JP Morgan Chase, which boasts $1.4 trillion in assets, is a rich, powerful, and iconic New York City institution: the financial world’s equivalent of the New York Yankees.
And like the Yankees, who are building a new stadium with the help of more than $800 million in tax breaks and aid from the state and city, JP Morgan Chase also wants a new headquarters - and wants the public to help pay for it.
Representatives from JP Morgan Chase and the Bloomberg administration are currently meeting behind closed doors, trying to work out a deal for a 50-story, 1.3 million square foot skyscraper at the site of the old Deutsche Bank building near Ground Zero. The city is reportedly offering the bank about $100 million in tax breaks and subsidies. But Chase wants something closer to the $650 million deal that the city and state gave Goldman Sachs to build its headquarters in 2005.
And also like the Yankees â€“- who once threatened to leave the city if the team did not get a new stadium â€“- JP Morgan Chase has told city officials that if it does not get what it wants, it may move to Stamford, Connecticut.
"There's a viable alternative for them," Jim Fagan, of Cushman & Wakefield told the Stamford Advocate. "This should be a threat that New York should take seriously."
The current standoff between the city and JP Morgan Chase is just the latest example in a long running policy debate. Are tax breaks for big corporations a wise investment to keep jobs, businesses and tax revenue in the city? Or do they amount to corporate welfare?
WHO GETS HOW MUCH?
In the 1970s when the New York was in financial trouble, crime was high, and the future looked bleak, many Fortune 500 companies left the city. Since then, the government has looked for ways to use tax incentives to help create and keep businesses and jobs in New York, But over the last two decades, the practice â€“ and the amounts given â€“ have increased dramatically.
The main beneficiaries have been financial, insurance, media or real estate firms. But in the late 1990s the city gave aid to a number of dot com companies, according to a report by the Center for an Urban Future. Then as the dot com boom collapsed, the report said, many of the companies that “benefited from city retention deals â€¦ announced large-scale layoffs or merged with other media/Internet firms.” Manufacturing companies have also received incentives, mostly from the city Industrial Development Agency or from Industrial and Commercial Incentive Program, according to Jonathan Bowles, director of the nonprofit urban policy think tank Center for an Urban Future. Because manufacturing companies in the city tend to be smaller than the financial and media behemoths, these deals tend to involve less money â€“ and receive less attention â€“ than those affecting bigger corporations.
Precise numbers of the amount of subsidies are hard to come by. Since 1994, the state and city have announced more than $2 billion in subsidies to New York City companies in the name of "job retention," according Good Jobs New York, although they say the real costs are likely much higher since the details of many deals are not disclosed to the public.
Giuliani made subsidies an essential part of his economic policy, negotiating nearly 100 high-priced deals.
In these deals, the city and state usually promise to forego up to a certain amount in taxes, most often sales taxes, said Bowles. He estimates that since 1998 New York City corporations have received “upward of a billion dollars” in such commitments, although it is difficult to determine how much this actually cost the city and state in lot tax revenue.
Whatever the exact figures, Mayor Rudolph Giuliani made such subsidies an essential part of his economic policy, negotiating nearly 100 high-priced deals, according to a database compiled by the watchdog group Good Jobs New York.
The incentives included:
- $52 million for NASDAQ
- $20 million for Met Life
- $29 million for Reed Elsevier
- And $75 million to Bear Sterns and Young.
The biggest retention deal of the Giuliani-era involved the New York Stock Exchange. The city and the state agreed to shell out as much as $1.1 billion over a number of years to keep the stock exchange from leaving the city. The deal eventually fell apart after the September 11, 2001, attacks as Mayor Michael Bloomberg said the city could not afford such a massive investment. However, by that time, the city had already spent about $80 million. The stock exchange, of course, has remained in lower Manhattan.
Bloomberg, who faced budget deficits in his first few years in office, promised to be more disciplined than Giuliani in granting subsidies to big corporations.
"We have basically ended the era of corporate welfare, basically paying people to stay," Deputy Mayor Daniel Doctoroff said in 2003. Doctoroff’s boss â€“ Bloomberg â€“ said, "Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long."
Despite this rhetoric, Bloomberg has agreed to large subsidies for new stadiums for the Yankees and Mets, and the Atlantic Yards project. He has also given tax credits to large corporations like Time Warner, Hearst, the New York Times, Bank of America, Pfizer, Aon and the Bank of New York.
The main difference between Giuliani’s and Bloomberg’s subsidies, Charles Bagli argued in a New York Times article, is the rationale.
“During the recession in the early 1990s, city officials argued that the incentives were necessary to persuade corporations not to abandon the city,” Bagli wrote. “Now, city officials argue that the city economy is so robust that companies cannot find large blocks of prime office space and cannot afford new construction without city subsidies.”
KEEPING COMPANIES DOWNTOWN
In 2005, Mayor Bloomberg signed off on one of the biggest corporate retention deals in the city history.
To lure Goldman Sachs, which had recently moved 3,000 employees to New Jersey, back to the city, the New York State’s Liberty Development Corporation issued $1.6 billion of federally funded Liberty Bonds to pay for most of a new $2 billion headquarters near Ground Zero. And Goldman Sachs received an estimated $650 million cash grants, tax-exempt bonds, sales and utility tax breaks and discounts on required payments in lieu of taxes.
“I think this may have been something the Bloomberg administration believed was an important chance to keep these jobs and tax revenue in the city, as well as create an anchor tenant for the World Trade Center site,” said Bowles. “They believed this would have a domino effect and attract additional developers and investors to the neighborhood, many of whom wouldn’t even consider commercial projects in the area for years after 9/11.”
The destruction of the Twin Towers and recent conversions of office buildings into residential buildings has reduced lower Manhattan from the third to the fourth largest central business district in the country, behind Midtown Manhattan, Chicago and Washington. And firms such as Brown Brothers Harriman, the Royal Bank of Scotland and UBS Warburg have recently relocated or in the process of relocating thousands of jobs and a substantial amount of tax revenue to Connecticut and New Jersey.
Despite that, other financial firms like JP Morgan Chase, Lehman Brothers, and Merrill Lynch have pushed for deals similar to the one given Goldman Sachs, but officials have not anted up in the same way.
Recently, Bloomberg said that he would not agree to such lucrative incentive packages for companies in lower Manhattan in the future. “If anyone builds downtown now, they will get normal, as-of-right tax breaks and nothing more,” the mayor said in April.
But given the increased competition from other cities and state, some argue that New York must be generous if it hopes to retain its title as “the world’s financial capital.”
“Having commercial activity like this is very important to the future of the World Trade Center site in terms of keeping it an active, public and welcoming location, as well as a magnet for other major businesses,” said Carl Weisbrod, a board member of the Lower Manhattan Development Corporation and president of the city’s Economic Development Corporation from 1990 to 1994.
In the case of JP Morgan Chase, Kathryn Wylde, president of the Partnership for New York City argues that historically, the various banks that today make up the bank (Chemical Bank, Manufacturers Hanover, JP Morgan and Chase Manhattan) were anchored in the financial district and played a key role in the development of Wall Street and New York City becoming the global center of the financial services industry.
“I think JPMorgan should receive subsidies from the city so the deal could go forward â€“ it represents the best way to really complete the solidification of Lower Manhattan as the world financial capital,” argues Wylde.
But others counter that the Lower Manhattan has changed dramatically since September 11 and particularly in the past two years.
At the time of the Goldman Sachs deal, for example, 7 World Trade Center had no tenants, and some real-estate experts feared that lease-holder Larry Silverstein would not be able to secure any major corporations to occupy the building. But now, Bowles notes, 7 World Trade Center is completely pre-leased, and the high vacancy rate for office space in Lower Manhattan post 9/11 has dropped significantly.
“There’s currently a lot of positive momentum for that area right now and simply not the same kind of need for Bloomberg to use financial incentives to keep businesses there,” said Bowles.
DO THEY CREATE JOBS?
The primary argument for corporate subsidies is that they help the city keep and create jobs.
“Everyone agrees that one-off deals are, in the abstract, bad policy, but everyone also agrees that having a company forced to relocate thousands of jobs out of New York â€¦ is even worse public policy,” said Wylde.
But critics say that there is no guarantee that millions in tax breaks actually translates into increased employment.
The 2001 study by the Center for an Urban Future found that “a large percentage of the firms that have benefited from city retention deals during the past decade have been acquired by other companies, put themselves up for sale, gone belly-up, moved major parts of their business out of the city or simply eliminated many jobs in New York shortly after taking advantage of city incentives.”
In 2005, Bloomberg signed off on one of the biggest corporate retention deals in the city history.
In other words, the city actually lost jobs rather than gaining.
In 1997, for example, the city and the state awarded Merrill Lynch $28 million in tax breaks over 15 years in exchange for the firm staying in the city and hiring an additional 2,000 employees. But as of last year, Merrill Lynch had fewer employees than it did when the deal was made. Now with its lease at the World Financial Center and its tax breaks set to expire in 2012, the firm has been threatening to move its headquarters out of the city again.
Bettina Damiani of Good Jobs New York argues that if subsidies are going to be used, the deals should guarantee a certain number of jobs stay in the city. She also says that there needs to be an emphasis on training and placing city residents in any jobs that are created.
“We should use any money for subsidies as leverage for these employers to provide work opportunities to residents if we are using their tax dollars, and right now that simply isn’t happening,” said Damiani.
NYC VS. NYC
While some companies threaten to move out of New York City if they do not get subsidies, many get handouts for just moving to a different part of town.
In 2001, the city gave Metro Metropolitan Life $26 million in subsidies to move its 1,700 employees from Midtown to Long Island City, Queens, and stay there until 2021, rather than relocate them to Jersey City.
Five years later, the company had a change of heart and wanted to move back to Midtown Manhattan.
The city could have fined Met Life $24 million for breaking the agreement. Instead, it chose to fine the insurer $5 million and obtain another promise that the company would keep at least 1,800 employees in Queens.
JP Morgan Chase’s current headquarters is at 270 Park Avenue in Midtown, and if it builds its new headquarters downtown as many predict, the city will give incentives to move the company just a few miles south.
“This deal is simply pitting lower Manhattan against Midtown, and it is unclear as to what kind of net benefit this deal would have for the city as a whole by shifting employees from its Midtown office to a new office downtown,” said Damiani.
The subsidies offer no guarantees that the firms that get them will keep employees and revenue in the city long-term. Rather, critics charge these arrangements only buy the city five to ten years of guarantees, after which the firms return to the mayor with their hands out, seeking a second round of subsidies.
And some companies receive generous subsidies meant to keep them in the city, even though they never even consider leaving.
“We realize it's not the cheapest place to do business, but we're already here,” Greg Vahle, a vice president of Pfizer told Crains NY Business in 2004, shortly after it received $46 million in subsides. “We attract a high-quality workforce in New York City, and we think it's advantageous to be in the country's business and financial capital.” Only up to a point apparently. Earlier this year, Pfizer announced it was closing its Brooklyn packaging plant, eliminating 600 jobs in the process.
Industries That Got Away (2004)
The New York Stock Exchange And Wall Street's Future (2003)
NYC vs NJ (2002)