Managing Economic Development Programs in New York City: Lessons for the Next Mayor from the Past Decade

1

The Most Important Economic and Fiscal Decisions Facing the Next MayorA Citizens Budget Commission ConferenceDecember 6, 2013

“But-for” Challenges in Evaluating Economic Development

• Problem: How do we know the policy or program is making a difference?

• Would activities otherwise not have occurred in NYC?

• Are programs creating new activity or simply moving it around the city?

• Can we separate the impact of contextual factors from program results?

• Is the benefit from new economic activity worth the cost?

2

General Guidelines for Effective Economic Development Programs

• Use jobs as the prime criterion for assessment• Clearly identify all costs and benefits • Be transparent: publicly report costs and

benefits• Regularly monitor and evaluate criteria and

results

3

Four Objectives

• Promote growth in the number of jobs and scale of economic activity, and by extension, the tax base

• Enhance residents’ access to “quality” jobs providing adequate wages and benefits

• Diversify local economic activity across industries and boroughs

• Maintain the city’s central position within the region’s economy

4

Job and Aggregate Wage Growth Have Outpaced the Nation

Index of Average Annual Private Employment, NYC and US, 2000-2012

Index of Aggregate Private Sector Wages, NYC and US, 2000-2012

5

Mixed Performance: Quality, Diversity and

City Share of Jobs

6

• ““Quality” jobsQuality” jobs: 68% of new jobs since 2000 in three sectors– health, leisure, retail trade– with average wages lower than national average

• Economic diversificationEconomic diversification: Employment shares increased in Brooklyn and the Bronx; education and health services and leisure and hospitality jobs now 34% of local economy, up from 26%

• Regional coreRegional core: City share of regional jobs and personal income now higher than in 2000

Contextual Factors have Bolstered Performance Since 2002

• Positive trends– Crime has trended downward, resulting in the

“safest big city” title– Public school graduation rates and testing results

shows positive trend– International in-migration continues while

domestic out-migration has ebbed

• Negative trend– High tax burden increased

7

Five Economic Development Tools

TOOLS

TAX EXPENDITURES

As-of-Right (property/other)

Discretionary

CAPITAL SPENDING

CONDUIT FINANCING

OPERATING PROGRAMS

ZONING8

NYC Economic Development Spending Now Surpasses $2.7B Annually; Doubled

Since 2002Annual Spending, 2002 and 2012 Conduit Debt Outstanding

9

“As-of-Right” Property Tax Expenditures

• 2007 City study found 77% of projects did not pass the “but-for” test

• Study led to partial reforms• Reforms failed to address fully:– Benefits tied to property appreciation rather than

initial investment– Unnecessarily long benefits (up to 25 years)– Benefits to retail projects– Benefits for projects in Manhattan CBD that did

not require inducement10

Other As-of-Right Tax Benefits Largely For Two Older Programs

Program 2002 2009Insurance Company Non-Taxation $187M $365MFuel Sold to Airlines $38 $117Commercial Revitalization Program $25 $37

Energy Cost Savings $19 $32Commercial Rent Tax Abatement $6 $5

Film Production Tax Credit $0 $33Energy Cost Savings Program $38 $29Relocation & Employment Assistance $7 $23Total $295M $604M

11

Discretionary Tax Benefits: Insufficient Information

to Know if They are Working

12

• Cost of benefits directly administered by EDC: $273 million in 2012

• Total project subsidies per job vary widely within industries, as well as across industries

• Annual EDC reports do not includes all project subsidies, making evaluation difficult

Capital Spending

13

• Since FY2002, $6.4 billion in New York City capital for economic development

• Many projects not accompanied by economic analysis demonstrating measurable benefits– Whitney Museum vs. Hunts Point

• EDC also serves as capital project manager for city projects with limited job creation goals

Conduit Financing

• Provides access to low-cost financing• Net cost to City is relatively small• More cost-effective than capital grant support• Used by growing industries: health and social

services, education, arts and recreation

14

Zoning

• Zoning should support the evolution of the City’s economy

• Over 36 percent of land has been rezoned since 2002

• Creation of more mixed-use special districts has enhanced flexibility of land use

15

Seven Lessons for the Next Mayor

1)1) As-of-right property tax expenditures: As-of-right property tax expenditures: Additional reform to make them more cost-effective

2)2) Other as-of-right tax expenditures: Other as-of-right tax expenditures: Evaluate longstanding programs for insurance and airlines

3)3) Discretionary tax expenditures: Discretionary tax expenditures: Establish clear standards for size of subsidies

16

Lessons for the Next Mayor(continued)

4) CapitalCapital: Invest in neighborhoods, not firms; develop local infrastructure with long-term development potential5) Conduit financingConduit financing: Look to conduit financing, rather than capital grants, for individual firms6) ZoningZoning: Expand special mixed-use districts to facilitate diversified job growth 7) All toolsAll tools: EDC should focus on job creation and enhancing transparency

17

Managing Economic Development Programs in New York City: Lessons for the Next Mayor from the Past Decade

18

The Most Important Economic and Fiscal Decisions Facing the Next MayorA Citizens Budget Commission ConferenceDecember 6, 2013