Matt Ryan
Executive Director, New York Jobs with Justice & Urban Agenda
February 14, 2011
Good morning and thank you for allowing me the opportunity to comment on the Governor’s proposed 2011-2012 Executive Budget as it relates to economic development. My name is Matt Ryan, Executive Director of New York Jobs with Justice & Urban Agenda. NY Jobs with Justice and Urban Agenda are both longtime labor and community coalitions that have recently united around our shared mission to build a more just and sustainable economy. For the last several years, NY Jobs with Justice has lead the Getting Our Money’s Worth coalition and advocated for comprehensive reform of Industrial Development Agencies.
There is no doubt that New York is facing very real budget strains and that bold actions must be taken to put our state on a path to lasting economic recovery. However, the Governor’s budget does not require New York’s wealthiest to pay their fair share and it fails to call out an obvious culprit of wasteful spending – the sprawling network of state economic development programs entrusted with spurring job creation in our communities. At an estimated cost of over $8 billion per year for state and local governments according to the Fiscal Policy Institute, it is time to ask if our economic development programs are part of the solution or part of the problem.
NY Jobs with Justice & Urban Agenda strongly believe that reforming, consolidating, and coordinating our state’s broken economic development structures has the potential to increase tax revenues and spur economic development that benefits working families and local communities. The Governor and Legislature must start by adopting common-sense reforms that ensure that existing programs as well as new initiatives, such as the Governor’s proposed Regional Economic Development Councils, create the quality jobs we need to get New York on a path to shared economic prosperity.
With an 8.2% unemployment rate, we need economic development programs that create the jobs we need to address this crisis. Thus far, our current programs have not met the challenge.
An analysis of the state’s largest economic development program—Industrial Development Agencies (IDAs)—reveals that New York’s economic development efforts to-date have largely failed to foster the creation of good jobs and strong communities. IDAs provide financial assistance to businesses in the form of local and state tax breaks and tax-exempt financing in exchange for the promise to create jobs. According to data released by the NYS Comptroller and the Authority Budget Office, IDAs waste at least $135 million a year on businesses that create no new jobs and sometimes even cut jobs. IDAs also create strains on local governments: Over 80% of IDA spending results in net revenue loss to local coffers. IDAs have increased their spending on net tax exemptions by 82% over the last 5 years, from $354 million in 2003 to $645 million in 2008.
With no high road performance standards, or strong accountability and transparency measures, it is no wonder that job creation and broader economic development goals of IDAs often go unmet, and taxpayers are left holding the bag and having to pay the price with service cuts or increases to our taxes. Sadly, IDAs are only an example of a much bigger problem that accounts for $5.4 billion in forgone revenue to the state and $2.8 billion to local governments when all economic development programs are included.
Corporate tax subsidies may have a place in economic development efforts, but they’re in need of some common sense reform to transform them from corporate giveaways into smart, targeted investments that grow the middle class. Restructuring our economic development system around a regional approach, as Gov. Cuomo proposes, could be a crucial first step in fixing our failed approach to economic development. However, we must make sure that all entities responsible for job creation, whether local or statewide, and including the proposed Regional Economic Development Councils, adhere to the following common sense principles from the outset:
High-Road Performance Standards:
- Public subsidies should invest in good jobs that keep families above the poverty line and offer career pathways, and they should benefit local workers. These policies would help grow a stronger economy where increased consumer purchasing power means more economic growth in our local communities, and where better job opportunities give residents, particularly in upstate, a reason to stay in New York.
- Economic development should follow smart growth principles and preference should be given to development that locates near already developed areas with access to public transportation, affordable housing, and/or built water and sewage infrastructure. Subsidies should also encourage high performance building standards for energy efficiency and the reduction of carbon emissions.
Accountability Standards:
- Publicly-subsidized development should have a public benefit. The workers and communities most affected by development should have a say in development decisions. Labor and community stakeholders must be included at the decision-making table.
- We need to hold our government accountable for protecting the public interest when businesses fail to live up to their promises. Tax breaks should only be allocated after job creation goals are met. Additionally, we should be able to “clawback” subsidies from companies that misuse subsidies, as well as use anti-raiding measures to prevent development entities from using taxpayer dollars to shifting jobs from town to town instead of creating new jobs.
Transparency Reforms:
- Economic development spending is largely a “hidden cost.” With costs spread out among many departments, quasi-private agencies and authorities, subsidies and other incentives are difficult to total and mostly lay outside of the accountability and transparency that budget appropriations demand. We need a comprehensive inventory of all “front door” and “back door” spending for economic development. These line items should be reflected in the state budget to accurately reflect taxpayer costs.
- Development authorities and their subsidized businesses should be required to submit a full annual report on their job creation performance, wages and future commitments, and disclose all information pertinent to the specifics of deals.
At this time of severe fiscal and economic crisis, quality job creation must be the primary outcome of any effort to revamp our economic development structures. We do not just need more jobs—New York needs quality jobs. We need jobs that pay the bills, lift people out of poverty, and have the kind of benefits that allow families to survive a recession or a health crisis, and plan for their children’s futures.
A much-needed coordinated strategy and a long-term plan for how to make New York a leader in sustainable and prosperous economic development must think of the state’s economy as a whole and avoid policies of the past that shift jobs from town to town instead of creating new jobs. Regional Economic Development Councils could help fulfill this vision, but we cannot allow them to become yet another layer of bureaucracy with hidden taxpayer costs.
To this end, we make the following three recommendations to the committees:
- Do not fund Regional Economic Development Councils before basic standards, transparency and accountability measures are in place. The budget proposes to fund Regional Councils with almost $200 million and establish these new entities through executive order. As recently pointed out in the press, this accounts for about 26% of the state’s entire economic development capital budget. Funding the councils before there are program standards in place is a clear example of putting “the cart before the horse.”
- Do not extend IDA financing powers without first reforming IDAs to ensure greater return on investment for taxpayers. The executive budget includes provisions to extend IDA financing to educational facilities. IDAs should not begin financing more projects until they first undergo a long overdue overhaul. Until that time, the Dormitory Authority can support these projects. Albany has considered a comprehensive reform package for a number of years and should adopt these reforms in this session.
- Do not let the new Excelsior Jobs program slide backwards and repeat the mistakes of the Empire Zone program. The budget proposes $70 million in new tax credits through the Excelsior Program. This program was structured to only subsidize employers until after they have met job creation milestones, yet these standards are now at risk. The executive budget allows businesses to receive this subsidy simply for eligibility, not for performance. The budget also changes the formula to calculate subsidy benefits from one that favored higher paying jobs to one that now simply aggregates gross pay without regard to overall job quality. Most troubling perhaps, the program cap is proposed to increase from $1.2 billion over 9 years to $2.25 billion over 14 years. We should maintain strong job creation standards and not allow this new program to quickly spiral into another bloated and under-performing program like Empire Zones.
Thank you for hearing our testimony and our recommendations today to make sure New Yorkers get their money’s worth from their economic development dollars.