Dear Governor Hochul:

The Citizens Budget Commission (CBC) urges you to veto S9822/A10530 because it wrongly extends New York City’s Industrial and Commercial Abatement Program (ICAP) for four years* without first assessing whether and to what extent the program is necessary to promote economic growth. Alternatively, we would urge you to sign a one-year extension, negotiated as a Chapter amendment, which would allow time to objectively evaluate whether an extension would be cost-effective or identify eligibility and benefit changes to improve ICAP’s cost-effectiveness.

The State Legislature introduced and passed a bill to extend ICAP during the last four days of session without significant public discussion, even though the program was not due to expire until the spring of 2025.

The rushed, under-the-radar ICAP extension continues the State’s poor practice of preserving economic development tax incentive programs without proof they work—or in some cases, despite evidence they are ineffective. This extension comes on the heels of similarly rushed renewals in 2015, 2017, and 2020.  

Since ICAP’s creation in 2008, economists and policy analysts have warned that it may be ineffective and could cost the City millions of dollars in unnecessary tax breaks if not reformed. In 2013, CBC recommended stricter geographic boundaries, greater restrictions on benefits for retail space, and shorter benefit durations. In 2016, a City Council evaluation found that ICAP was shockingly ineffective: only 3.6 percent of projects receiving ICAP benefits required the tax breaks to be financially feasible.

The cost and breadth of the incentive and prior research should give you and other stakeholders pause on a five-year extension.

ICAP’s cost has grown six-fold since the City Council’s 2016 evaluation, from $81.4 million in fiscal year 2017 to $506.3 million in fiscal year 2024—a predictable increase driven by ICAP’s overly broad design, as CBC raised in 2013.

CBC’s forthcoming analysis of properties receiving benefits in fiscal year 2024 found that in too many cases ICAP abatements:

• Last twice as long as necessary: Two-thirds of ICAP recipients receive 25-year abatements, even though the New York City Economic Development Corporation’s 2007 evaluation of ICAP’s predecessor program found that 10- to 15-year benefits were sufficient for most projects;
• Flow to geographic areas that may not need them: Many high-value new construction projects qualify for lucrative 25-year tax breaks because they are in the special area whose boundaries have not been reviewed since 2015 and may no longer be necessary; and
• Flow to industries that do not need them: The City’s 2007 evaluation also found that the vast majority of office and retail building projects did not need incentives to be feasible, yet these uses continue to receive the majority of benefits under ICAP; hotels and warehouses also receive substantial subsidies without evidence that they are necessary.

These analyses reinforce our request that you veto S9822/A10530; this program should not be renewed absent a thorough, objective evaluation that shows it to be cost-effective. At most, the program should be extended for one year to allow time for an evaluation. Spending $500 million per year without first determining that it is an effective use of public funds does not serve the public’s interest well.

Sincerely,

Andrew S. Rein
President
Citizens Budget Commission

cc: 

Assemblymember Carl Heastie, Speaker of the NYS Assembly
Senator Andrea Stewart-Cousins, Majority Leader of the NYS Senate

* CORRECTION 8/15/2024: The legislation would continue ICAP for 5 more years from its passing, and we mistakenly said it was extended five years. However, since it was extended one year before expiration, the extension itself is actually four years.