New York’s industrial development agencies supply the financial incentives used by local public officials to assist firms seeking to relocate or expand in a community or to provide financial relief for firms that are struggling.
State Comptroller Thomas DiNapoli recently released a report summarizing the activities of New York’s 106 IDAs with data current through 2022. The IDAs report involvement with more than 4,000 projects with a combined value of $132 billion. The net reduction in taxation for the private owners topped $1 billion.
Do financial incentives make a difference?
Taxpayers justly ask whether tax abatements are necessary. Local taxation is a “zero sum game”—every dollar not collected from a tax-favored business must come from other business and residential taxpayers. This is best illustrated with the property tax. The tax rate is set by dividing the tax levy (spending approved in the budget) by the total assessed value of taxable property.
Suppose the total assessed value of property in Bedford Falls is equal to $1 million and the tax levy is $50,000. Each owner of taxable real property would owe 5 percent of the value of their property. If abatements reduce the total taxable assessed value to $900,000, then the tax rate—for everyone else—rises from 5 percent ($50,000 divided by $1 million) to 5.6 percent ($50,000 divided by $900,000). See The Beacon explains: How does the property tax work? for more.
Economist Timothy Bartik of the Upjohn Institute and Brookings Institution reviewed the findings of 30 studies of the “true” incentive value of incentives. Using a variety of methodologies, he identified 34 estimates of what he calls the “but for” percentage and concluded that “a plausible range for incentives’ ‘but for’ percentage is 2 percent to 25 percent.
For a typical state and local incentive package, in only 2 percent to 25 percent of the incented projects is the incentive decisive in tipping a location, expansion, or job retention decision towards that state or local area. In the other 75 percent to 98 percent of the time, the same decision would have been made without the incentive.”
Data released with DiNapoli’s report includes a range of statistics for individual IDAs from 2015 to 2022. Adjusted for population, the highest “net” incentive in 2022 (the tax abatement less payments-in-lieu-of-tax) was conferred in Cattaraugus County ($540 per capita) followed by Greene County ($529 per capita). By contrast, Chautauqua, Livingston and Schoharie counties approved no abatements at all in 2022.
Looking at Monroe County and other large counties, the highest net incentive was conferred in Nassau County and the lowest in New York City. (To preserve comparability, statistics in this post sum all IDAs located in the county. Erie County includes five municipal IDAs in addition to the Erie County IDA, including Amherst, one of the most active IDAs in New York). Monroe County, by contrast, consists of the County of Monroe Industrial Development Agency and the Fairport IDA, which is quite small.)
The goal is job creation
The most important goal of IDA incentives is job creation. IDAs reported that projects receiving incentives during 2022 promised to add roughly 214,000 jobs and retain more than 224,000 jobs. New jobs promised by county varied widely.
As noted in the chart above, Monroe County’s track record for job creation, when adjusted for population, falls near the bottom for the 2015-2022 period discussed in this post.
Monroe County officials declined to comment for this story, citing insufficient time to respond.
Is a taxpayer subsidy required for the firm to locate, remain or expand?
Bartik’s research suggests that the employment accomplishments of IDAs should be deeply discounted. Any “net benefit” figures reported by the developers or the IDAs should therefore be viewed critically.
If the goal is to promote regional job creation and expand the regional economy, then tax abatements should be limited to firms earning revenue from outside the region. Much of the medical research conducted at the University of Rochester Medical Center, for example, is paid for by grants and contracts from the federal government or pharmaceutical firms. By contrast, traditional health care services provided to local residents—for example, a birthing center or an appendectomy—does not bring additional funds to the regional economy.
Businesses providing purely local products or services fail the “but for” test. Subsidizing these firms through tax breaks simply improves the competitive position of the recipient vis-à-vis other firms. COMIDA’s decision to provide a tax break worth nearly $9 million to DelMonte Hotels to build at CityGate will help DelMonte take business away from other area lodging establishments. DelMonte is a well-run firm that is quite capable of competing aggressively for the lodging trade in Rochester without taxpayer support.
Section 862 of Article 18-a of New York’s General Municipal Law prohibits the provision of tax breaks to retail firms, which would seem to make the DelMonte project ineligible. There is a loophole, however, as noted in the COMIDA board resolution. If the project is located contiguous to a “highly distressed area,” as specified in Section 862(b)(ii), it can still be supported. REI and Costco customers at CityGate might be surprised to learn that the neighborhood is “highly distressed.”
A smaller example is provided by COMIDA’s March 24 action providing a sales tax break to JP White Trash LLC. The tax abatement applies to the purchase of “(i) one 2023 Freightliner Econic garbage truck; (ii) one 2024 Soudure J.M. Chantal ERO6022 Roll-Off 22′ mounted on a Mack Chassis dumpster truck; and (iii) approximately fifty-five (55) roll-off trash dumpsters … all to be housed and maintained at the Company’s offices at 2015 Maiden Lane in the Town of Greece, New York 14626 and all for use in the company’s waste collection/disposal business.”
JP White does not suggest that the firm will compete with waste haulers in Buffalo or Boise. Its website declares: “The Same Great Service that Greece has enjoyed for 2 years is now available in Gates, NY!” This is not a global business. The tax break is modest when compared to the DelMonte agreement—the exemption is “not to exceed $76,560”—but still puts Monroe County taxpayers in the position of favoring one local waste hauler over another. This fails the “but for” condition handily.
Are job creation promises made by firms credible?
As PILOT agreements routinely include “clawback” provisions that permit the IDA to retrieve benefits received if a firm fails to meet its employment goals, firms that intentionally overpromise know that they may pay a price for such behavior. Enforcement of these PILOT provisions is typically discretionary, however, and it is common for IDAs to forgive a firm whose job-creation aspirations fail to materialize, particularly when events clearly beyond the control of the firm intervene.
If we accept the likelihood that the “new jobs” figures are inflated, then “job retention” reporting should also be viewed even more skeptically. Given New York’s tax and regulatory environment, it is easy to accept that many business owners see greener pastures elsewhere. That said, relocating an existing business is itself very expensive and deeply disruptive—not a path most firms would undertake lightly.
Threats of closure or relocation can be effective at prompting action on the part of elected officials and the economic development staff who report to them. Some threats of relocation can be viewed as existential for politicians. The record-setting public subsidy—$600 million in state money and $250 million from Erie County—for the Buffalo Bills’ new stadium is a very visible example of the problem. No governor—least of all one whose political power is based in Western New York—would risk a reelection campaign having “lost the Bills.”
Unlike new jobs—which many IDAs verify through state employment records—the figure for retained jobs is drawn solely from the claim of the applicant that is based on a hypothetical, “but for this tax break our firm will relocate/stagnate/shrink. A firm that professes to be on the brink of moving to North Carolina or Texas will assert that every single job is at risk. A PILOT agreement can include clawback terms that hinge on maintaining a specified level of employment—but that level is, again, largely determined by the claims of the applicant. By Bartik’s findings, the figure of 224,234 retained jobs cited in the OSC report should be viewed with suspicion and slashed by at least 75 percent.
Simple job creation should not be enough
Every community looks to create jobs that pay well and build the human capital of the community by attracting and retaining workers with a high skill level. The DiNapoli report offers one metric of job quality: average salary.
The report indicates that the median salary of “new jobs” reported by statewide IDAs was $42,000 in 2022. The median for COMIDA projects with an expected salary included in the database was nearly identical to that total, $42,500. Twenty-one percent of projects reported anticipated salaries below $31,200, a full-time salary at the 2024 New York minimum wage of $15 per hour.
Next installment
In coming weeks, the Beacon will explore additional issues:
■ IDAs posted $47 million net revenue on total revenue of $123 million in 2022, effectively a 38 percent rate of profit, the OSC reports. What are the implications of IDAs relying on project fees to fund their operations and provide financial support for other activities of local government? In the case of Monroe County, how much excess revenue is generated by COMIDA? How are these funds used and who controls them?
■ Good Jobs First and Reinvent Albany just released a report on the “deal fees” paid to law firms associated with the IDAs and documented campaign contributions paid by law firms engaged by the IDAs. In Monroe County, there is a longstanding relationship between COMIDA and Harris Beach. Is COMIDA’s legal work competitively bid? Does the contract ever come up for renewal? Does the close relationship between COMIDA and Harris Beach create a bias toward more deals as opposed to fewer, better deals?
Kent Gardner is Rochester Beacon opinion editor. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].