials contacted in both the private and public sector were unaware of IDA's economic development program. EDC is contractually mandated to provide necessary marketing services for IDA, yet EDC does not have staff dedicated to outreach efforts, nor has EDC established specific goals or objectives by which to evaluate the effectiveness of its marketing program. The complete report (A-6-94) is available at www.osc.state.ny.us/audits/ Improving the Cost Effectiveness of the New York City Industrial and Commercial Incentive Program
The Industrial and Commercial Incentive Program (ICIP) fails to incorporate key accountability and cost-effectiveness measures. ICIP provides incentives based on inputs – investment in real estate -- rather than achievement of outcomes. This is particularly problematic given that the real estate tax exemption period lasts as long as 22 years. ICIP represents an unnecessarily risky and speculative approach to promoting economic growth. To improve cost-effectiveness and reduce risk associated with the program, several recommendations are made to incorporate outcome-based calibration of benefits, incentive-for-outcome formulas, performance baselines, and clawback provisions. |
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Updated June 12, 2001 |
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