"City in Transition: NYC Issues 2001" is a series
of seminars developed by the
New York University Center for Excellence in New York
City Governance, Coro
Eastern Center and Citizens
Union Foundation (publisher of Gotham Gazette). They
are being offered for free to candidates and their staff.
For the seminars, experts, mostly academics from New York
University, have been asked to explain the key issues
facing New York City, and the options available to these
candidates to solve the problems. We are posting these
"options papers" on our site as they become available.
In addition, the contributors of Gotham Gazette will offer
our own overviews of the issues, geared more to the public.
Economic Development: An Overview
By Jonathan Bowles
It is easy to argue that New York City's economy is in
much better shape than it was a decade ago. The city has
503,000 more jobs than it did at the end of the recession
in 1992, and the average unemployment rate in 2000 --
5.8 percent -- was at its lowest level since 1988. Yes,
there has been a recent downturn in the stock market,
but Wall Street had several years of record gains and
the city quickly became one of the nation's pre-eminent
centers of the digital economy. In addition, tourists
from all over the world have been flocking to the five
boroughs like never before.
While much of this phenomenal growth has been a function
of the nation's booming economy, the dramatic crime reductions
achieved by the Giuliani and Dinkins Administrations played
a key role in convincing businesses to move to New York,
or to stay here. A handful of targeted business tax cuts
in recent years also helped to create a more favorable
climate for businesses.
Yet, despite the phenomenal growth of the city's economy,
the last several years will likely go down in history
as a missed opportunity when it comes to economic development.
New York's economy today is more vulnerable to the ups
and downs of the stock market than ever. Though Wall Street
accounted for only 4.9 percent of the city's job base
in 2000, it made up a whopping 19 percent of total city
wages, up from 13.3 percent in 1992. While the administration
attempted to help the city's fast-growing new media industry
with a variety of programs, including the effective Plug
'n' Go program in Lower Manhattan, it was extremely slow
to realize the potential of the biotech industry and all
but ignored the needs of the city's manufacturing industry.
Until recently, it also failed to grasp one of the biggest
problems plaguing both small businesses and large corporations,
from software firms to printing companies: the lack of
affordable space.
Perhaps most disappointing, the Giuliani Administration
squandered a chance to develop a better business infrastructure
outside of Manhattan's two main business districts, something
that could have helped to expand prosperity to the other
boroughs and, at the same time, alleviate some of the
real estate pressures facing businesses in Manhattan.
Though the administration is now beginning to do this
in places like Long Island City, for too long its major
economic investments outside of Manhattan generally involved
sports stadiums, which create few jobs. And today, despite
an overall strong economy, Brooklyn and the Bronx still
have among the highest unemployment rates in all of New
York State.
The city's next class of elected officials cannot take
these issues lightly. With the city's population continuing
to grow, it will be more important than ever to ensure
that the city retains existing business, creates new jobs
and diversifies the economy.
The following will be important economic development
issues over the next few years:
RETAINING A SAFE BUSINESS ENVIRONMENT
Reducing crime is usually considered more of a public
safety issue than an economic development issue. However,
businesses throughout the city cite the substantial reduction
in the city's crime rate as one the best things that the
Giuliani Administration has done to improve the city's
business climate and keep companies from fleeing to the
suburbs.
The declining crime rate has helped New York hold onto
employees and entrepreneurs that used to prefer the quality
of life in the suburbs. It also encouraged more business
activity in Hunts Point, East New York, Harlem and other
neighborhoods that long have had to deal with the stigma
of high crime rates.
RELYING LESS ON TAX BREAKS
Over the past twelve years, successive administrations
in City Hall have entered into more and more "retention
deals" -- tax incentive packages designed to retain companies
who threaten to move their jobs to New Jersey, Connecticut
or other locations outside of New York. The city has committed
to provide nearly $2 billion in tax breaks and other subsidies
during this period to several dozen large commercial firms
and financial exchanges, but there is little indication
that the city's taxpayers have been getting their money's
worth. In fact, an embarrassingly large percentage of
the companies benefiting from these deals have later laid
off employees, moved jobs out of the city or merged with
other companies.
To its credit, the city has increasingly tied city incentives
to the actual creation of new jobs and imposed penalties
on those firms that don't fulfill job promises. Still,
these deals continue to serve as the signature economic
development program of a city in which 99 percent of all
businesses have fewer than 500 employees and the overwhelming
majority of those businesses do not receive any incentive
packages.
Some say that city officials have little choice but
to keep entering into retention deals because the loss
of a major employer would be a powerful blow to the city's
economy, not to mention a devastating political blow to
any mayor. Yet, over the past decade or so, the city has
done little to develop a long term solution that would
eventually allow it to compete with New Jersey and other
states without having to enter into costly tax incentive
deals.
ENCOURAGING NEW OFFICE DEVELOPMENT OUTSIDE OF MIDTOWN
AND DOWNTOWN
These days, city businesses, both large and small, may
not need tax cuts as much as they need affordable space.
There simply have not been enough affordable facilities
available in any of the city's most accessible business
areas. And the city's high real estate prices have made
Jersey City, where real estate prices are considerably
lower, awfully attractive.
Until recently, the Giuliani Administration only attempted
to offer tax incentives as a way to compete with New Jersey.
But this kind of plan is only a stop-gap measure. Over
the past year or two, the administration has finally begun
to develop a game plan to spur new office construction
outside of Manhattan, principally with a proposal to rezone
a 37-block area of Long Island City.
Developing an attractive business district outside of
Manhattan could help the city compete with New Jersey
for new media companies, biotechnology firms and other
service related businesses that want to remain on this
side of the Hudson but cannot afford to pay the going
real estate prices in Manhattan. Having a more affordable
business district could also enable the city to retain
businesses without having to offer exorbitant tax incentives.
The next mayoral administration, as well as the City
Council, will have to figure out ways not only to spur
new office construction in Long Island City, Downtown
Brooklyn and other areas, but to develop an attractive
infrastructure to support each new business district.
After all, even if the price is right, most companies
are not going to want to move out of Manhattan unless
their new neighborhood has enough basic services -- like
restaurants, copy stores and coffee shops, plus high speed
telecommunication connections, sidewalks and adequate
street lighting -- to support the needs of the companies
and their employees. The trick may be to focus on a very
small number of neighborhoods that have the greatest potential
to achieve a critical mass of firms, particularly areas
that have decent transportation links and a smattering
of services, and which require minimal public infrastructure
investments.
DEVELOPING A SECTOR-ORIENTED ECONOMIC DEVELOPMENT
STRATEGY
Several other cities and states have successfully implemented
a sector-oriented economic development policy, one that
caters to many sectors of the city's economy, not just
one or two of the largest sectors. In New York City, this
would mean addressing the obstacles faced by most of the
200,000 businesses located within the five boroughs, not
just the firms that are big enough and influential enough
to blackmail city officials with threats to relocate.
The idea behind a sector strategy is to provide targeted
support to promising industry sectors and the many companies
within those sectors. This would include a range of activities
to encourage sector growth, such as providing job training
programs aimed at software companies, loans or grants
to help local academic institutions defray the cost of
building incubators for biotech start-ups, and zoning
protection for growing food manufacturers outside of Manhattan.
It means supporting more programs like the Plug 'n' Go
program that helped dozens of high-tech companies locate
in specially outfitted buildings in Lower Manhattan.
This kind of economic development strategy is not simply
an alternative to providing tax incentives; it would help
diversify the economy. In New York, sectors with growth
potential include finance, media, new media, film production,
software design, aviation, food manufacturing, design
and biotechnology.
RETAINING MANUFACTURING JOBS
One of the biggest challenges of the next group of city
officials will be to ensure that the hundreds of thousands
of New Yorkers with limited educational and language skills
have ample opportunities to make a decent living and support
their families. For the past several decades, countless
immigrants and other New Yorkers who lack the skills to
get jobs on Wall Street or in other parts of the city's
economy have depended on the city's manufacturing sector
for relatively well paying jobs. However, the Giuliani
Administration has done little to help this important
sector, despite the fact it still employs nearly 250,000
people within the five boroughs.
More than any other industry, the city's manufacturers
-- including printers, garment manufacturers, woodworkers,
bread making firms, metal fabricators -- have been hit
hard by the city's real estate crunch. Unable to pay as
much in rent as dot coms, law firms, artists or virtually
any other office or residential tenant, in the past few
years scores of manufacturers have been squeezed out of
the few remaining industrial enclaves of Manhattan, such
as the Midtown Garment Center, the Hudson/Varick printing
district, Chinatown and the far west side of Chelsea,
as well as many parts of North Brooklyn.
Many people mistakenly believe that industrial businesses
that can no longer afford rents in Manhattan will simply
move to the other boroughs. However, from Hunts Point
to Sunset Park, vacancy rates are at or near all-time
lows and real estate prices are sky-high. According to
Greiner Maltz, a Queens-based real estate company, the
overall vacancy rate for industrial facilities in Queens
was 6.93 percent last summer, down from 13.47 percent
in 1995. The overall vacancy rate for industrial buildings
in Brooklyn was 8.26 percent last summer, down from 15
percent in 1996.
More than a dozen manufacturers have already been forced
to relocate out of the city, not because of taxes or energy
costs, but because they simply cannot find affordable
facilities in the city. Among other things, manufacturing
advocates call for stronger zoning protections to prevent
speculative warehousing of industrial buildings and significant
rent increases. In addition, many companies would like
to see the city restore BRAC, a city-funded relocation
grant program whose funding was cancelled in 1997.
INFRASTRUCTURE
While the city's relatively high tax rates are one of
the problems business executives cite as a reason to relocate
their firms out of New York, many also consider the quality
of city schools and the condition of the city's transportation
and telecommunications infrastructure. Without a doubt,
company executives require good schools for their employees'
families as well as to provide their firms with a skilled
work force in the future. In addition, they do not want
their employees spending hours getting to and from work
on crowded subways or congested highways. And they want
high-speed telecommunications connections that do not
break down regularly.
Unfortunately, New York City has a long way to go in
all of these areas. Upgrading the city's aging infrastructure
has never been a top priority of the Giuliani Administration.
Among the projects that deserve the attention of the
city's elected officials are constructing the Second Avenue
subway, providing better public transportation access
in Brooklyn and modernizing the city's public schools.
In addition, there is an urgent need to address chronic
highway congestion on the Van Wyck Expressway, a problem
that is threatening the future strength of the city's
air cargo industry at JFK Airport. Delays on the Van Wyck
have already caused some air cargo companies to shift
business, and jobs, to other airports.
AFFORDABLE HOUSING
Housing is not usually thought of as an economic development
issue. But it has become one as apartment prices have
skyrocketed in recent years and threatened the city's
ability to continue to attract hordes of skilled, creative
people from diverse backgrounds -- the human capital that
has become the most important ingredient of the New Economy.
Apartment prices in New York do not have to be on par
with the suburbs, but they have to be reasonable if the
city expects to hold onto its vital base of artists, scientists,
woodworkers, designers, software writers, chefs, doctors
and other creative workers and professionals. Yet New
York has only begun to address this crisis.
WORKFORCE TRAINING AND HIGHER EDUCATION
In the Information Age, it is skilled talent, just as
much as computer hardware, which is powering growth. Yet,
New York City has one of the least equipped workforces
in the nation. Local businesses have been having a hard
time finding qualified staff in the city. They have begun
contracting work out abroad and recruiting workers from
elsewhere to move into the city. So far, the city has
done little to respond to this skills crisis.
Increasingly, states and cities across the nation are
understanding that higher education and business development
strategies should be connected. North Carolina, for instance,
designated its community colleges as the official training
arm for the entire state. Any company creating 12 jobs
or more is guaranteed customized business training at
the nearest college. But while most states are using public
colleges as their economic engine of growth, in New York
City, our public colleges are more often attacked.
NEIGHBORHOOD DEVELOPMENT
Not every neighborhood in the five boroughs has the potential
to be the next central business district or high-tech
center, but many areas could achieve significant growth
over the next few years with the proper attention and
support from government, industry and community organizations.
Planning officials should identify opportunities for growth
and City Hall should engage community boards, local Council
Members and community leaders to devise strategies for
sustainable growth.
SMART PLANNING
A city as densely populated as New York would seem to
scream out for smart planning, but other cities and regions
have done a much better job than New York of developing
strategic plans for future development. Individual projects
in the city are generally done on a piecemeal basis, often
causing more problems than benefits. And because the city
rarely involves communities in planning specific projects,
developments often run into vociferous community protests
and lawsuits.
The next administration will have its hands full with
major crises: a housing shortage, a lack of commercial
and industrial real estate, and a failure to develop an
effective, long-term solid waste management plan. All
of these problems call for smart, citywide planning initiatives
that involve the participation of local officials and
community organizations.
Jonathan Bowles is the research director of the Center
for an Urban Future
Economic
Development: An Option Paper by D. Kenneth Patton