Report Economic Development

Avoiding Past Mistakes

Principles for Governing Regional Economic Development Councils

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September 12, 2011

The image of New York with a new sign rising from its soil ‐ “Open for Business” ‐ has captured the public’s imagination since Governor Andrew Cuomo first used that graphic in the slides that accompanied his State of the State address in January 2011. In keeping with the Governor’s focus on job creation the fiscal year 2011‐12 budget included initiatives to reshape the State’s economic development agenda including $130 million in capital funds and an expansion of the Excelsior tax credit program created the previous year. Now, the Governor has declared the second six months of his first year in office the NYWorks phase, releasing Open for Business, a guidebook for the operation of ten newly created Regional Councils that will coordinate economic development activities and compete for new grants.

Opening New York for business will be a challenge.  From 1980 to 2000 the job creation rate in the U.S. was nearly 2.5 times New York’s; employment grew by 45.6 percent nationally and in New York by 19.1 percent. In the most recent decade—2000 to 2010—the trends have deteriorated even further. The U.S. shed 1,967,000 jobs, or 1.5 percent of total employment, and New York shed 131,988 jobs, or 1.6 percent of its total. Almost all of the net job loss was experienced in upstate, which lost 131,346 jobs or 4.6 percent of total employment.

The current array of state economic development programs have not succeeded in spurring job growth. Their organizational structure is like the hydra from Greek mythology – a multi‐headed monster that grows a new head each time one is cut off. The cost to the State of all of these programs is an estimated $6.6 billion in annual lost tax revenues, power subsidies, and direct spending. This is a tremendous expenditure; by way of comparison, it is as much as the local share of Medicaid costs of all the counties combined.

The new Regional Councils have the potential to improve meaningfully outcomes by streamlining and coordinating all of these efforts, but the danger is that they will instead become new heads on the already huge and unwieldy economic development hydra in New York State. According to Open for Business the new councils will be advisory bodies, with final authority over grants and other economic development expenditures continuing to be disbursed among Empire State Development and numerous other agencies. The councils’ primary responsibility is to prepare strategic plans for their regions, including metrics for determining whether their objectives are being met, and to report regularly to the public. The strategic plans, to be submitted by November of this year, will be evaluated competitively and the four best will be awarded $40 million each with another $40 million to be divided among the remaining six regions. The competitively awarded $200 million in grants are part of a larger $1 billion in resources available through the programs of different agencies and public authorities that the councils will help allocate.

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Avoiding Past Mistakes