MONEY FOR NOTHING

Research Director 212-397-5913

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MONEY FOR NOTHING: THE FAILURES OF CORPORATE WELFARE

PROGRAMS DURING THE PATAKI ADMINISTRATION

MORE THAN A DOZEN CORPORATE

Governor Pataki is continuing to rely on costly and ineffective business subsidies as a economic development tool despite increasing evidence that these programs have been a dismal failure at producing jobs and a colossal waste of taxpayer funds. While I have previously shown that the State's business incentives have failed to create jobs, this report reveals that more than a dozen companies have made significant layoffs a short time after receiving lucrative tax breaks other business subsidies from the Pataki Administration. A handful of companies have literally taken the money and run -- moving jobs out of New York after benefitting from financial incentives from the Pataki Administration.

It is hard to square the Governor's support for corporate subsidies when he is fighting to drastically scale back funding for the State's social welfare programs. For instance, while Governor Pataki is calling for the end of the "cycle of dependency" for social welfare recipients, he has agreed to provide millions of dollars in subsidies to corporate giants like General Electric, IBM, General Motors, and Kodak -- even though they all failed to live up to past promises to create jobs after receiving State tax breaks.

These corporate behemoths are but a few of the companies that have taken the State for a ride. Two years ago, the Pataki Administration pledged a hefty sum to Fisher Price, the Buffalo-based toy manufacturer, even though the company had just announced that it was laying off 700 employees. However, earlier this year, Fisher Price, which has taken advantage of State and local incentives for more than a decade, announced that it was laying off all but a handful of its remaining 300 employees and moving its operations out-of-state. Last month, the Pataki Administration agreed to provide Troy-based Garden Way with over $3 million in subsidies to keep its jobs in the State. But, just weeks after the deal was announced, Garden Way, which has eliminated 200 jobs in Schenectady over the past year, said that it would be laying off an undisclosed number of employees this summer.

Two years ago, the Pataki Administration agreed to provide GM Super Steel with $13 million in State and local financial incentives in exchange for the company agreeing to locate its new locomotive plant in Scotia. Although GM Super Steel promised to hire 150 to 200 employees by the time the plant opened (and more in the years to follow), the company employed just 45 workers several months after the facility opened. It now has 89 employees.

Although these business incentive packages are always accompanied by press releases promising hundreds of new jobs for New Yorkers, there is no evidence that these subsidies have created jobs or positively impacted the economy. The State fails to monitor whether companies that receive incentives actually create the jobs promised, and it has never commissioned an objective study assessing the effectiveness of these incentives. Moreover, the biggest beneficiaries of the State's business subisidies have been large corporations, even though small businesses are producing most of the new jobs in New York and the nation.

One indication that these programs have not worked is the State's poor job growth during the Pataki Administration. Despite making subsidies available to hundreds of companies, many of which have promised to add hundreds of jobs, the State has only produced a total of xxx new private sector jobs since Pataki took office in 1995. Many of these new jobs have come in industries like retail/trade, health services, financial services and new media -- sectors that, for the most part, have not received business subsidies from the Pataki Administration. Meanwhile, while numerous manufacturers have taken advantage of tax breaks and other subsidies from the Pataki Administration, labor statistics show that the State continues to lose manufacturing jobs. Moreover, while the lion's share of the business incentives awarded by the Pataki Administration have gone to upstate companies, the bulk of the State's job growth has been concentrated in New York City and its suburbs.

Yet, despite the state's anemic growth, the numerous failures of companies to live up to job commitments and the growing consensus among economists that incentives are not good economic development policy, Governor Pataki is continuing to pledge millions of dollars in business incentives to corporations. In fact, the Governor's executive budget for fiscal year 1997-98 calls for a 67 percent increase in funding for a program that provides subsidies to only the largest corporations.

This report highlights the failures of the State's reliance on costly business incentives as a way to retain or create jobs. It identifies a number of corporate welfare cheats -- companies that have laid off employees or moved jobs out-of-state after receiving extensive subsidies from the State. Finally, it recommends a number of steps that could be taken to make these incentive programs more accountable and suggests some alternative ways to stimulate job growth.

I. CORPORATE WELFARE USERS, ABUSERS AND CHEATS

The following are companies that have not only failed to meet job commitments after receiving State subsidies and tax incentives, but which have played the State for a sucker by laying off a substantial numbers of employees or moving jobs out of New York. Most, but not all of these companies have benefitted from financial incentives provided by the Pataki Administration.

GE has received the royal treatment from the State for years, taking advantage of the investment tax credit, a loophole that lets large corporations like GE save millions of dollars a year, significantly reduced power rates from the New York State Power Authority, and substantial State sales tax abatements granted by the Schenectady County IDA. While it continues to receive these perks, GE has fared even better since Governor Pataki took office, benefitting from at least $5.5 million in discretionary tax incentives and other subsidies from the State since 1995. In addition, NBC, a GE subsidiary, won more than $7 million in tax incentives from New York City last year.

However, the State has paid dearly for not predicating these incentive packages on any guarantee that GE would create new jobs or even maintain current employment level in New York. In fact, GE has paid back the State's generosity with several rounds of devastating layoffs at its Schenectady and Syracuse plants -- including over a thousand job cuts in New York since Governor Pataki took office in 1995.

Earlier this year, GE moved 319 jobs from Schenectady to Bangor, Maine, where the company also has production facilities. But, for most Schenectady residents, this latest round of job cuts was small potatoes. GE eliminated 490 jobs at its Schenectady plant in 1996; 980 employees were laid off the year before; and, in 1994, GE let go more than 2,000 workers. Overall, GE has cut its workforce in Schenectady from 9,000 to 4,700 since 1994.

Over the years, IBM has reaped tens of millions of dollars in savings as a result of tax exemptions, tax credits, grants and numerous other subsidies from the State. In 1993, the Armonk, NY-based computer giant worked out a controversial deal that enabled IBM to offset hundreds of millions of dollars in State sales on the transfer of computer equipment and software to one of its subsidiaries, Integrated Systems Solutions Corp (ISSC). In addition, the Cuomo Administration provided more than $40 million in loans and low cost power to another IBM spinoff, Micrus, in 1994. A year later, the Pataki Administration agreed to assist Micrus with a $5 million interest subsidy grant and a $225,000 training grant.

The company has also been one of the largest beneficiaries of the State's investment tax credit (ITC), which has allowed IBM to reportedly lower its tax burden to the State's minimum level of 3.5 percent. IBM, which won even greater savings from the State in 1994 when it succeeded in convincing the Legislature to extended the life of the ITC from seven to 10 years, is now attempting to get the State to allow its lucrative tax credits to be carried forward for 15 years.

Even these generous aid packages, however, pale in comparison to the controversial, and costly, benefits that the Pataki Administration has bestowed on IBM. In one of the first major decisions of his Administration, Governor Pataki announced a convoluted plan whereby the State would purchase some of IBM's old buildings for $13 million and help foot the bill for IBM's new $75 million headquarters. As part of the deal, Pataki committed the State to provide IBM with at least $6 million in sales tax exemptions and millions of dollars in additional benefits by issuing State bonds and loans at low interest rates.

However, since the Pataki deal with IBM was announced, the company has eliminated more than 1,000 jobs in New York, adding to the nearly 15,000 jobs cut by the company between 1992 and 1994. These enormous layoffs highlight the failures of the State's policy of providing companies with tax incentives and other subsidies as a way to retain and create jobs. In the case with IBM, as so many other companies, the subsidies turned out to be a one-sided giveaway, with IBM doing nothing to reciprocate the State's generosity.

Fisher Price, a company that saved millions of dollars over the years as a result of State and local business subsidies, including $250,000 in grants and loans from the Pataki Administration, announced last month that it was laying off all but a handful of the remaining 175 jobs at its Medina plant and ending its manufacturing operations in the Buffalo area. The company eliminated 115 jobs earlier this year, let go 700 employees at its Medina plant in 1995, and laid off nearly 5,000 employees in the early '90s. Fisher Price, which was recently bought by Mattel, has transferred many of its jobs to other Mattel plants in Mexico and in other states.

The toy manufacturer, however, took advantage of State and local subsidies for years. It received more than $2 million in loans and tax incentives from the Erie County IDA and saved millions more by taking advantage of low-cost hydropower from the New York State Power Authority. The most questionable subsidy, however, came from the Pataki Administration, which provided Fisher Price with $250,000 in loans and grants in 1995 to create 118 office jobs at its East Aurora location at the same time the company was laying off 700 manufacturing employees in Medina. In essence, the State was subsidizing a net loss of 582 jobs. Moreover, Fisher Price has laid off 290 employees since receiving the grants and loans from the Pataki Administration.

Shortly after the Pataki Administration agreed to provide Lockheed Martin with $7 million in grants and loans in April of 1996, the large defense contractor announced that it was slashing hundreds of jobs from production facilities throughout the State. Lockheed, which displaced 445 employees when it closed its Utica plant in January of 1996, notified the State Labor Department that it would be laying off 450 employees from its Great Neck, Long Island plant in early 1997. Although some of those jobs would be transferred to the company's Syracuse facility, many would be shifted out-of-state to Moorestown, New Jersey. Lockheed also closed its Bronx plant in January of 1997, laying off 113 employees. In addition, the company is reportedly shutting the doors to its Manhattan headquarters, affecting 100 employees.

Ever since the controversial decision to provide Albany-based KeyCorp with more than $1 million in tax breaks, the banking behemoth has shed hundreds of jobs. The Colonie Industrial Development Agency (IDA) provided KeyCorp with $1.2 million in tax incentives in April 1993 to rent a building in the Corporate Woods office park after the company threatened to move its credit card operations to Utah. At the time the deal was announced, KeyCorp said it would create 250 to 300 new jobs. But, like many other banks in recent years, KeyCorp actually eliminated several hundred jobs.

In February 1994, less than a year after it received the incentive package, KeyCorp announced that it would be eliminating up to 410 jobs in the Capital Region that year as a result of its merger with Society Corp. of Cleveland. Then, just three months ago, the Times Union reported that KeyCorp would eliminate 225 local jobs, nearly 18 percent of the company's jobs at the Corporate Woods office park.

Six months after the Pataki Administration announced that it would be providing Kraft with two Empire State Development grants totalling $850,000 for its Livingston plant, the company notified the State Labor Department that it would close its White Plains facility and eliminate hundreds of jobs.

Kraft, a subsidiary of Philip Morris, received the ESD grants in October 1995. But, the company announced the closing of its White Plains plant in February 1996, which reportedly involved transferring 300 jobs to Northfield, Illinois, laying off another 150 to 200 employees and shifting the remaining 800 jobs to other Kraft plants in Rye Brook and Tarrytown.

In a deal that Governor Pataki has touted as one of the major accomplishments of his Administration, the State agreed to provide $4.69 million in subsidies and other financial assistance to GM Super Steel in 1996. This includes up to $2.04 million in direct loans from the State's Job Development Authority; a $400,000 interest subsidy grant from the Empire State Development Corporation; $750,000 in training grants; and rail improvements made by the State's Department of Transportation valued at $1.4 million.

GM Super Steel will also receive $1.8 million in property tax exemptions; $1.8 million in tax exempt financing; $1.7 million in electricity savings; $1.1 million in wage tax credits; a $900,000 investment tax credit on the facility; $810,000 in employee tax credits; and $245,000 in sales tax exemptions. With over $1 million more in local assistance, the total package of incentives and benefits to Super Steel amounts to $13 million.

But, nearly a year after the plant opened in the Scotia Industrial Park in Glenview has created only a fraction of the jobs originally promised by company officials and the Governor. According to project documents, GM Super Steel promised to have 150 to 200 employees by time the plant opened and 300 employees by the end of 1997. However, the company had just 45 employees a year after the plant opened. According to the Times Union, it now has 89 employees.

Despite the substantial subsidies that are being provided by the Pataki Administration, GM Super Steel will not be hiring permanent employees as a result of this project.

Moreover, the Pataki Administration's generosity to GM Super Steel comes just after General Motors shut the doors to two of its plants in New York -- Tarrytown and Syracuse -- affecting thousands of employees. One of those facilities, GM's Inland Fisher Guide plant in Syracuse, shut down even though it took advantage of more than $1 million in State money in 1988 for a special training program.

Despite saving millions of dollars over the years as a result of favorable tax law amendments, tax exemptions and other State and local subsidies, Kodak has laid off nearly 3,000 employees at its Rochester headquarters in recent years. Kodak's has benefitted the most from a controversial 1994 tax code change that enabled companies that have large payrolls and land holdings in New York but sell most of their goods out-of-state to significantly reduce their State tax burden. In the early 1990's, the State joined with the Monroe County IDA to provide lucrative financing assistance for the Kodak-owned Canal Ponds Office Park in Greece.

Few companies in New York, however, have laid off as many employees as Kodak. The company let go 2,000 employees in Rochester in 1993 and laid off another 800 workers in 1995. Since these massive layoffs, however, the Pataki Administration has agreed to yet another package of lucrative subsidies and incentives for Kodak. In May, 1996, Governor Pataki announced that he was providing Kodak with $660,000 in ESD grants, along with millions of dollars in sales tax exemptions and investment tax credits. Although Kodak will reportedly build a new $200 million film manufacturing plant in Rochester, the company has promised only to retain 500 jobs and create 50 new jobs.

When Governor Pataki announced that Sprint, the telecommunications giant, would create 262 jobs in downtown Syracuse with the help of State tax incentives earlier this year, he called it "one of the greatest days for business growth in Central New York." But, what the Governor did not say was that Sprint's expansion was coming at the same time that AT&T was eliminating 262 jobs in Clifton Park because it lost its contract as the vendor for the statewide telecommunication relay system for the hearing, speech and visually impaired to Sprint.

Less than a month after Garden Way won a $3.2 million package of State and local tax incentives and subsidies in exchange for a promise to remain in Troy and create 100 new jobs by the end of the year, the company announced that it would lay off an unspecified number of employees for the summer. The recent layoffs are just another indication that the company may be more likely to further reduce employment rather than create new jobs. This will be the third summer in a row that the company has laid off workers. Earlier this year, around the same time Garden Way was attempting to win tax breaks from the State, the company laid off 35 employees in Rensselaer County. Last year, the company eliminated 166 jobs in New York.

There are other reasons to question the Garden Way incentive package, which includes a $1 million capital grant from ESD; $300,000 in job training grants from the State; and $200,000 in company recruitment assistance. Although the company threatened to close its Troy plant and move its operations to Wisconsin, most insiders believed that the company was just blackmailing the State to get a better deal. In addition, most believed that New York would win out over Wisconsin as the site for Garden Way's consolidation because its Wisconsin plant employed union labor while the Troy facility does not.

One of the best examples of the Governor's economic development failures was Artistic Greetings, an Elmira printing company that received nearly $1 million in grants and loans from ESD in 1995. Governor Pataki specifically mentioned the firm in his State of the State Address as proof that his economic development programs were working. But, just a week after the Governor's speech, Artistic Greetings laid off 200 employees.

Quiozel

This Long Island company, which makes lighting equipment, moved 109 manufacturing jobs to South Carolina last November, less than two years after it received a $10,000 grant from ESD on January 31, 1995.

ESD provided $750,000 in grants and loans to HMG Digital Tech, a Long Island company that was formed after HMG merged with Allied Digital Tech in 1995. However, at the same time the merged company was benefitting from the State's largesse, it moved 245 jobs to Tennessee. Although the company supposedly plans to add 56 employees by 1998, its original job reductions clearly outweigh the gains and raise the question of whether the State's investment was worthwhile.

The Westchester-based company received a $25,000 grant from ESD on February 28, 1995. However, the following January, the company notified the State Labor Department that it was closing its facility and laying off 177 jobs.

Just over a year after receiving a $300,000 grant from ESD in November, 1995, Bausch & Lomb announced it would be laying off 200 jobs in Rochester by the end of 1996.

Promising that it would create more than 450 jobs, Regeneron Pharmaceuticals took advantage of $7 million in State business loans in 1993 to help purchase a factory in Rensselaer. But, despite the State's assistance, Regeneron never created anywhere near the number of jobs it projected. In 1994, the company slashed 50 employees -- about 25 percent of its workforce, according to the Times Union. By 1995, the building had only 34 Regeneron employees.

Rather than scaling back funding to the State's business subsidy programs or exerting more caution in the awarding of financial incentives, the Pataki Administration is proceeding full steam ahead. The Pataki Administration has doled out millions of dollars in financial incentives this year, mostly to large corporations promising few, if any, new jobs. Many of these recent deals, a few of which are listed below, raise more eyebrows about the effectiveness of the State's business incentive programs.

Earlier this month, the Pataki Administration joined with New York City Mayor Rudy Giuliani in announcing a deal to provide Merrill Lynch with a $28.5 million incentive package, even though the Wall Street giant acknowledged that it was not contemplating a move out of New York. While the deal consists mostly of State and City sales tax exemptions to Merrill Lynch, the State will provide a $1 million ESD grant to the company.

The Pataki Administration recently announced that it would provide $2 million in grants and make available millions of dollars in sales tax exemptions to Price Waterhouse, which also did not threaten to leave New York.

Some of the most egregious examples of corporate welfare in New York State have occurred on the local level, where industrial development agencies have extraordinarily broad power to issue tax exempt bonds and provide lucrative tax exemptions to businesses in their jurisdiction. Although the Legislature continues to approve the creation of new IDA's around the State (there are now xxx statewide), there is little indication that the millions of dollars in subsidies provided by IDA's have led to substantial numbers of new jobs for New Yorkers. In fact, a report last year by former Assemblymember Fran Pordum showed that State IDA's provided $691 million in tax breaks in 1994 and 1995, but only attracted three businesses from outside the State.

In some cases, IDA's have subsidized company relocations from one part of New York to another. In other instances, IDA's have provided hundreds of thousands, or even millions, of dollars in tax exemptions to companies that promise only to create a handful of jobs.

The following are recent examples of questionable IDA projects:

After years of charging Long Islanders among the highest prices in the nation for cable subscriptions, Cablevision will soon benefit from tens of millions of dollars in tax incentives and low cost financing from the Nassau County IDA. The IDA's deal with Cablevision, which was announced in late May and reportedly includes up to $59 million in low cost financing and property tax abatements, up to $2.8 million in sales tax exemptions and $460,000 in mortgage-recording-tax exemptions, raises a number of questions. The incentive package comes at the same time Cablevision is spending hundreds of millions of dollars to acquire new cable systems in the New York Metropolitan area. Given its recent spending spree, it is hard to believe that Cablevision needs such lucrative assistance from the government. And, although the company said that it was considering moving its headquarters to Suffolk County or New Jersey, there was no compelling evidence that the company was really planning to leave Nassau County, where it has long been headquartered, where it owns a television station, and where the largest segment of its customers live.

Last June, the Waterford IDA loaned a subsidiary of Golub Corp. $2.1 million to buy a 58,000 square foot freezer warehouse for the company's Price Chopper supermarkets even though the company, Clark Trading Corp., has promised just five full time jobs. By winning IDA backing, Golub does not have to pay mortgage or transfer taxes and does not have to pay sales taxes on equipment -- a savings valued at more than $100,000. In essence, the State is paying more than $400,000 per job.

Northrop Grumman has eliminated over 20,000 jobs on Long Island since it received lucrative tax incentives and other financial assistance from the Nassau County IDA a decade ago. Two months ago, the company announced that 445 employees at the company's former headquarters in Bethpage would be laid off or relocated to other company facilities in Maryland or Florida. Earlier this year, Northrop Grumman said that its last production plant on Long Island would close by the end of the year, affecting approximately 450 employees. Devastated by defense cutbacks, the company, formerly known as Grumman, will have only 2,700 employees on Long Island after these cuts are completed, down from a peak of 25,000 in the mid-80s.

At the same time Governor Pataki is proposing an overhaul of the State's social welfare programs -- including stricter time limits, more accountability and significantly lower payments to to recipients -- his budget calls for an increase in funding for many of the most wasteful, abused and ineffective corporate welfare programs. The Governor is also attempting to consolidate the power of ESD, which disburses the majority of the State's direct business subsidies, and shield it from the scrutiny of the Legislature and other State monitors.

Governor Pataki is not only proposing to increase funds for the State's corporate welfare programs, but he plans to provide the bulk of the new money to programs that favor large businesses. The Governor's executive budget for fiscal year 1997-98 calls for a 67 percent increase in funding for the JOBS Now program, an ESD business subsidy program that is only available to large corporations. JOBS Now, which was set up last year by Governor Pataki and Senate Majority Leader Joe Bruno, provides grants, loans and other subsidies to businesses that promise to create at least 300 jobs. Governor Pataki proposes to increase funding for the JOBS Now program from $20 million a year to $30 million. Pataki's budget also calls for a 42 percent increase in funding -- from $38.75 million to $55 million -- for ESD's Economic Development Fund, which provides financial incentives to a wide range of companies.

At the same time, however, Pataki's budget proposes a 50 percent cut in funding for ESD's Entrepreneurial Assistance Program and a xx percent cut to the High Technology Program.

This strategy flies in the face of the massive layoffs that have occurred at so many of the State's largest employers in recent years and the years of broken promises by corporate giants like IBM, GE and Kodak, which all eliminated jobs after receiving State financial incentives. It also ignores the common wisdom among economists and labor researchers that smaller firms are creating the overwhelming majority of the new jobs in New York and the nation.

The Governor is also proposing another overhaul of the State's economic development agencies. He wants to eliminate the Department of Economic Development and the Science and Technology Program and consolidate those units into ESD. While this may save the State money through better efficiency, it is a move that will enable the agency to further shield itself from public scrutiny. Consolidating all of the State's economic development programs under ESD, a public authority, would leave the Legislature and other State monitors with even less oversight authority over the agency.

Governor Pataki has repeatedly promised that his economic development policies would produce scores of new jobs for New Yorkers and revitalize the State's economy. However, despite handing out tens of millions of dollars in business subsidies and tax breaks to hundreds of companies, and delivering tax cuts for businesses, the State's economy has failed to produce significant numbers of new jobs.

In fact, New York has added less private sector jobs in the first two years of the Pataki Administration (147,000) than it did during the final two years of the Cuomo Administration (166,000). A recent study showed that New York was 44th among all states in job growth. And, while the U.S. unemployment rate recently dropped to 3.8 percent, New York's unemployment rate still hovers at 6.2 percent, essentially unchanged from the State's 6.1 percent jobless rate when Pataki took office in January, 1995.

Another indication that the Pataki Administration's business incentive programs have not worked is that most of the new jobs created in New York have come in industries -- like retail/trade, health services, new media and financial services -- that have, for the most part, not benefitted from tax breaks and subsidies from the State. And, while numerous manufacturers have taken advantage of tax breaks and subsidies from the Pataki Administration, the State continues to lose manufacturing jobs.

Moreover, while most of businesses benefitting from Pataki Administration subsidies are located upstate, the bulk of the State's new jobs have been produced in New York City and its suburbs. Wall Street, the State's biggest job generator over the past year, owes its resurgence to improvements in the national economy rather than any targeted incentives provided by the Pataki Administration.

Despite the numerous signs that business incentives have not led to new jobs for New Yorkers, Governor Pataki continues to pledge millions of dollars in subsidies to companies. In the last two months, for instance, the Pataki Administration has doled out multi-million dollar incentive packages to Merrill Lynch and Price Waterhouse, even though both New York City firms indicated that they had no plans to leave the City.

This wasteful policy not only ignores the raw evidence of New York's sagging economy and the alarming number of corporate welfare cheats, it overlooks the growing consensus among economists that incentives are not good economic development policy. A report by Robert Lynch of the Economic Policy Institute last year concluded that "statistical and econometric studies are nearly unanimous in concluding that state and local tax incentives fail to attract business, create jobs, or enhance state economic performance." A 1996 report by the Corporation for Enterprise Development (CFED) found that most economists agree that incentives used by cities and states: "1) waste scarce public dollars without creating any net new jobs in the vast majority of cases; 2) subsidize the shareholders of these companies for economic actions they would have taken anyway; 3) foster unfair competition by helping some firms and industries and not others; and 4) divert the attention of policymakers from attending to the actions they need to take that could lead to net new job creation and a better business climate."

Though Governor Pataki's reliance on these costly incentives may make a good public relations campaign and create the impression that his administration is working to spur economic growth, it has led to few, if any, new jobs while costing taxpayers millions of dollars in lost revenue. The State would be much better served in the long run if took some of the following recommendations:

1. Investment in Education and Infrastructure

Instead of helping a handful of companies, often at the expense of many others, the Pataki Administration should invest in a campaign to improve New York's infrastructure and quality of education. Both are often cited by corporate CEO's as some of the most important factors in deciding where to locate their company. The CFED report said that "the importance of tax and non-tax incentives in the location decision process is still overwhelmed by more traditional and new location factors -- a quality workforce, access to cutting-edge technology, access to markets and transportation networks, and the availability of up-to-date and well-maintained infrastructure and amenities." Unfortunately, Governor Pataki has made deep cuts in the State's education budget and has actually cut the State's capital budget for two consecutive years.

2. Foster Small Business Growth

Rather than wasting tens of millions of dollars on large corporations like IBM, GE and GM, which have been downsizing, the Pataki Administration should focus its economic development initiatives on small businesses, which create the overwhelming majority of the new jobs in New York and the nation. New York would do well to follow the example of Ohio, which has been one of the most successful states at using incentives to create growth. According to the Wall Street Journal, Ohio has succeeded by using its development dollars to nurture its own small and midsize businesses, lavishing training dollars upon them and linking them with foreign-trade partners, rather than trying to lure giant corporations from elsewhere.

3. Provide Relief to All Businesses -- Repeal the Gross Receipts Tax

A much fairer way to lower the cost of doing business in New York and make the State more competitive for businesses would be to phase out the regressive gross receipts tax (GRT). Repealing the GRT, which is arguably the State's most unfair tax, would provide substantial relief to all businesses by allowing energy costs to fall in line with utility prices in states that border New York.

4. More Accountability for Incentive Programs

At the very least, the Pataki Administration must take steps to ensure that its incentive programs are more than haphazard giveaways to favored corporations. Companies that take advantage of these lucrative benefits must be more accountable to taxpayers with strict penalties for businesses that fail to meet job promises.

t For starters, the Governor and the Legislature should appoint an independent panel to conduct a thorough study of the effectiveness of providing tax incentives and other business subsidies as a way to retain and create jobs. The study should determine how many jobs, if any, have been created by companies that received business incentives.

t Companies that benefit from State incentive programs must provide the State with regular updates on the number of employees they have in New York. This data should be publicly accessible. The State should also require companies that benefit from these programs to promptly notify the State when it intends to eliminate jobs or lay off employees in New York.

t The State should restructure these business incentive programs so that companies that benefit from these programs are penalized if they do not live up to their employment promises. If companies do not create the promised number of jobs, their benefits should be suspended and they should be required to return the amount of money that they had previously received. The State could realize these changes by enacting legislation introduced by Senator Stachowski and Assemblyman Bragman that allows the State to recoup some or all of the money received by a company that failed to create the number of jobs promised.

t Legislation that I introduced with Assemblymembers Scott Stringer and Arthur Eve accomplishes several of these goals. Among its provisions includes repealing the investment tax credit for corporations; establishing recapture provisions for companies that fail to live up to the conditions of tax abatement agreements; and eliminating the authority of IDA's to grant abatements from the State sales taxes and the State mortgage recording tax.

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