Since 2011 New York leaders have restrained growth in the state’s operating budget; in contrast, the scale and scope of questionable economic development programs continue to be expanded significantly. In 2014 state and local spending for these activities totaled $8 billion, largely capital grants and business tax breaks outside the operating budget.¹ Despite scant evidence such spending boosts economic activity, the fiscal year 2016 state budget adds more than $2 billion to economic development programs.

A Big Boost to Economic Development Programs

Under the adopted budget, planned capital disbursements for Empire State Development (ESD), the State’s main economic development agency, will be $5.7 billion for fiscal years 2016 to 2020, fully 88 percent higher than actual disbursements over the previous five years.² (See Figure 1.) New funding includes a $1.5 billion Upstate Revitalization Fund for three competitively selected upstate Regional Economic Development Councils (REDCs), a fifth round of $150 million in capital grants for all REDCs, $150 million for “transformative economic development projects” in Long Island, and $400 million for “regionally significant” projects in New York City or Long Island. Eligible uses of these capital grants are exceptionally broad, and the programs lack any criteria for selecting projects.

State leaders also stretched eligibility rules for two of the State’s largest business tax break programs, Excelsior and START-UP NY. The expansions in part retroactively guarantee previously announced tax breaks. Excelsior will expand to entertainment companies, protecting $11 million in tax credits for The Late Show announced last summer, as well as video game development and music production.³ These expansions follow two prior occasions in which Excelsior criteria were loosened – the benefit period doubled from 5 to 10 years in the fiscal year 2012 budget, and job creation minimums were cut 50 percent, among other program enhancements, in the 2013 legislation authorizing START-UP NY.⁴ In a similar move, the state budget explicitly allows Stewart and Republic Airports to participate in START-UP NY, even though their inclusion was announced four months ago.⁵ The original authorization for START-UP NY allows the State to designate up to 20 “state assets” as tax-free zones; this maneuver allows two additional tax-free zones at the airports. Last year’s budget included a similar provision for four former correctional facilities, highlighting the risk that this program will continue to grow in the same way that earlier, discredited programs did.  

The final budget agreement also weakened proposed criteria to better target tax credits for brownfield cleanup and other business investments. The Brownfield Cleanup Program was set to expire at the end of 2015; the Governor proposed a 10-year extension and limiting eligibility for credits related to redevelopment costs to sites in economically distressed locations, sites where cleanup costs exceed the property value absent contamination, and affordable housing projects. The legislature accepted the 10-year extension, but limited reforms to New York City and added a major loophole within the New York City reforms for “underutilized sites.”

Unclear Benefits

Reporting on New York’s economic development programs has improved in recent years, and some form of reporting now exists for all of the State’s largest business tax credit programs – Excelsior, Brownfields Cleanup, Film Production, and START-UP NY. The increased transparency is welcome but omits essential information. For example, the inaugural report on START-UP NY provides data on participating zones and companies, including reported business investment and job creation in 2014, but leaves out wage data and tax credit projections for future years.⁶ Moreover, information on projected investment and job creation is available at the aggregate level across all beneficiaries but not for each individual business. Capital funding allocated through the Regional Economic Development Councils is also subject to greater transparency, yet performance reporting and project tracking are inconsistent among regions and generally lacking.

These reports provide important information on the allocation and amount of state subsidies, but more in depth economic analyses are needed to prove the ability of these programs to induce new economic activity. A recent economic impact analysis raises questions about the level of state subsidies for film and TV production.⁷ The report found the State will net a loss of $570 million in tax revenue from credits awarded in 2013 and 2014, despite assuming 0 percent of production would have occurred in the absence of the tax breaks and assuming large impacts on indirect spending.⁸ The fully refundable film tax credit is one of the largest in the country and equals 30 percent of qualified expenditures. This report was required by a provision in the fiscal year 2013-14 budget; other economic development programs would benefit from similar analyses.

Conclusion

Before the passage of the state budget, New York’s economic development universe totaled $8 billion each year yet largely lacked clear metrics to measure its impact. Before adopting more than $2 billion in new capital funding for economic development purposes and expanding tax credit programs, state leaders should have sought better evidence that these large subsidies produce positive returns for New York.