NEW YORK CITY

A Report By

State Senator Franz S. Leichter

30th S.D., Manhattan / The Bronx

Jonathan Bowles

Legislative and Research Associate212-397-5913

The City's economic development program continues to be based on giveaways to large corporations that have not created jobs for City residents and which, in several instances, have taken large amounts of City tax breaks and then cut jobs. Since Mayor Giuliani took office, the City has squandered roughly $750 million in revenue by providing tax breaks to a handful of large corporations without any evidence that the City's "corporate retention" deals have produced significant new jobs for New Yorkers. In fact, at least nine of the 30 companies benefitting from corporate retention deals during the Giuliani Administration have made significant layoffs since the deals were announced. In addition, labor statistics indicate that where new jobs have been produced, they have gone predominantly to residents of Long Island, New Jersey and Connecticut rather than to New Yorkers.

While tax incentives in certain cases may be appropriate, the Giuliani Administration has followed a failed and foolish policy of awarding multi-million dollar tax relief to many of the wealthiest and healthiest corporations without conditioning tax breaks on proven job creation for city residents. Some companies, like Bear Stearns, the most recent recipient of City tax breaks, were able to win significant City incentives from the Mayor even though they already received substantial tax abatement packages from the City in the last several years.

To date, Mayor Giuliani has committed the City to give up $768 million in revenue to 31 firms along with the Mercantile Exchange and the Commodities Exchange. Despite this enormous expenditure, however, there is no evidence that these retention deals have produced significant new jobs for New Yorkers. At least nine of the companies, including the first six firms to receive benefits from this Administration, have made significant layoffs since the deals were announced.

One of the biggest problems with these tax abatement deals is that the firms are not held accountable if they fail to create the jobs promised. This report, which provides the first review of the actual contractual agreements between companies and the City, shows that while the retention deals do contain provisions whereby the City can recapture benefits from companies that have taken advantage of City tax breaks but fail to meet job targets, they are riddled with loopholes that allow firms to lay off hundreds of workers without any suspension of benefits or monetary sanctions. Most of the agreements contain a provision which states that "there shall be no recapture payment . . . by reason of a non-relocation reduction." Thus, as long as the company does not move jobs out of New York, the company can eliminate as many City jobs as it wants without facing any punitive sanctions.

The flaws with these agreements are magnified by the fact that apparently little thought goes into what types of companies to subsidize. The lion's share of the corporate retention deals entered into by the Giuliani Administration have gone to firms in industries that have been downsizing in recent years and which hold slim prospects of creating new jobs. For instance, the City has inked six corporate retention deals with insurance companies since 1993, even though labor statistics reveal that insurance jobs in the City have declined by 4,700 over the last four years and by more than 12,000 jobs since 1990. Two banks have received corporate retention deals from the Giuliani Administration, despite the fact that banking jobs in New York City have declined by 9,600 since 1993 and by more than 38,000 since 1990. In addition, the Giuliani Administration has awarded tax incentives to ABC, NBC, and News America, which owns Fox. Yet, due to declining viewership, the television networks are reportedly gearing up for big cutbacks. Economic experts have predicted a further employment decline in these industries.

The bulk of the firms receiving tax breaks from the Giuliani Administration are financial companies, which have largely added employees over the last year as a result of sky-high profits on Wall Street. Nevertheless, employment levels at financial firms are always more dependent upon the health of national economy rather than the City's economic policies. In addition, Wall Street insiders expect to see a number of mergers and consolidations as a result of the passage of federal legislation allowing banks and insurance companies to own securities firms. This may mean more large scale layoffs like the 4,000 jobs cut in the City as a result of last year's merger between Chemical Bank and Chase Manhattan, which actually received $234 million in tax incentives from the Koch Administration to create new jobs for New Yorkers.

While many of the corporate retention deals have gone to companies that have little chance of hiring new employees, officials at several of the firms receiving tax breaks from the Giuliani Administration, such as Bear Stearns, ABC and Merrill Lynch, conceded that they had no intent of moving the company out of New York. For others, like Conde Nast, it is extremely hard to believe that their threats to leave New York were anything more than avaricious attempts to rustle money out of the City's wallet.

Although the private sector has added tens of thousands of new jobs during the Giuliani Administration, the majority of these jobs were created by firms that had no financial help from the City. For instance, a sizable portion of the City's new jobs were created in the service and retail/trade sectors. In addition, software and new media firms have added roughly 40,000 jobs in the City over the past five years. Although the Mayor has recently begun to devote economic resources to firms in this area -- the City Council just approved a program that will provide $30 million in low-interest loans for hundreds of the small high tech firms in the City, while the Mayor announced his first, and only, corporate retention deal to a software firm, Information Builders, earlier this year -- the industry's rapid growth occurred without a trace of the millions in tax incentives that the Giuliani Administration has poured into many of the City's largest, but most sluggish, corporations.

Moreover, the most recent labor statistics reveal that these ambitious tax breaks do not seem to be having the desired effect for New Yorkers. The City's unemployment rate is 9.9 percent for July, almost a point higher than the 9.1 percent unemployment rate for last July and virtually double the nation's 5.0 percent rate of unemployment. Clearly, the City's economic policies have not resulted in new jobs for residents in the outer-boroughs, where the unemployment rate is 12.1 percent in the Bronx, 11.3 percent in Brooklyn and 9.5 percent in Staten Island. A report by City Comptroller Alan Hevesi concluded that a large portion of the City's new jobs are going to suburban residents rather than New Yorkers.

In at least one instance, City officials acknowledged that a company that was to benefit from a substantial corporate retention deal would be employing New Jersey residents. The acknowledgement came last March when the board members of the City's Industrial Development Agency (IDA) were scheduled to vote whether to approve the City's deal to provide Mutual Insurance Co. of New York (MONY) with $5.7 million in tax incentives. A board member asked whether the firm's jobs would be for City residents only. An official of the City's Economic Development Corporation (EDC) said that "some jobs would be occupied by New Jersey residents."

When the deals fail to accomplish their objective, as most of them seem to do, there is little the City can do to get its money back.

A perfect example is the City's corporate retention deal with the Travelers, which received $22.1 million in tax breaks from the City in 1994. The company certified that it had a total of 9,436 employees in the City when its agreement with the City was signed. While the agreement grants the Travelers a substantial "growth credit" for every job the firm adds over 9,436 -- it's total City employment -- it sets the "employee exemption base," the job level which the company must maintain to be in compliance, at 8,970. In other words, the Travelers could lay off 466 City employees before it even reaches the employment level which it must maintain in the City. In addition, the agreement allows the Travelers to eliminate another five percent from its employee exemption base, or 448 jobs, without facing any reduction or loss in benefits. Thus, the company could lay off a total of 914 jobs (466 + 448) in New York and continue to receive the full amount of the City tax breaks provided under its agreement.

The first time the Travelers would face any financial penalty would be if the company eliminated between five percent and 25 percent of its employee exemption base. But, even if this happened, the company would only be subject to a minuscule reduction in benefits. Although the formula for deriving the amount of this reduction is complex, in the actual agreement with the Travelers, the City provides a hypothetical example of what type of action the City could take. The agreement states that if the Travelers were to eliminate 10 percent of its employee exemption base, or 897 jobs, in the year 2001, and if the remaining benefits available to the company amounted to $9 million, then the Travelers' benefits "shall be permanently reduced by $100,000." Thus, the firm could lay off a total of 1,363 jobs (466 + 897) and only be subject to a $100,000 loss in benefits, a minuscule dent in a tax incentive package totalling $22.1 million.

The same loopholes are found in other corporate retention deals, such as the City's 1995 agreement with CS First Boston, which received $50.5 million in tax breaks from the City, but can lay off up to eight percent of its employment base, or 296 jobs, without seeing a reduction in benefits from the City.

These weak provisions are coupled with the City's lax enforcement and the Giuliani Administration's decision to keep secret much of the specific information connected to these corporate retention deals. To date, the City has not recaptured any money from companies that have benefitted from a corporate retention agreement. Additionally, the City refuses to make public the annual employment levels which each firm that is receiving tax breaks is supposed to file with the City, leaving the public with no way to ascertain whether the company is complying with its agreement. And, even though my office has been able to review a few of the corporate retention agreements completed during the Giuliani Administration, the City has failed to make the majority of the deals available. Although it has repeatedly said that it will make these records available, the City has a policy of allowing the firms to review the documents first and, if they so choose, redact any information it wants before it is reviewed by the public. In some instances, my office has been forced to review a corporate retention agreement in which virtually all of the important information, including essential components of the recapture provisions, was redacted.

There are numerous other troubling aspects of the City's corporate retention deals. In many cases, the Giuliani Administration has provided millions of dollars in tax exemptions to companies which recently benefitted from a previous package of City tax incentives. For example, the City yesterday offered Bear Stearns a $75 million package of tax incentives and other subsidies to keep its jobs in the City even though the company received a $23.2 million retention deal from the City in 1991. This kind of double-dipping has occurred on numerous occasion, including when the Giuliani Administration agreed to give NBC $7 million in new tax exemptions last year, despite the fact that the broadcasting company still had another decade left on its 1988 deal, in which the City provided NBC roughly $100 million in tax incentives to stay in New York.

Among the several other major findings of this report are:

t At least 20 of the 31 companies benefitting from corporate retention deals during the Giuliani Administration are Fortune 500 companies or are owned by Fortune 500 companies. Most of the other companies are, similarly, powerhouses in their fields, from Rupert Murdoch's News America Corp. and publishing giant Conde Nast to investment banking firm CS First Boston and Fidelity Investments, which is the world's biggest mutual fund company.

t At least 10 of the companies receiving tax incentives from the Giuliani Administration have CEO's who are among the 100 highest paid CEO's in the New York area, according to Crain's. In fact, each of the six highest paid CEO's in the New York area head companies that have benefitted from significant City tax breaks from either the Giuliani or Dinkins Administration.

 

The City seems to have little interest in assuring that companies comply with their promises to maintain or create jobs. Although many of these corporate retention deals include provisions whereby the City can recapture benefits already bestowed to companies that fail to keep their job promises, these agreements are riddled with loopholes that allow firms to lay off hundreds of workers without any suspension of benefits. In addition, firms can eliminate virtually all of its jobs in the City without facing the possibility that the City will recapture money already provided to the firm. In most cases, the City can only begin to recapture money if a company which received benefits has moved a substantial number of jobs out of New York.

The City has been extending large scale tax exemption packages to corporations, known as corporate retention deals, for years. Many of the larger deals were made during the Administrations of Mayors Koch and Dinkins. While it appears that the cost per deal has gone down during the Giuliani Administration, the number of firms receiving corporate retention deals has significantly increased.

To date, Mayor Giuliani has inked corporate retention deals with 29 companies and three commodities exchanges costing the City and State $686.26 million in forfeited revenue. While the majority of these deals include less than $10 million in tax incentives going to the company, 10 of the agreements include benefits greater than $20 million. Below is a summary of the deals announced by the Giuliani Administration:

Despite the lofty job projections found in the press releases issued by the Giuliani Administration to tout its latest corporate retention deal, the City has failed to provide any firm evidence that the companies benefitting from these deals have maintained the employment levels which they promised, much less created new jobs. Although my office was unable to get current jobs figures for these companies from the City because of the City's secretive policies, or from the companies themselves, a review of press reports and company releases has shown that at least nine of the corporations have announced substantial layoffs since the City began to provide them with tax breaks. In fact, the first six companies to receive corporate retention agreements from the Giuliani Administration have all announced layoffs since their deals were announced. In time, many more of the subsequent recipients may decide to eliminate jobs as well. A description of these companies follows:

1. ABC received a $26 million incentive package from the Giuliani Administration in June 1994. However, the company notified the State Labor Department that it would be laying off 60 employees in the City in February 1997 as a result of its merger with Disney. More recently, the company announced that it was eliminating 200 jobs to cut costs. An ABC spokesperson told my office that the company expected that 98 jobs would be eliminated from its New York City operations.

2. Alexander & Alexander, the Chicago-based financial services firm, agreed to keep its offices and more than 400 jobs in New York last November in exchange for $3.4 million in tax abatements. However, the company has since been purchased by Aon Corp., which announced that it will lay off more than 2,600 brokers over the next year as it consolidates the operations of Alexander & Alexander. It seems almost certain that some of these job losses will come from the company's City offices, especially since Alexander & Alexander recently subleased 140,000 square feet which it occupied at 11 Madison Avenue. When the City announced its corporate retention agreement with Alexander & Alexander last year, the company said that it was signing a 16-year lease for 140,000 square feet at 11 Madison Ave.

3. CS First Boston, the investment banking firm, was awarded $50.5 million in tax incentives in January 1995 in exchange for a promise to keep its 3,704 jobs in the City and add up to 5,550 jobs over the 20 year term of the agreements. However, in early February 1995, less than three weeks after its deal was disclosed, the firm announced that it would be eliminating up to 900 jobs. The company, which had laid off 400 employees in the year leading up to its corporate retention deal, said that it was planning to cut operating expenses by 20 percent. Although the company never disclosed how many jobs would be cut in New York, over half of the company's 6,550 total jobs were located in the City.

4. Republic National Bank of New York announced that it was laying off between 400 and 450 city employees in May 1995, roughly a year after the City agreed to provide Republic with $6.4 million in tax breaks in exchange for the company maintaining 2,400 jobs in the City and adding another 200. The company's treasurer told Newsday at the time that the company's streamlining would extend from "the front office to the back office, and at every salary level." Although Mayor Giuliani froze all the company's sales tax benefits after a slew of critical news stories reported the company's announced layoffs, the City quietly reinstated all of Republic's tax incentives.

5. News America, the Rupert Murdoch company which also owns Fox, has not publicly announced any layoffs since the City agreed to provide it with $20.7 million in tax breaks last June. However, HarperCollins, another of the company's subsidiaries, has reported eliminated 420 jobs in recent months.

6. The Travelers, which received $22.1 million in tax incentives from the City in July 1994 in return for a promise to keep its 8,970 jobs in the City and add 2,100 jobs over the next 15 years. However, just over a year later, the Travelers announced that it would be eliminating 3,300 employees, hundreds of which would come from its New York City operations.

7. Viacom laid off 68 New York City employees in December 1996, according to the State Labor Department, after it benefitted from a $15 million corporate retention deal from the City in late 1994.

8. Donaldson, Lufkin & Jenrette won a tax abatement package worth $29.5 million in August 1994 after it promised to retain 1,950 jobs in the City and add another 1,162 employees over the next 12 years. However, less than six months later, DLJ closed its municipal bond unit, which employed 125 people.

9. National Financial Services Corp., a division of Fidelity Investments, received a $3.6 million corporate retention deal from the City in exchange for a promise that its 602 jobs would stay in Manhattan. It said it would create 612 new jobs over the next 16 years. While the company has not announced any layoffs, Fidelity Investments recently announced that it plans to eliminate between 200 and 300 employees this year. A company spokesperson said that a small number of those jobs would come from its New York City offices.

Several of the companies which received significant City tax breaks from the Dinkins and Koch Administrations have also announced large scale layoffs. For instance:

1. Chase Manhattan Bank, which received $234 million in tax abatements from the Koch Administration in 1988, announced last year that it would be eliminating 4,000 positions in the City as a result of its merger with Chemical Bank. The massive layoffs raise serious doubts about Chase's ability to comply with its initial promise to keep 6,000 jobs in the City.

2. Citicorp won a $90 million package of City tax incentives and other financial assistance for the construction of an office tower in Long Island City. Yet, since the City agreed to provide those incentives, Citicorp, and its Citibank subsidiary, have eliminated hundreds of jobs in New York City. Labor Department records show that the company eliminated 500 jobs in 1991 from its Long Island City headquarters -- the same building the City helped to build. A story in Crain's reported that Citicorp transferred 50 employees from the City to Stamford, CT. Then, in April 1995, the company reportedly decided to move 800 jobs from New York City to Tampa, FL.

Despite spending vast amounts of money on so-called job creation programs, the City is still plagued by one of the highest unemployment rates in the nation. It is becoming increasingly clear that the City's reliance on costly tax incentives as an economic development strategy has not resulted in a substantial number of new jobs for New Yorkers. While the City has added tens of thousands of new jobs since Mayor Giuliani took office, it is difficult, if not impossible, to make the case that those positions were added as a result of the City's economic development policies. The new jobs that have been created have tended to be in high-skill, white-collar positions rather than the entry level posts that are most-needed among New Yorkers. In addition, it appears that many, if not most, of the new jobs have been filled by suburbanites rather than City residents.

According to the most recent labor statistics, the City's unemployment rate now hovers at a staggering 9.9 percent, virtually double the nation's 5.0 percent rate of unemployment. The unemployment rates are particularly high in the Bronx (12.1 percent), Brooklyn (11.3 percent) Staten Island (9.5 percent). These figures appear to show that the Giuliani Administration's economic policies have not yet taken effect in many of the less affluent areas of the City.

A recent report by Comptroller Hevesi casts further doubt on the impact of the City's economic development policies in creating jobs for New Yorkers. The report showed that while there were 21,900 new jobs in the City during the first half of the year, overall employment among City residents fell by 23,900 during the same period. There was a net change of 45,800 more City jobs being filled by suburbanites, the fastest rate of suburban job-filling since 1983.

In at least one instance, City officials acknowledged that a company benefitting from a City corporate retention deal would be employing New Jersey residents. This occurred last March when the board members of the City IDA were meeting to vote whether to approve the City's $5.7 million tax abatement package with MONY. In response to a question from an IDA board member about whether the firm's jobs would be for City residents only, an EDC official said that "some jobs would be occupied by New Jersey residents."

The job growth in the City over the last few years has, for the most part, occurred in industries which have not received tax incentives from the Giuliani Administration. In fact, while all but a handful of the corporate retention deals entered into by the Giuliani Administration have been to companies in the sector known as FIRE (Finance, Insurance and Real Estate), this area has produced a net gain of just 3,800 over the last four years, according to the State Labor Department.

Insurance companies, banks, network media, securities companies and other financial firms have accounted for all but a few of the corporate retention deals entered into by the Giuliani Administration. However, most of these industries recently have been characterized by firms merging, consolidating, and cost-cutting.

The Giuliani Administration has agreed to provide significant tax breaks to six insurance companies: The Travelers; the Equitable; New York Life Care; Mutual Insurance Company of New York (MONY); Empire Insurance Group; and American International Group (AIG). However, insurance jobs in the City have been steadily declining for years. Figures from the State Labor Department show that insurance jobs in the City dropped from 56,400 in June 1993 to 51,700 in June of 1997, the most recent month for which statistics are available. Insurance jobs have declined by 12,300 since June 1990. More job losses are predicted for the industry.

Mayor Giuliani has agreed to provide City tax incentives to two banks -- Republic National Bank of New York and Banco Popular, even though the banking industry has purged thousands of City jobs in recent years. Banking jobs in the City have shrunk by 9,600 over the last four years (from 81,100 in June 1993 to 71,500 in June 1997), and by 38,200 since 1990. Given the industry trend of cutbacks, it is not likely that either of these companies will create new jobs or even maintain the level of jobs they started with.

The Mayor could have learned a lesson from his two most recent predecessors in City Hall, who provided large scale tax breaks to at least three banks that have since made significant cutbacks. Chase Manhattan, which received the largest tax break in the City's history from the Koch Administration ($234 million), is shedding 4,000 City jobs as a result of its merger with Chemical Bank. Citibank, which won a $90 million package of tax incentives from the City in 1990, has reportedly moved hundreds of jobs to Tampa and Connecticut, while Bank of America has also made cutbacks.

Network media firms have also been among the greatest beneficiaries of City tax incentives, both from the Giuliani Administration and previous administrations. In fact, every major network has received massive City tax breaks in the '90s. While the Giuliani Administration has provided tax abatements to ABC, Fox and NBC (which also won a substantial tax incentive package in the late '80s), CBS won significant tax breaks from the Dinkins Administration. Aside from the fact that there was scant evidence that any of these networks were seriously considering a move out of New York, the industry is expected to undergo a series of cutbacks in the years to come.

The Wall Street Journal recently reported that "the networks once again are preparing big cutbacks . . . as viewers continue to flock to cable." The article said that ABC is laying off 200 employees while CBS already has cut several dozen jobs this year in its radio sales department and expects more cuts to come in its news and entertainment divisions in connection with its spinoff from parent Westinghouse Electric Corp. Even NBC, the article said, "has launched its own internal quality-control program."

Of the sectors benefitting from City tax abatements, only securities brokers and other financial services firms have been successful in creating new jobs. Everyone credits this recent surge in employment at financial services firms to the unexpected jump in activity on Wall Street and the recent resurgence of the national economy rather than any of the Mayor's economic policies. In fact, although the Mayor began providing tax breaks to Wall Street firms in 1994, employment growth in the financial services sector only began recently. In fact, at least two of the financial firms that won corporate retention deals from the Giuliani Administration in 1994 and early 1995 -- CS First Boston and DLJ -- announced substantial layoffs shortly after the tax incentive packages were announced.

Just as Wall Street firms followed the highs of the 1980s by shedding thousands of jobs in the early 90s, it is likely that employment levels at these firms will soon drop again. A number of Wall Street analysts anticipate a number of merger and consolidations in the near future as a result of the passage of federal legislation permitting banks and insurance companies to own securities firms.

The lion's share of the City's job growth over the past four years has come in the services and trade sectors of the economy. While total nonagricultural jobs in the City have grown by 107,200 over the past four years (from July 1993 to July 1997), jobs in the services sector increased by 151,600. The next largest increases for any one sector were in trade, which produced a net increase of 33,300 jobs over the last four years, and construction, which gained 8,400 positions during this period.

It is noteworthy that the fastest growing sector of the City's economy took off without any significant tax incentives from the Giuliani Administration. Jobs in health care services and tourism were among the biggest job producers. In addition, high-tech jobs, such as in the budding new media industry, produced roughly 40,000 new jobs in the City over the past five years. While the Mayor has recently begun to devote economic resources to firms in this area -- the Mayor and the City Council just approved a program that will provide $30 million in low-interest loans for hundreds of small high tech firms in the City, while the Mayor announced his first, and only, corporate retention deal to a software firm, Information Builders, earlier this year -- the industry's rapid growth occurred without a trace of the millions of dollars in tax incentives that the Giuliani Administration has poured into many of the City's largest, but most sluggish, corporations.

source: NYS Labor Department

There is broad consensus among economists that small companies produce the overwhelming majority of new jobs in New York, and the nation. Similarly, economic studies have shown that the largest companies, including Fortune 500 firms, have been stagnating, and even downsizing for several years. Yet, the Giuliani Administration has continued an economic development strategy that rewards large corporations.

Far from being destitute, or even struggling, the corporations that have won nearly $700 million in City and State tax breaks from the Giuliani Administration read like a Who's Who list of Fortune 500 Firms.

Eighteen of the 29 companies that have received corporate retention deals from the Giuliani Administration are Fortune 500 firms or are owned by Fortune 500 firms. The following is a list of companies that have received significant tax breaks from the Giuliani Administration that were also listed in the 1997 edition of the Fortune 500 ranking:

Many of the firms that were owned by foreign companies were on the list of the Worldwide Fortune 500 firms:

Another indication that the Giuliani Administration has provided lucrative tax breaks to some of the most profitable corporations is that at least 10 of the companies have CEO's who are among the 100 highest paid CEO's in the New York area for 1996, according to Crain's. The firms include:

In some cases, the City has gone beyond simply providing a company with lucrative tax breaks by allowing a handful of firms to collect millions of dollars in savings on more than one corporate retention deal. These deals constitute municipal waste of the worst kind. Examples of firms taking advantage of tax breaks on more than one occasion include:

1. The Equitable and DLJ -- DLJ received a $29.5 million package of tax incentives from the City in August 1994. Just over a year later, in September 1995, the City extended another $9.3 million in tax incentives to DLJ's parent company, The Equitable. In fact, just as the DLJ agreement was being approved by the board of the City's Industrial Development Agency (IDA), which oversees and must approve corporate retention deals, newspaper articles appeared in City papers reporting that the Equitable was deliberating whether to move its jobs out of the City. After a board member brought up this matter at the IDA board meeting, EDC's president at the time, Clay Lifflander, who also sits on the IDA board, stated that the City neglected to bring up the issue of the Equitable's job situation during negotiations with DLJ.

2. NBC -- Even though NBC received a $100 million tax incentive package from the City in the later '80s, the Giuliani Administration decided to provide NBC with $7 million in new tax incentives in 1996. The City's decision to heap additional benefits on NBC is even more questionable given the fact that NBC apparently eliminated 10 percent of its workforce not long after it first received the City tax breaks. Dun's regional Business Directory showed that NBC's regional workforce declined from 5,573 in 1990 to 4,900 in 1996. Also, despite the tax breaks provided by the City, NBC chose New Jersey as its site to add thousands of jobs in recent years. In 1989, NBC launched CNBC in Fort Lee. Then, last year, "after months of searching in New York City and in the South," NBC decided to build its base cable news operations in New Jersey.

3. American International Group -- Last November, the City announced that AIG would keep 5,180 jobs in the City and add another 1,858 in exchange for $55.7 million in tax incentives, the largest tax abatement deal with a company since Mayor Giuliani took office. However, it appears that the City had previously succumbed to similar threats that AIG would leave New York unless the City anted up with hefty financial incentives. According to IDA board minutes, the company notified the City that is was being wooed by Atlanta. As a result, the City approved a $35 million double tax exempt bond issue for AIG in 1992, which included an undisclosed amount of City tax breaks.

4. PaineWebber -- Last May, PaineWebber received a tax abatement package worth $11.9 million to keep 2,781 jobs here. However, a few years earlier, the City agreed to provide $30 million in tax breaks to Kidder Peabody, a company which was bought by PaineWebber in 1994.

5. The Travelers -- The City awarded the Travelers $26 million in tax breaks in 1994 even though it had recently provided Smith Barney, a Travelers subsidiary, with considerable tax breaks.

6. Dillon Read/ING Barings -- The City provided Dillon, Read & Co. with $5.8 million in tax incentives last October. But, earlier this year, the City extended an additional $5 million package of tax breaks to ING Barings, a company that owns 25 percent of Dillon, Read & Co.

Like many professional sports owners who threaten to move their teams out of their home city every 10 years or so unless the municipality agrees to build them a new stadiums, a number of large corporations that received lucrative City tax breaks in the late '80s and early '90s may soon be coming back for seconds. Stories have recently appeared in City news outlets reporting that Morgan Stanley, another firm that received enormous tax incentive packages from the City under the previous two administrations, are knocking on the City's door to request another round of lucrative tax breaks.

The most problematic aspect of the corporate retention deals, and probably the reason why so many people have criticized these programs as corporate welfare, is that the firms are not held accountable if they fail to create the jobs they promised.

The Giuliani Administration's failure to include strict penalties for companies that do not live up to their job creation goals, and its failure to take punitive action against any of the numerous companies that laid off substantial numbers of employees after taking advantage of City tax incentives stands in stark contrast to the Mayor's hard-line approach to welfare fraud. While the Mayor has enacted fingerprinting for social welfare recipients to crack down on "welfare cheats, " required social welfare recipients to go through a rigorous screening process to qualify for benefits and implemented a workfare program founded on the belief that social welfare recipients should be doing something for their benefits, he has not done a thing to crack down on so-called "corporate welfare cheats."

Although the handful of corporate retention deals that were made available to my office all contained provisions whereby the City can recapture benefits from companies that have taken advantage of City tax breaks but failed to meet job targets, they are riddled with loopholes that allow firms to lay off hundreds of workers without any suspension of benefits.

One of the biggest problems with these corporate retention deals is that the City permits firms to lay off dozens, and sometimes hundreds of jobs before it begins to count the company in violation of the agreement. On top of that, the agreements usually contain additional buffer zones that allow the firms to lay off dozens and, sometimes, hundreds of jobs without facing any penalty or even a reduction in benefits. Only if the company goes beyond this buffer does it face the possibility of a penalty. In most cases, however, this penalty will be a minuscule reduction in permanent benefits.

On all but one of the corporate retention deals my office examined, the terms of the agreement allows the firms receiving the benefits to lay off hundreds and, sometimes, thousands of City employees without ever facing the possibility that it will have to pay back the City a portion of the benefits that it has already used. This is because most of the deals contain a provision which says, "there shall be no recapture payment . . . by reason of a non-relocation reduction." Thus, as long as the company does not move jobs to New Jersey, Connecticut or elsewhere out of New York, the company can eliminate as many City jobs as it wants without facing any punitive sanctions.

On the other hand, the City grants an "employee growth credit," which is an additional amount of tax incentives made available to the firm, for every new position created above the company's original employment figure. Thus, while a company can eliminate hundreds of jobs without any penalty, the City provides a growth credit -- usually $1,000 or $1,500 per job -- for every new employee.

Other problems with these agreements are that, in many cases, the City allows firms to count part-time employees and contractual employees towards the number of employees it must keep in the City. (The deals usually count two part-time employees as the equivalent to one full-time employee).

The best way to illustrate the extraordinary loopholes in the City's corporate retention deals is to provide some examples of the actual agreements.

In the City's agreement with the Travelers, the company certified that it had a total of 9,436 employees in the City on the date in 1994 when the agreement was signed. However, the agreement stated that the "employee exemption base," the term used to describe the base employment level which the company must maintain to be in compliance with the deal, would be 8,970. In other words, the Travelers could lay off 466 City employees before it even reaches the employment level which it must maintain in the City.

In addition, the City's agreement with the Travelers allows the company to eliminate up to five percent of its City employee exemption base -- which, in this case, comes out to 448 jobs -- without any reduction or loss of benefits. Thus, the company would not lose a penny of the City tax breaks it was receiving if it eliminated 914 jobs in New York.

The first time the Travelers would face any financial penalty would be if the company eliminated between 5 percent and 25 percent of its employee exemption base. But, even if this happened, the company would only be subject to a minimal permanent reduction in benefits. The formula for deriving the amount of the permanent reduction is complex and depends, in part, on what year the reduction occurred and what amount of tax exemptions have not been utilized by the company. But, in an example written into the agreement, the City illustrates that if the Travelers eliminated 10 percent of its employee exemption base, or 897 jobs, in 2001, and the remaining benefits amounted to $9 million, then the Travelers' benefits "shall be permanently reduced by $100,000. The firm could lay off a total of 1,363 City jobs (466 plus 897), and only be subject to a $100,000 loss in benefits, a minuscule dent in a tax incentive package totalling $22.1 million.

Of course, the agreement gives the Travelers an "employee growth credit" for every new employee over the company's original employment level of 9,436. In other words, it can eliminate 914 jobs without even facing a small reduction in benefits, but if it adds a single employee, the company is rewarded with a hefty growth credit.

Republic National Bank of New York

The fact that the City did not enact sanctions or permanently suspend benefits going to Republic speaks volumes about the weak provisions in the City's corporate retention deals. In May 1995, newspaper articles reported that the company would be laying off 850 City employees less than a year after receiving a $6.4 million package of tax abatements from the Giuliani Administration.

An article in Newsday said that City officials suggested the Republic could lay off hundreds of New Yorkers and not even touch the specific jobs covered by the agreement. The article quoted Forest Taylor, a City economic development official, saying that "the transaction . . . and the creation of 2,400 jobs was for back office and headquarter jobs . . . (and) not for bank tellers or personnel related to branch operation in New York City."

In fact, the City's agreement with Republic does exclude bank tellers and other positions related to branch operations in calculating whether the firm is in compliance with its job targets. However, it is inconceivable that the City would sign an agreement that excludes these positions, the majority of which are held by low and middle-income New Yorkers.

If, as the City then maintained, the agreement only required the company to keep 900 back office jobs in New York and add 200 more, then why does the Giuliani Administration still report that the Republic corporate retention deal retained 2,400 jobs for the City? If the company can eliminate all but the 900 back office jobs, why should the Administration take credit for the full 2,400 positions? It appears that the Mayor is greatly exaggerating the number of jobs that his Administration is responsible for keeping in New York. It also appears that he is manipulating the jobs figures to have a lower cost-per-job than they actually do.

Although DLJ reported that it had 2,039 employees on August 9, 1994 -- two days before its corporate retention agreement with the City was announced -- the City designated the company's "employee exemption base" to be 1,950 employees. If DLJ added a single employee above its starting level of 2,039 it would be eligible for a sizable "growth credit." However, the company could lay off 89 employees before it even reaches the employment level it must maintain to be in compliance with the agreement.

The agreement also allows the firm to make a non-relocation reduction of up to 98 additional employees without facing any reduction in City benefits. This provision means that DLJ could eliminate 187 City jobs and still take advantage of the full amount of City benefits.

If DLJ reduced its employment level between 98 and 390 jobs below the employee exemption level, then it would be subject to a permanent reduction in benefits. But, according to an example provided by the City in the agreement with DLJ, if the firm falls 200 employees below its employee exemption base, and the company has $8 million in tax exemption remaining, it would face a permanent reduction in remaining tax incentives of $56,931.56.

If DLJ reduced its employment by over 390, the City would then have the option of terminating all future benefits and require that the bonds be redeemed. However, the agreement does not require the City to take these punitive steps. Rather, it states that the City can "determine not to take or require" the actions available to it. (In addition, the City would not be able to recapture any benefits already granted to the company or enact a monetary penalty because unless the job cuts were due to the company moving out of New York.)

The City's deal with CS First Boston, which totalled $50.5 million in tax incentives, allows the firm to reduce employment by as much as eight percent below its "base employment level" of 3,704 without facing any loss of benefits. This would enable CS First Boston to lay off 296 employees and continue to reap the full benefits of its deal with the City.

If CS First Boston reduces its City employment by between eight and 40 percent, the company would still only face a minimal permanent reduction in future benefits. The agreement gives the example that if the firm were to reduce employment in the City by 926 employees, or 25 percent, in the year 2002, and the remaining sales tax benefits came to $20 million, then the remaining sales tax benefits would be permanently reduced by just $357,142.85. That would leave CS First Boston still eligible to receive $19,642,857.14 of its remaining $20 million in sales tax benefits, even though it had eliminated 20 percent of its workforce in the City.

The loophole-laden provisions of the City's corporate retention deal are magnified by lax enforcement and the City's decision to keep secret much of the specific information connected to these agreements.

To date, the City has not recaptured money from any of the companies benefitting from the corporate retention deals. On one occasion, Mayor Giuliani has temporarily frozen benefits. That happened two years ago when press reports indicated that Republic National Bank of New York was laying off 850 City employees nearly a year after receiving a $6.4 million tax incentive package from his administration. However, soon after the stories in the media died down, the Mayor quietly reinstated Republic's full benefits, despite the fact that it was laying off a third of its City workforce.

On several occasions, I have notified officials in the Giuliani Administration when companies that were taking advantage of City tax incentives reportedly announced that they would be eliminating large numbers of jobs in New York. However, the City has never taken action against any of these companies.

In many cases, the City has completely let firms off the hook despite hard evidence that the companies made significant job cutbacks while taking advantage of lucrative City tax breaks. One of the most egregious examples of this occurred in mid-1994, when the Giuliani Administration let the Prudential get away with relocating 165 jobs out of the City, even though the company was taking advantage of additional City tax breaks that it won just seven months earlier.

Prudential received a sizable corporate retention deal from the City in the early '90s and then won extra benefits from the City in January 1994, in exchange for a promise to keep 300 jobs in New York for its printing operations. But, according to IDA board minutes, in August 1994, Prudential informed the City that it was relocating 165 jobs out of New York. Despite this knowledge, the City waived the required retention of 165 jobs. As a concession, Prudential agreed to increase its minimum job commitment from 5,264 to 5,550 and refrain from moving out of the City any other non-retail jobs for a three-year period.

Although the City's Economic Development Corporation (EDC) has made available to my office the entire terms of a few of the 30-plus corporate retention agreements entered into by the Giuliani Administration, it has not turned over the lion's share of these deals despite four years of requests from my office. EDC officials, who say they eventually intend to make these documents available, attribute the delay to a policy whereby the City allows each firm a chance to redact any language in the terms of the corporate retention deals that it deems to be disagreeable or inappropriate before the documents are made available to the public.

Many of the documents my office examined contained key information that was completely redacted. In some instances, the specific terms of the recapture provisions with a certain company were redacted, making it impossible for my office, or any member of the public, to analyze and understand the main points of what is essentially a multi-million dollar contract between the City and the firm. In other cases, the specific job targets that the firms must reach for them to be in compliance with the corporate retention agreement were blacked out. This type of secrecy prohibits the public or, in this case, a member of the State Legislature, from gauging whether the firm is meeting its job commitments.

One company that took extreme liberties with its power to redact key provisions from its corporate retention deal with the City was Capital Cities/ABC. ABC redacted entire paragraphs of essential information, including job targets and much of the recapture provisions.

While issuing tax breaks to corporations may give the impression that the current administration is attempting to spur private sector job creation in the City, the practice has failed to create jobs for New Yorkers and put a large hole in the City's budget. Despite flashy press releases routinely calling these deals a "win-win" for the City and promising thousands of jobs for New Yorkers, there is no evidence that the corporate retention deals entered into by the Giuliani Administration, or previous administrations, have resulted in significant numbers of new jobs. The City's sky-high unemployment rate and the recent discovery that many of the new jobs that have been created are going to suburbanites rather than City residents confirm that the Administration's job projections on these corporate retention deals have been overly optimistic. Moreover, the fact that a number of firms have cut jobs in the City while taking advantage of these City benefits indicates that it is time for the City to put its economic development dollars to work in more effective ways.

The City would be wise to concentrate its economic development policy on helping small companies grow rather than continuing to subsidize large corporations that are not adding new jobs. This would make sense because small companies are responsible for the overwhelming majority of the new jobs in New York and the nation in recent years.

But, since it is unlikely that it will abandon corporate retention deals, the City must take steps to make the firms benefitting from these deals more accountable. It must strengthen the terms of the agreements so that companies receiving tax breaks from the City will not be able to eliminate jobs in New York without having their benefits suspended and having to pay back the money it already used. The City must do a better job in monitoring these companies to assess whether they are complying with the deal's job targets, and it must do a better job enforcing the agreement's provisions.

To assure greater accountability, the City should end the secrecy surrounding these agreements and open these deals up to the public. For starters, the City should make public the annual employment figures that each company receiving tax incentives is required to report to the City. This way the public would be able to examine whether the City was getting its money's worth or whether it was being taken for a ride.

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