On February 12, 2013, Matt Ryan, ALIGN’s Executive Director, delivered this testimony at the Joint Legislative Public Hearing on 2013-2014 Executive Budget Proposal on Economic Development:
Good afternoon members of the Senate Finance and Assembly Ways and Means Committees. Thank you for allowing me the opportunity to comment on the Governor’s proposed 2013-2014 Executive Budget as it relates to economic development. My name is Matt Ryan and I am the Executive Director of ALIGN, an alliance-building organization that brings together labor and community-based organizations in order to create good jobs, vibrant communities, and an accountable democracy for all New Yorkers. For the last several years, ALIGN has co-anchored the statewide Getting Our Money’s Worth coalition, a broad-based coalition that advocates for comprehensive reform of our economic development system to ensure good jobs, strong communities, and sustainable economic growth.
The Citizens Budget Commission released a report late last year that identified nearly $7 billion dollars in spending on economic development in New York. This is money spent on private economic development and does not include the $16 billion spent annually on public infrastructure projects. Over the last few months, ALIGN has taken a closer look at this $7 billion by pouring over mountains of data obtained through FOIL requests and publicly available data, to develop a full picture of this state and local spending. While the detailed finding will be released in the next few months, our initial findings suggest that there is little to no coordination, few job creation requirements, and few standards to encourage quality jobs and a low-carbon economy, and only pockets of transparency and accountability in the fifteen largest economic development programs and entities. This is a system that needs to be overhauled, and now is the time.
As you know, over three million New Yorkers live under the federal poverty line. Nearly one million New Yorkers are unemployed. Given the sheer size of the unemployment and jobless crisis in New York, economic development entities should be directing all of their resources towards quality job creation. What New Yorkers need are jobs that pay them enough to support their families, and we have the resources to do this if only they are directed towards strategic economic development.
Regional Economic Development Councils, which were created by Governor Cuomo in 2011, have taken an important step towards improving the cooperation and strategic orientation of certain pieces of our economic development system. Yet it is important to note that they only control around $750 million, or 10% of New York’s total spending on private economic development.
Governor Cuomo has taken another step in the right direction in this budget cycle, by proposing Article VII legislation that would limit the ability of Industrial Development Agencies (IDAs) to unilaterally grant state tax exemptions. The current proposal brings IDAs into conversation with Regional Councils, and puts additional scrutiny on state exemptions, ensuring subsidy deals conform to the criteria set by the relevant Regional Council. While this could increase coordination and investment in strategic sectors of the economy, it represents only a small portion of IDAs’ overall spending. State sales tax breaks only account for 12% of all net tax exemptions granted by IDAs. Local governments lost out on the vast majority of tax revenues – $426 million in 2010, including $200 million lost to local school boards. While state tax breaks will come under greater scrutiny if these changes are approved, local governments will be left to find solutions to run-away IDAs on their own. In the Governor’s Budget Briefing book, it is noted that the proposed IDA reform would generate $7 million in additional revenue as IDAs recapture funds from projects that fail to meet their contractual obligations. Yet it is clear that New York has a $7 billion problem, not a $7 million problem.
If IDAs and Regional Councils only account for 17% of spending on economic development in New York, what accounts for the other 83%? How can New York take the reins of our economic development system and strategically invest our scarce public dollars to create quality jobs, build a stronger economy, and improve the quality of life for all New Yorkers?
We need legislators to make bold proposals for strategically marshaling this $7 billion. The key principles of a bold plan are:
- Prioritize performance: Require community benefits to be given in return for our investment of scarce public dollars. Over one-third of all current IDA projects do not require the creation of a single job, and nearly one-half of all IDA projects failed to create a job or lost jobs in the last reporting year. Only the Excelsior Jobs Program, the REAP program in New York City, and Empire State Development Grants require job creation. For the other 12 programs that make up the $7 billion, they simply do not require job creation or retention.
- Show us the jobs: Make it easy to track and account for how we spend the $7 billion. IDAs have the most comprehensive project-specific data available, despite several serious short- falls. Of the several dozen programs run by Empire State Development, Regional Councils and the Excelsior Jobs Program are the only programs that have project-specific reporting, although it is far from comprehensive. Several programs, such as ICAP (NYC programs enabled at the state level), and the state R&D Tax Credits, have no project-specific transparency, and our FOIL requests have been denied.
- Money-back guarantee: If a business doesn’t meet its performance benchmarks, get the money back to create jobs elsewhere. ESD is the most successful at monitoring projects and holding recipients accountable to their agreements. Only half of IDAs have a subsidy recapture policy, and few apply it systematically. Too few programs have clear performance benchmarks and accountability mechanisms to protect New York’s taxpayers.
It is time to move away from piecemeal solutions to New York’s economic development failures. We need bigger and bolder change that prioritizes performance, accountability and transparency throughout this $7 billion system. New Yorkers deserve to get their money’s worth from their $7 billion investment. To this end, ALIGN and the Getting Our Money’s Worth Coalition looks forward to working with legislators on bold, new ideas to reform New York’s economic development system.
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