TESTIMONY
PARTNERSHIP FOR NEW YORK CITY
by Kathryn Wylde
PRESIDENT & CEO
New York, New York
November 24, 2009
press release (PDF 69K)Testimony Submitted to the New York City Council Committee on Economic Development
Oversight Hearing On Empire Zones
Thank you, Chairman White and members of the committee for the opportunity to testify today regarding New York State’s Empire Zone program. The Partnership is an organization of business leaders who are committed to maintaining New York’s status as a world capital of business and finance. The Partnership’s member companies employ over 770,000 people in the five boroughs and contribute $141 billion a year to the Gross City Product.
In 2007, the Partnership collaborated with A.T. Kearney, a global management consulting firm, to conduct an analysis of the State’s economic development programs for the Empire State Development Corporation. This study involved interviews with hundreds of business executives, regional economic development experts and real estate professionals. Its conclusion was that the Empire Zone Program, which costs New York State more than half a billion dollars a year, has given the taxpayers a very poor return on their investment.
Empire Zones originated in the 1980s with the goal of spurring revitalization of a handful of economically distressed communities where investors would get large tax benefits. Over the past twenty years, New York has expanded the program by creating zones and modifications of zones in virtually every county in the state. Massive tax subsidies have gone to develop retail stores, parking lots, real estate ventures, electric utility plants and professional services firms – none of which are significant generators of strategic economic growth. Meanwhile, competitor states honed their economic development tools to build industry clusters and promote advanced manufacturing, technology centers and research and development hubs.
A.T. Kearney recommended that Empire Zones be terminated and replaced with a more targeted and objectively measured program. Last year, the Governor and state legislature acted to sunset the program in 2010, one year ahead of schedule, and to impose more stringent requirements and enforcement on current beneficiaries of the zones. The Partnership supported these actions. Already, the changes enacted resulted in over 540 companies that failed to meet minimal program obligations having been removed, saving the State an estimated $90 million per year.
Unfortunately, it will take awhile to wind down the existing Empire Zone commitments. Money will be flowing to zone projects for ten more years; during this time, the State’s fiscal crisis will make it hard to fund a replacement program. Funding a new program should, however, be a top priority as we seek to catch up with other states that are aggressively recruiting business operations and industries that have a natural base in New York.
The Empire State Development Corporation is well along in a consultative process with business and regional economic development groups to design a more targeted and proactive economic development program. Indications are that it will focus resources on building regional and statewide clusters of economic activity in global growth sectors where New York has a competitive advantage because of its diverse talent pool, eminent research and educational institutions, and industry leadership.
The Partnership recommends that New York adopt programs that are competitive with those offered by our neighboring states. New Jersey’s program targets high-paying jobs. Under its Business Employee Incentive Program (BEIP), New Jersey effectively rebates to employers up to 80 percent of the income taxes they generate from new jobs over a ten year period. According to the program’s annual report, between 1996 and 2006 the BEIP program created 67,395 new jobs at an average cost of less than $1400 per job per year. A Rutgers study claims New Jersey has received a 10:1 return on tax dollars invested in BEIP.
Connecticut offers a deep research and development tax credit that grows in proportion to the number of high-paying research jobs a company creates in the state.
Over the past year, the NYC Economic Development Corporation (EDC) has pursued a cluster development strategy that builds on New York City’s particular strengths in financial services, media, retail and entertainment, health, and technology. Given the fiscal challenges facing the city and state, it is particularly important that the Council work with EDC and the business community to advocate for flexible and predictable state funding that EDC can apply to its industry initiatives.
Thank you for the opportunity to testify today. We look forward to collaborating with the New York City Council, the City Administration, the Governor and the Legislature to create the kinds of incentives that New York needs to foster business development and job creation in the 21st Century innovation economy.
About the Partnership for New York City
The Partnership for New York City (www.pfnyc.org) is a network of business leaders dedicated to enhancing the economy of the five boroughs of New York City and maintaining the city’s position as the center of world commerce, finance and innovation. Partnership companies account for nearly 7 million American jobs and contribute over $740 billion to the national GDP.