Gotham Gazette

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Subsidies in the City: Part II

Photo (cc) 2010 Courtney Gross

This is the continuation of "Subsidies in the City." For the first part of the story, go here.

For the most part, the recipients of IDA benefits could not be more satisfied.

Take Bob Usdin, the owner of Showman Fabricators in Long Island City. For 18 years, Usdin and his company had built sets for theater and television in Red Hook. In 2003, he said, financing from the IDA allowed him to relocate and purchase a building on Pearson Place in Queens.

Scenes from plays and television sets now line the walls of the new space -- a former perfume factory. In a huge, high-ceiled workspace, sets for Broadway's the Little Mermaid, Hamlet, CNN and Fox Business have been born. The setting for the White Houses press briefing room was constructed within these walls.

"If we hadn't gotten the financing and the tax breaks, we would have moved out to Jersey," said Usdin.

Despite these stories, advocates question whether the costs outweigh the benefits for some of the companies the IDA helps. For instance, on the whole, about 40 percent of projects that have received IDA benefits during the Bloomberg administration had not met their job projections as of fiscal year 2009, including Showman Fabricators. About one in four actually lost jobs between the year they started and fiscal year 2009, according to an analysis by Gotham Gazette.

Given the economy, it isn't surprising that some companies have lost workers. Overall, IDA projects approved during the Bloomberg administration have added about 30,000 jobs to the economy that weren't there before.

Nonetheless, some projects miss the mark.

When they first received benefits in 2002, Showman Fabricators had 126 jobs. Now, according to the IDA fiscal year 2009 report, it has 96. Usdin says his business has been hard hit by the economy, and companies shouldn't be penalized if they run into tough times.

"I think it should come down to whether the company is using good faith," Usdin explained in the facility's drafting room. And economic development, he said, is more than the number of jobs.

Photo (cc) 2010 Courtney Gross

"Jobs are definitely important, and that's probably the number one piece of it," he said. "But all the materials we buy. We do local vendors. Every person we employ here buys lunch and has an apartment," he added. About 70 percent of his employees, he said, live in the five boroughs.

A lot of IDA officials agree.

"Should it just be about jobs, no," said Andrea Feirstein, a mayoral appointee to the IDA board since 2007. "It isn’t just about the jobs. It's also about the cost benefit back to the city."

Only 5 percent of the deals approved under Bloomberg come with a job creation requirement -- so the vast majority have no penalty for losing workers. The IDA says for most of these smaller deals (projects that cost an average of $26.5 million), the agency is satisfied if the company finishes its capital construction and stays in New York. A job lost here or there, shouldn't kill an entire project, officials said. A job creation requirement for these companies would be a "poison pill," said one EDC official.

Another official put it this way:

"People get subsidized student loans. ... If you don't graduate, it's enough for the federal government that you went to school," said Kyle Kimball, executive vice president at the EDC. "It's kind of the same thing. We are providing a subsidy or a benefit, and it's enough for us that the physical transformation or the investment in the expansion in the industry has happened."

These benefits keep companies in New York, officials said, and deter the move across the Hudson.

More Requirements

But the question of what the public should get in return for its tax dollars doesn't end there.

Advocates, politicians and labor leaders want to see more from the companies that receive public subsidies. And in many circles that conversation includes requiring companies to pay a living wage.

"Economic development subsidies, they are investments that are made on behalf of the taxpayers, and it's important that we get the greatest benefits for those that have the greatest needs," said John Petro of the Drum Major Institute.

There are bills pending in Albany and at the City Council that would require the recipients of public tax dollars to pay a certain wage. The comptroller also expressed support for a requirement to force these companies to pay a living wage -- defined as $10 an hour plus benefits. The IDA, on the other hand, has not, arguing more restrictions would dissuade companies from applying for benefits.

In what some have interpreted as a truce, the IDA has embarked on a study to measure how living wage requirements would affect its economic development strategy. It is sending out a request for proposals this week and expects the study will be completed next year.

Nonetheless, some of the beneficiaries of IDA financing aren't signing on so soon.

"You're investing publicly backed financing for the construction project to happen, which as a result creates additional jobs, but I don’t believe you can (have) a living wage provision," said Coletti of the Building Trades Employer's Association. "You got minimum wage requirements."

The issue is likely to come up this year both in Albany and at City Hall. Its fate in either venue is unclear.

"Companies get X, and we pat them on the head and say fine," said State Sen. Antoine M. Thompson, who has introduced an IDA reform bill in Albany. "We have a situation where too often these organizations are not creating new jobs and just retaining jobs."

Thompson's bill also would require IDAs across the state (there are more than 115 of them) to mandate that at least two board members attend public hearings and establish criteria for job creation. It would also require IDAs to maintain a web site and prohibit board members from having business ties to companies that apply for benefits.

New York City's IDA already meets many of these requirements, and with the exception of the living wage provision, its officials have expressed support for many of them. From its perspective, the IDA would like to see its ability to fund nonprofits reinstated. Its ability to provide certain types of funding to nonprofits expired in early 2008, and officials said that has crippled them ever since.

During the Bloomberg administration, nonprofits comprised the largest number of projects the IDA financed -- even though its ability to do so was curtailed. About $2.5 billion worth of projects are reportedly held up, because of the state law's expiration.

A Profitable Future

The debate over jobs and economic development will likely heat up in the coming months as the city gets ready to pen another large deal.

Just last month, Mayor Michael Bloomberg and the chief executive officer of Jet Blue held a press conference at City Hall, announcing victory. New York City had successfully secured a deal for the growing airline to stay in New York instead of moving south to Orlando, Fla. A mini Jet Blue airplane model -- brandishing an "I Love NY" logo on its side -- was stage left. In the coming months, the benefits of the deal are likely to take center stage.

To stay in the Big Apple, the airliner could see a benefits package full of tax breaks and incentives worth more than $30 million.

A hearing on the deal will likely not take place for another six months, said an IDA official.

You can bet that, whenever it does, many will be watching.

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