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New report from ALIGN and the Coalition for Economic Justice finds that New York’s IDAs are wasteful and inefficient

November 21, 2011

The Alliance for a Greater New York, also known as ALIGN, and the Coalition for Economic Justice released a report this month on Job Creation and New York’s Industrial Development Agencies. The study, which focuses on data from 2009, concludes that “IDAs are not up to the task of steering New Yorkers out of the jobs crisis and, in fact, are often holding New York back by depleting state and local revenues.”

The key facts cited in the report include:

  • $141 million in IDA tax breaks went to companies that either cut jobs or failed to create any new jobs
  • One-half of all projects that ended in 2009 failed to create a single job
  • IDAs continue to maintain high spending while state and local budgets are slashed
  • Local governments are increasingly picking up the tab for corporate tax exemptions
The report includes “snapshot” analyses of ten regions within the state: the Capital Region, Central New York, the Finger Lakes, the Hudson Valley, Long Island, the Mohawk Valley, the North Country, New York City, the Southern Tier, and Western New York. While mentioning many of the frequently cited problems with IDAs, such as overlapping jurisdictions, inadequate reporting, the subsidization of poverty wage jobs, and impacts on school district and local government financing, most of the study focuses on their poor track record for meeting job creation and retention goals and their inefficient allocation of public subsidies among different commercial sectors.

Poor success rates for meeting job creation and retention goals

Many IDAs don’t require subsidy applicants to set any job creation or retention goals—which is a problem in and of itself—but even for those that do, the study found dismal success rates. As the report explains, “all regions have a poor track record of job creation and retention, with no region meeting or exceeding its job goals in a majority of completed projects.”

The eight IDAs in the North Country had a particularly bad record, with none of their projects ending in 2009 meeting or exceeding their job creation and retention goals. And even the Finger Lakes region, which had the best record for meeting these goals, had a mere 47% job creation success rate.

Job creation goals in the Finger Lakes (left) and the North Country (right)

The report acknowledges that the recession likely had some effect on these statistics, but it also points out that there have been few signs of progress since ALIGN began monitoring IDA data in 2005.

Inefficient distribution of subsidies among project sectors

Another problem noted in the report is that IDAs often fail to allocate subsidies to the project sectors that create the most jobs. For example, while the IDAs in the Hudson Valley distributed 41% of their net tax exemptions to finance, insurance, and real estate projects, this sector was responsible for only 19% of the region’s jobs. The manufacturing sector, on the other hand, created 38% of the region’s jobs, but received only 6% of the region’s subsidies.

Allocation of tax exemptions by sector in the Hudson Valley

As with success in meeting job creation goals, the Finger Lakes region was  the best performer in this metric, having “achieved a relatively close correlation between net tax exemptions and job creation in nearly every project type.”

Allocation of tax exemptions by sector in the Finger Lakes

Another problem regarding the allocation of project subsidies is the use of IDA tax exemptions for retail and other service sector projects. As the report explains, these businesses are often undeserving of public subsidies because “by their nature, these projects have to locate near their customer base. Accordingly, there is little need to incentivize these types of projects, and they often are accused of job shifting and creating an unlevel playing field for other similar businesses.”

Recommendations

The report suggests three recommendations to improve IDA performance and maximize the benefits of economic development subsidies:

  • Performance Standards should be adopted to ensure that jobs created are good jobs and that subsidized projects encourage a healthy and sustainable environment. Public subsidies should pay for performance and be targeted to deliver family-sustaining jobs with benefits, opportunities for local people, and liveable communities that limit sprawl and environmental impacts.
  • Accountability Measures should be adopted so that government protects the public interest during the development decision-making process and especially when businesses break their promises. A clawback mechanism would provide the public a money-back guarantee, and anti-pirating provisions could ensure subsidies create new jobs instead of shifting jobs between and within regions.
  • Transparency Reforms should be adopted so that taxpayers see how and where their money is being spent and are able to advocate for economic development that benefits their communities as a whole. The data collected must also be improved for monitoring and to show the impact of “backdoor spending” on our state and local budgets.

The report also notes that the state’s new Regional Economic Development Councils have adopted criteria for selecting projects for economic development funding, and it suggests that similar regional criteria should be developed for IDAs.

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