Gotham Gazette

The Place for New York Policy and politics

Using Tax Incentives Wisely

Whether the economy is booming or in a bust, it’s best to know where your taxpayer dollars are going. But good luck if you want know how those tax breaks are allocated to businesses in New York City -- all in the name of job creation. As our city navigates the current financial crisis and prepares to distribute between $4 billion and $5 billion of federal stimulus monies, we can’t pretend it is business as usual.

Most New Yorkers are surprised to learn that it’s nearly impossible to know how much money is allocated to companies for job creation or even how many jobs are created in exchange for tax breaks. Different agencies have different criteria and reporting requirements. For example, the largest economic development tax incentive, recently reauthorized as the Industrial Commercial Abatement Program, gave $500 million in property tax breaks last year, but it has no job reporting requirements.

At Good Jobs New York we pay close attention to the Web New York City Economic Development Corporation and its Industrial Development Agency, which last year allocated more than $48 million to mostly large fortune 500 firms whose threats to leave New York City are highly questionable. Using tax breaks as corporate giveaways will not revitalize our economy nor prepare it for the future.

Moving forward, and using the American Recovery and Reinvestment Act as a launching pad, city officials need to tighten up how we award tax incentives to large corporations. By doing so, we can use efficiency and transparency to help create good jobs for all New Yorkers and a healthy business environment for all companies.

Transparency is Key

First, the city must make public the costs and benefits and outcomes of its job retention subsidies funded by the federal stimulus package as well as upgrade the online reporting for the city's incentive packages. Today there is no central database for keeping track of this information, but people are eager to know what is happening.

According to the U.S. Office of Management and Budget, the federal recovery website received 150 million hits in its first two and a half weeks -- even though there is little data there. New York City has proposed a “stimulus tracker,” but it’s unclear if it will include data on jobs, wages and subcontractors or include data on the city's incentive packages.

This type of needed transparency -- uncovering the job creation, or lack thereof, of certain incentive packages -- is not unprecedented elsewhere.

Thanks to improved reporting at the New York City Industrial Development Agency, we’ve learned that some firms have received subsidies in the past even though they reduced their New York City workforce. Some never had to promise to create jobs in the first place. Pfizer, for instance, received a subsidy package, which could have been worth up to $47 million, from the city in 2003 but shut its Brooklyn plant in 2008. The city also failed to attach job creation guarantees on more than $1 billion in subsidies awarded to the Yankees and Mets for their new stadiums.

The city and state used similar tactics -- and had similar results -- with funding they received after September 11, 2001. Then, about $2.7 billion in Community Development Block Grants and $8 billion in tax-free Liberty Bonds were aimed at getting firms to stay or return to Lower Manhattan. But little of it benefitted the small businesses hardest hit, like those in Chinatown and the Lower East Side. After receiving these grants, large firms including American Express and HIP admitted they would have returned to Lower Manhattan without them.

The same year, Mayor Michael Bloomberg's own company, Bloomberg, L.P., turned down a subsidy for its headquarters in Midtown. The mayor said that businesses like his don’t make location decisions based on taxes, because they are such a marginal cost. Ironically, in recent weeks the mayor has waffled, saying just the opposite.

Prior to September 11th, community block grants and federally tax-exempt bonds were intended to benefit low- and moderate-income people and to create affordable housing but these requirements were waived by the Bush administration. The Bloomberg administration is hoping these rules will be waived again by leaders in Washington for the stimulus funds, creating an invitation for a replay of the 2001 corporate giveaways.

Eliminate the Silos

The city can spend less and get more by eliminating the silos that exist between its economic development and workforce development policies.

Tax breaks should be used as a leverage to place New Yorkers who need jobs at firms that get the tax breaks. For example, the New York City Economic Development Corp. and Industrial Development Agency have allocated hundreds of millions of dollars to companies, yet neither of them collaborate with training agencies like the city’s Workforce One Centers or private job training or readiness programs serving unemployed or under-employed New Yorkers.

When a firm accepts taxpayer subsidies, there should be an effort to connect them to potentially qualified New Yorkers who need jobs. There are plenty of New Yorkers who need jobs, and it’s about time we strengthen ties between companies that are hiring and our employment and training agencies.

Invest Wisely

The city should not only make sure jobs are created, but that good jobs -- those with an emphasis on helping those most in need -- are being created. Why give subsidies for jobs that keep people in poverty? Firms should pay employees a living wage and provide health benefits. Otherwise, taxpayers are paying twice: subsidizing the company and paying for social safety net programs.

It’s bad for the morale of responsible businesses to see low-wage companies receive tax breaks. Making sure New Yorkers have money in their pockets is a sure way to generate the economic activity we need.

Incorporating job quality standards won’t cause companies to flee New York City. In fact, we’re surrounded by places, including New Jersey and Pennsylvania, which have wage and health care standards attached to their subsidy programs.

Think Regionally

Most likely the biggest threat to the creation of a rational economic development policy is the economic war among the states. The Obama administration should encourage regions to work together by discouraging the use of tax incentives that “poach” companies from one location to another. New York, New Jersey and to a lesser extent Connecticut and Pennsylvania are in a race to the bottom by reducing taxes for some companies who promise to relocate.

But as mentioned earlier, taxes aren’t the main reason a company moves or expands. Access to the necessary workforce, infrastructure, suppliers, customers, affordable housing and school quality are critical in the decision-making process. Investing in these will give taxpayers the best bang for their buck

If a company doesn’t have the business basics, giving it tax breaks is futile. The economic war among the states benefits secretive site location consultants who pit cities and states against each other. To make the region stronger, officials should work together to magnify individual and collective strengths, not belittle them.

Bettina Damiani is the project director for Good Jobs New York.

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