Op Ed Economic Development

Economics of State's Initiatives

October 23, 2016

[Published in the Times Union]

Recent indictments have put a major New York state economic development initiative — the socalled Buffalo Billion — in the forefront of the media and raised questions of alleged bid-rigging. But those revelations overshadow an even bigger question: Are New York state's economic development programs worth it in the first place?

It's a topic of real significance. A recent report by the Citizens Budget Commission revealed that state economic development investments now total $8.6 billion annually. That includes state tax breaks, state spending, local tax breaks and local spending. The state portion of that amount is $4 billion, and the local portion is $4.6 billion.

Yet it's impossible to know whether state taxpayers are getting a sufficient return on their investment because there is no unified economic development budget to report costs clearly, programs overlap and are largely uncoordinated, and few metrics exist to measure economic need and project impacts. The CBC report — titled "Increasing Without Evidence" — is the most comprehensive accounting available.

Regional Economic Development Councils play an important role and have been a critical tool for pursuing strategic investments, but even the REDCs exhibit significant weaknesses in performance reporting. More robust reporting requirements are needed all around.

The lack of reporting is particularly troubling, given the recent shift in state spending away from as-of-right tax breaks toward discretionary grants. This year's budget included substantial appropriations for specific economic development projects outside of established programs, including the SolarCity plant in Buffalo ($486 million), Nano Utica ($638 million) and the Norsk Titanium plant at SUNY Polytechnic Institute in Clinton County ($125 million).

With discretionary grants, there are no agreed-upon standards for levels of investment or job creation and no caps on state subsidies, and reporting has been ad hoc or nonexistent. These projects do not even have to meet any of the criteria established for other recently created programs, such as START-UP NY or Excelsior.

If SolarCity had been a participant in the Excelsior Jobs program, it would be required to make investments in its factory and employ staff, with the state providing tax credits to offset some of these costs after they were incurred. Instead, the state will make the investment up front on the assumption that SolarCity will fulfill its promises.

But the state should not provide such benefits based on promises alone. It should pay for performance, providing subsidies only for investments and wages that have been expended. It's time for the state to stop project-specific appropriations for economic development until eligibility criteria are established and accountability mechanisms enhanced. Taxpayers should not be paying $8.6 billion annually with no way of knowing what the benefits will be.