No More Delay: Proven Policy Solutions for New York City
Minneapolis, MN and Austin, TX: Using Economic Development Subsidies to Create High-Quality Jobs
Executive Summary
The Problem: Despite its strained budget, New York City gives out millions of dollars a year in tax breaks to private companies that may not need subsidies and that go on to create poverty level jobs—or few jobs at all. The process includes little public accountability.
Economic development subsidies are intended to promote economic activity in the city by helping businesses relocate or expand their operations in New York City. However, subsidy deals made by the city-controlled Economic Development Corporation and the NYC Industrial Development Agency do not always include binding job creation targets or job quality mandates, such as living wage requirements. In some cases, subsidy recipients have actually been permitted to reduce the number of their employees in the city without penalty.
The public pays the price when large city subsidy agreements allow major global corporations like JP Morgan Chase, Bank of America, American International Group, and Bear Stearns to avoid billions of dollars in sales and property taxes. In practice, these expansion and retention subsidies for large firms are often given to corporations that have no intention of leaving New York City, where there is a large concentration of skilled workers, world-class cultural amenities, and the country’s best and largest public transit system. Ultimately it is these factors, not corporate subsidy packages, which attract large corporate firms and small companies
alike. Yet the tax revenue lost in subsidy deals results in less money for these very services and infrastructure improvements. In addition, as Bettina Damiani of Good Jobs New York notes, “The tax burden then gets shifted onto smaller companies and individuals who don’t have that kind of power [to demand subsidies of their own.]”
City taxpayers are hit twice in the case of deals like the Yankee Stadium subsidy agreement, in which the team received $800 million in land, infrastructure, forgone taxes, rent rebates, and tax exempt bonds to construct a new stadium.14 According to Damiani, the city failed to leverage its subsidies to create living wage jobs for residents of the South Bronx. Consequently, taxpayer dollars are first diverted from schools, infrastructure, and other city needs. Then taxpayer dollars must go towards programs such as Medicaid, food stamps, housing assistance, and other social services that are needed by the workers in city subsidized jobs who still cannot make ends meet. Bettina Damiani puts it simply: “We shouldn’t be subsidizing low-paying jobs. That doesn’t benefit anybody.”
The fight to ensure that the public gets a fair deal in exchange for their subsidy dollars is playing out right now in the Bronx, where citizen groups are currently fighting to ensure that job quality standards such as a living wage and health benefits are part of the deal to redevelop the Kingsbridge Armory. The city, through the Industrial Development Agency, is in negotiations with developer Related Companies to sell the historic structure and provide tens of millions of dollars in tax breaks to the developer for a new retail center. Although Related Companies boasts of creating many new jobs on the site, the city has not been receptive to neighborhood efforts to ensure that retail tenants pay a living wage.
New York’s development subsidies are investments made on behalf of the residents and taxpayers of the city. As the economic crisis takes its toll on the city’s budget, it is especially important that New York leverages these investments to generate tangible benefits for city residents.
The Solution: Living Wage Requirements, Clawbacks, and Criteria
Minneapolis, MN requires that each subsidy deal create a certain number of living wage jobs.15 Additionally, the city has recourse if the recipient does not create the promised living wage jobs or if the recipient decides to leave the city after receiving a subsidy. These penalties, called clawbacks, provide for greater accountability on the part of the subsidy recipients.
Austin also includes minority participation requirements for subsidy recipients. A company receiving incentivesfrom Austin needs to comply with one of the following options:
By implementing these policies, both Minneapolis and Austin have taken concrete steps to ensure that the development subsidy process is more transparent, that subsidy recipients are held accountable, and that the subsidy process creates benefits for city residents.
These policies have not impacted the ability of these cities to attract and retain businesses. What Minneapolis’ policy has done, according to Kent Robbins, of the Community Planning and Economic Development department of Minneapolis, is create an environment in which businesses are aware of the need to create living-wage jobs if they are to receive public subsidies. Since 1996, when Minneapolis first started including living wage criteria in its development subsidy deals, 81 percent of those that were hired by subsidy recipients are paid a living wage ($13.25 an hour in Minnesota).
Austin has used its economic development subsidies to leverage higher rates of job creation and private investment than other Texas cities. Austin’s subsidy policies allow the city to be more selective and more targeted. According to documents supplied by Austin’s Economic Growth and Redevelopment Services Office, Austin entered into seven economic development agreements from January 2000 to October 2007. Comparatively, smaller cities such as Plano and Fort Worth entered into far more agreements, 66 and 21, respectively, over the same time period. In the past year, five companies have applied for incentives in Austin and only two were approved.
Implications for New York
In New York, economic development subsidies are made on behalf of the city primarily by the New York City Economic Development Corporation (EDC) and the New York City Industrial Development Agency (IDA). They are not official city agencies. However, the Mayor appoints the chairman of the board of the EDC and the IDA as well as most of the members of their respective boards. The Mayor also appoints the president of the EDC (who is also the chairman of the board of the IDA). The EDC officially oversees the programs of the IDA and reports to the Deputy Mayor for Economic Development. The IDA uses a wide array of economic development tools to attract, retain, and expand businesses in the city. The board of the IDA decides which companies and projects receive discretionary subsidies.
The IDA does incorporate some clawback measures in its development subsidy deals in certain situations: if the company falls below its required employment commitment or if the company relocates outside of New York City within a certain number of years of the deal.18 However, there are questions about how often the city actually enforces these provisions. Instead, the city has a tendency to disqualify the recipient from future subsidy deals. According to Damiani, “The Bloomberg administration gave Pfizer a subsidy deal. Within about four years of that they’ve closed down their Brooklyn plant. So, instead of saying that Pfizer had to pay back that subsidy, what they’re saying is ‘OK, we’ll just forego any future subsidy for you.’”
Additionally, the IDA allows “certain negotiated buffers” on job retention or creation numbers before a recipient is considered to be in violation of their subsidy agreement. For example, under their development deal, “Merrill Lynch could lay off up to 12 percent of their workforce before receiving any kind of penalty.”
The EDC’s and the IDA’s status as public-private entities raises some accountability issues. “They have these quasi- public-private entities where it sort of looks like it’s an independent entity,” according to Bettina Damiani, “But in reality all the major players are appointed by public officials. And they’re actually kind of troubling because there is less opportunity for accountability.”
The City Council passed Local Law 48 in 2005 in order to address concerns about accountability. The law requires the EDC to submit a report each year to the City Council, the Mayor, the City Comptroller, the Public Advocate, and the Borough Presidents. The report must contain information on the development projects that receive discretionary assistance,20 including the amount of city assistance and the calculated city benefits. When calculating city benefits, however, the EDC does not take job quality—such as the wage rate or provision of
benefits—into account. There is no requirement that projects receiving development subsidies must create living wage jobs, nor are there any local hiring requirements.
Since the EDC is under the control of mayoral appointees, the Mayor could change EDC policy to require that job quality standards, such as living wage requirements, be included in all future subsidy deals. Additionally, the City Council could pass legislation, as it did with Local Law 48, to put stricter regulations on the EDC and the IDA. These regulations could be applied to all subsidy deals that are “discretionary,” as opposed to “as-of-right.”
Minneapolis, MN and Austin, TX: Using Economic Development Subsidies to Create High-Quality Jobs
Executive Summary
The Problem: Despite its strained budget, New York City gives out millions of dollars a year in tax breaks to private companies that may not need subsidies and that go on to create poverty level jobs—or few jobs at all. The process includes little public accountability.
___________________________________
Economic development subsidies are intended to promote economic activity in the city by helping businesses relocate or expand their operations in New York City. However, subsidy deals made by the city-controlled Economic Development Corporation and the NYC Industrial Development Agency do not always include binding job creation targets or job quality mandates, such as living wage requirements. In some cases, subsidy recipients have actually been permitted to reduce the number of their employees in the city without penalty.
The public pays the price when large city subsidy agreements allow major global corporations like JP Morgan Chase, Bank of America, American International Group, and Bear Stearns to avoid billions of dollars in sales and property taxes. In practice, these expansion and retention subsidies for large firms are often given to corporations that have no intention of leaving New York City, where there is a large concentration of skilled workers, world-class cultural amenities, and the country’s best and largest public transit system. Ultimately it is these factors, not corporate subsidy packages, which attract large corporate firms and small companies
alike. Yet the tax revenue lost in subsidy deals results in less money for these very services and infrastructure improvements. In addition, as Bettina Damiani of Good Jobs New York notes, “The tax burden then gets shifted onto smaller companies and individuals who don’t have that kind of power [to demand subsidies of their own.]”
City taxpayers are hit twice in the case of deals like the Yankee Stadium subsidy agreement, in which the team received $800 million in land, infrastructure, forgone taxes, rent rebates, and tax exempt bonds to construct a new stadium.14 According to Damiani, the city failed to leverage its subsidies to create living wage jobs for residents of the South Bronx. Consequently, taxpayer dollars are first diverted from schools, infrastructure, and other city needs. Then taxpayer dollars must go towards programs such as Medicaid, food stamps, housing assistance, and other social services that are needed by the workers in city subsidized jobs who still cannot make ends meet. Bettina Damiani puts it simply: “We shouldn’t be subsidizing low-paying jobs. That doesn’t benefit anybody.”
The fight to ensure that the public gets a fair deal in exchange for their subsidy dollars is playing out right now in the Bronx, where citizen groups are currently fighting to ensure that job quality standards such as a living wage and health benefits are part of the deal to redevelop the Kingsbridge Armory. The city, through the Industrial Development Agency, is in negotiations with developer Related Companies to sell the historic structure and provide tens of millions of dollars in tax breaks to the developer for a new retail center. Although Related Companies boasts of creating many new jobs on the site, the city has not been receptive to neighborhood efforts to ensure that retail tenants pay a living wage.
New York’s development subsidies are investments made on behalf of the residents and taxpayers of the city. As the economic crisis takes its toll on the city’s budget, it is especially important that New York leverages these investments to generate tangible benefits for city residents.
___________________________________
The Solution: Living Wage Requirements, Clawbacks, and Criteria
Minneapolis, MN requires that each subsidy deal create a certain number of living wage jobs.15 Additionally, the city has recourse if the recipient does not create the promised living wage jobs or if the recipient decides to leave the city after receiving a subsidy. These penalties, called clawbacks, provide for greater accountability on the part of the subsidy recipients.
- For every $25,000 of subsidy, at least one living wage job must be created.
- Any recipient of a business subsidy that fails to meet the living wage requirement owes the city $100,000 in damages for every living wage job that was not created.
- The recipient must remain in the city for at least five years after the subsidy is given or pay back the subsidy with interest.
- The city may grant exemptions to these requirements, but only after a public hearing and upon a majority vote of the city council.
Austin also includes minority participation requirements for subsidy recipients. A company receiving incentivesfrom Austin needs to comply with one of the following options:
- Incorporate the city’s Minority-Owned and Women-Owned Business Enterprise goals.
- Provide historical data that demonstrates the company has been successful in achieving diversity in contracting and hiring.
- Provide a plan for establishing goals for diversity in hiring and vendor contracting.
By implementing these policies, both Minneapolis and Austin have taken concrete steps to ensure that the development subsidy process is more transparent, that subsidy recipients are held accountable, and that the subsidy process creates benefits for city residents.
These policies have not impacted the ability of these cities to attract and retain businesses. What Minneapolis’ policy has done, according to Kent Robbins, of the Community Planning and Economic Development department of Minneapolis, is create an environment in which businesses are aware of the need to create living-wage jobs if they are to receive public subsidies. Since 1996, when Minneapolis first started including living wage criteria in its development subsidy deals, 81 percent of those that were hired by subsidy recipients are paid a living wage ($13.25 an hour in Minnesota).
Austin has used its economic development subsidies to leverage higher rates of job creation and private investment than other Texas cities. Austin’s subsidy policies allow the city to be more selective and more targeted. According to documents supplied by Austin’s Economic Growth and Redevelopment Services Office, Austin entered into seven economic development agreements from January 2000 to October 2007. Comparatively, smaller cities such as Plano and Fort Worth entered into far more agreements, 66 and 21, respectively, over the same time period. In the past year, five companies have applied for incentives in Austin and only two were approved.
Implications for New York
In New York, economic development subsidies are made on behalf of the city primarily by the New York City Economic Development Corporation (EDC) and the New York City Industrial Development Agency (IDA). They are not official city agencies. However, the Mayor appoints the chairman of the board of the EDC and the IDA as well as most of the members of their respective boards. The Mayor also appoints the president of the EDC (who is also the chairman of the board of the IDA). The EDC officially oversees the programs of the IDA and reports to the Deputy Mayor for Economic Development. The IDA uses a wide array of economic development tools to attract, retain, and expand businesses in the city. The board of the IDA decides which companies and projects receive discretionary subsidies.
The IDA does incorporate some clawback measures in its development subsidy deals in certain situations: if the company falls below its required employment commitment or if the company relocates outside of New York City within a certain number of years of the deal.18 However, there are questions about how often the city actually enforces these provisions. Instead, the city has a tendency to disqualify the recipient from future subsidy deals. According to Damiani, “The Bloomberg administration gave Pfizer a subsidy deal. Within about four years of that they’ve closed down their Brooklyn plant. So, instead of saying that Pfizer had to pay back that subsidy, what they’re saying is ‘OK, we’ll just forego any future subsidy for you.’”
Additionally, the IDA allows “certain negotiated buffers” on job retention or creation numbers before a recipient is considered to be in violation of their subsidy agreement. For example, under their development deal, “Merrill Lynch could lay off up to 12 percent of their workforce before receiving any kind of penalty.”
The EDC’s and the IDA’s status as public-private entities raises some accountability issues. “They have these quasi- public-private entities where it sort of looks like it’s an independent entity,” according to Bettina Damiani, “But in reality all the major players are appointed by public officials. And they’re actually kind of troubling because there is less opportunity for accountability.”
The City Council passed Local Law 48 in 2005 in order to address concerns about accountability. The law requires the EDC to submit a report each year to the City Council, the Mayor, the City Comptroller, the Public Advocate, and the Borough Presidents. The report must contain information on the development projects that receive discretionary assistance,20 including the amount of city assistance and the calculated city benefits. When calculating city benefits, however, the EDC does not take job quality—such as the wage rate or provision of
benefits—into account. There is no requirement that projects receiving development subsidies must create living wage jobs, nor are there any local hiring requirements.
Since the EDC is under the control of mayoral appointees, the Mayor could change EDC policy to require that job quality standards, such as living wage requirements, be included in all future subsidy deals. Additionally, the City Council could pass legislation, as it did with Local Law 48, to put stricter regulations on the EDC and the IDA. These regulations could be applied to all subsidy deals that are “discretionary,” as opposed to “as-of-right.”