Bolstering and Diversifying New York City's Economy

December 2, 1999. This paper is part of the series Rethinking the Urban Agenda, sponsored by the Century Foundation and the Center for Urban Research at the CUNY Graduate Center.  Text of report, tables and charts.

New Yorkers Deserve a Fair Deal from State Government

December 2, 1999. The Fair Budget Campaign issues its third annual “People’s Budget;” a wide range of groups call on Governor and Legislature to InVEST in New York’s “human infrastructure.” Press release:

The Fair Budget Campaign released its third annual People’s Budget today, calling for increased investment in the state’s most valuable resource: its people. The Fair Budget Campaign is a cooperative project of ten statewide organizations that represent religious, senior citizen, community, student, environmental and taxpayer perspectives.

The leaders of the campaign’s member organizations joined together at a noontime press conference in the Legislative Office Building to call for increased investments in education, housing, job creation, higher education and environmental protection. The People’s Budget also calls for an expansion of health care coverage; an increase in the personal income tax for wealthy New Yorkers and a reduction in corporate tax breaks; expanded prescription drug coverage for seniors; and enactment of legislation to hold corporations accountable for creating jobs with the various public subsidies they receive.

The Fair Budget Campaign also called upon the legislature to end the practice of multi-year tax cuts that do not take effect for years but which substantially limit the state’s fiscal choices. The multi-year tax cuts enacted in 1997, 1998 and 1999 have created structural deficits of $2.8 billion for 2000-2001 and $4.6 billion for 2001-2002.

The People’s Budget calls upon the state government to stop catering to corporate special interests and start investing in New York’s “human infrastructure.” According to Ron Deutsch, Executive Director of SENSES, “New York is one of the
wealthiest states in the country, but 25 percent of our children live in poverty, over 3 million people are without health insurance and 1.5 million New Yorkers per month use emergency feeding programs. The national rising tide is not lifting all boats in New York. While some sail in their yachts others are still searching for life rafts.”

“All of the faiths are unanimous in seeking justice between those who have or those who have not,” said Ed Bloch, Director of The Interfaith Alliance of New York State. “It’s abominable that the polarization of wealth and income increases with each month that passes in New York. The People’s Budget sets an agenda that addresses many of these injustices.”

“Corporations that receive state and local government subsidies must do business in an economically, socially and environmentally responsible manner,” said Frank Mauro, Executive Director of the Fiscal Policy Institute. “If we’re going to provide tax breaks to specific businesses in the name of job creation, then it’s only logical that we require those firms to create jobs (and to repay the taxpayers if they do not), and that we relate the size of a firm’s breaks to its actual level of job creation.”

Prescription drug coverage for thousands of New York’s seniors is a major issue facing the state. “Recent news stories have highlighted the crucial importance of the cost of prescription drugs for older people,” said Mike Burgess, the Executive Director of the statewide Senior Action Council of New York State. “The good news is that New York State has the chance to do something meaningful about this issue in early 2000.”

“There are 3.2 million New Yorkers without health insurance, and many more who cannot afford their insurance premiums,” said Christy Margelli, Deputy Director of Citizen Action of New York. “With the tobacco settlement money coming, and the availability of federal matching funds for health care coverage, New York State has the funding to provide coverage to uninsured adults. We call upon the legislature and the Governor to pass Family Health Plus.”

“Clean water, clean air, and the protection of our natural resources for future generations has to be a part of any people’s budget,” said Jeff Jones, Communications Director of Environmental Advocates. “We need funding to enforce state environmental laws, clean up contaminated industrial sites to protect public health and revitalize the economy, improve public transit and control the use of toxic chemicals and pesticides. This year’s People’s Budget helps protect the environment for all New Yorkers.”

“The Governor’s proposed financial plan for the State Superfund is too little and too late,” said Anne Rabe of Citizens’ Environmental Coalition. “His plan, released late in the 1999 Legislative Session, erodes the “polluter pays” principle, weakens the chemical industry’s contribution to Superfund and leaves New Yorkers waiting up to 21 years before a toxic dump is cleaned up.”

Kirsten Swanson, President of the Student Association of the State University (SASU), called upon the Governor and State Legislature to reinvest in higher education. “Since the early 1990’s, SUNY has seen a decrease in the amount of support it receives from the state. This has resulted in sharp increases in tuition, decreases in the number of full-time professors, and decreased enrollment in opportunity programs. In addition, students have seen a decrease in the amount of grant aid available, creating a greater dependence on federal student loans, a trend that is increasing student debt burdens at an alarming rate. Cuts to higher education must stop.”

“Job creation is essential both to the overall well-being of our state’s economy and to our efforts to move welfare participants into unsubsidized employment. We need to continue to invest in job creation programs that will provide welfare participants with essential job skills. We also need to hold corporations accountable for delivering living wage jobs in exchange for the billions of dollars the state is investing in various corporate tax credits, subsidies, and grants in the name of economic development. We require poor individuals applying for welfare to provide full financial disclosure. It is time to require such disclosure for corporate welfare as well,” stated Mark Dunlea, Executive Director of Hunger Action Network of NYS.

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Boost the Minimum Wage? Yes, to raise living standards

October 27, 1999. An op ed by James A. Parrott, Daily News.

Minimum Wage Fact Sheet

October 1999. In a nutshell:

The Minimum Wage and New Yorkers’ Hourly Wages Have Declined.

  • Despite sizable growth in the productivity of our nation’s economy over the last 30 years, the purchasing power of the federal minimum wage has fallen by one-third. · The value of the minimum wage has dropped to less than 40 percent of average hourly earnings, down from over 50 percent in the 1960s.
  • In the 1960s and 1970s, the earnings of a full-time, year-round worker receiving the minimum wage were enough to lift a family of three above the poverty line. Now, such a worker’s earnings fall 18 percent below the poverty threshold for a family of three.
  • Statewide, even with the 4 increases in the minimum wage in the 1990s, the real hourly earnings of low wage workers has fallen by 7 percent from 1989 to 1998. This compares to a 3.5 percent increase nationally. A minimum wage boost would help redress the erosion in living standards that has been greater in New York City and State than in the rest of the country.

New York Has a Growing Low Wage Problem.

  • Low pay is one of New York’s biggest economic challenges, with more New Yorkers working but earning wages that are not sufficient to lift them above the poverty level. · The number of working poor families has jumped disproportionately in New York, by 60 percent since the late 1980s (more than 2 times the national increase) and by 84 percent in New York City. Over 1 million individuals live in working poor households in New York State.
  • Nationally the poverty rate has declined, but in New York it remains stubbornly high. New York City’s poverty rate of 24 percent is almost twice the national average of 13 percent, and in the state the poverty rate has stuck at 17 percent for the past five years.
  • One million New York workers would benefit from an increased minimum wage.

Who are the Minimum Wage Workers in New York State?

  • Over half of minimum wage workers work full time in New York State.
  • The vast majority of the state’s minimum wage workers are adults, with 78 percent 20 years or older. In New York City, an even greater share, 84 percent, are adults.

Increasing the Minimum Wage Means More and Better Jobs.

  • Despite dire predictions to the contrary, the 1996 and 1997 increases in the minimum wage were accompanied by increases rather than decreases in private job growth in New York City.
  • Numerous studies have effectively debunked the claims that minimum wage increases cause significant job losses. Higher wages for low-income workers lead to more economic activity and employment in low-income communities.
  • A higher minimum wage can actually make work more attractive, thus increasing the supply and commitment of employees. Reduced turnover on the job leads to increased productivity. And as work brings higher returns to the worker and employer, business may find more reason to invest in a quality labor force.

New York's Poverty Rate Remains High While the National Poverty Rate Continues to Fall

September 30, 1999. Press release:

The new poverty statistics released today by the United States Census Bureau show that  New York’s poverty rate remained high while the national poverty rate continues to fall. The national poverty rate declined for the fifth consecutive year. This year’s decline was particularly large, from 13.3% to 12.7%. At the same time, however, New York’s poverty rate showed no improvement. Actually New York’s poverty rate increased from 16.5% in 1997 to 16.7% in 1998 but the Census Bureau recommends the use of two-year averages when comparing changes in poverty at the state level to ensure statistically significant comparisons. Using two-year averages New York’s poverty rate has stubbornly stayed at 16.6% for three years.

For the ninth consecutive year, New York’s poverty rate is significantly higher than the poverty rate for the United States as a whole. In 1998 New York’s poverty rate was a full four percentage points higher than the overall United States rate, 16.7% vs. 12.7%.

In 1998 3,068,000 people in New York State lived in poverty. This represents 89,000 more poor New Yorkers than in 1997 when 2,979,000 New Yorkers were classified as living in poverty.

Only six states (New Mexico, Louisiana, Arkansas, Mississippi, West Virginia and Arizona) had higher poverty rates than New York for the 1997-98 period. All of these were states in the South or Southwest with lower costs of living than New York. State-level poverty rates for 1997-98 ranged from 7.8% in Maryland to 20.8% in New Mexico. New York was the only Northeastern state with a poverty rate in excess of the national poverty rate. In fact four of New York’s neighboring states had poverty rates below 10%: Connecticut, Massachusetts, New Jersey and Vermont. New York’s fifth neighbor, Pennsylvania, had a poverty rate of 11.3%, almost one third less than New York’s.

In 1998 a family of three was considered poor if its income fell below $13,003. The average poverty threshold for a family of four was $16,660. Nationally 34.5 million people were found to have incomes below the poverty threshold in 1998.

New York’s Poverty Rate Remains
Significantly Higher than the U.S. Poverty Rate
Year Percent of Population
Living in Poverty
New York U.S.
1989 12.6% 12.8%
1990 14.3% 13.5%
1991 15.3% 14.2%
1992 15.7% 14.8%
1993 16.4% 15.1%
1994 17.0% 14.5%
1995 16.5% 13.8%
1996 16.7% 13.7%
1997 16.5% 13.3%
1998 16.7% 12.7%

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Why the Federal and State Governments Should Both Increase and Index Their Minimum Wages

September 1999.  By Frank J. Mauro.

The first minimum wage at the federal level was signed into law in 1938, after several states including New York had enacted their own minimum wage laws. The U. S. Supreme Court had first invalidated such state laws as violating the liberty of contract and then upheld them as a proper exercise of the states’ power to protect the public health, safety and welfare. From the very beginning, such laws protected responsible employers from the pressures that could be brought to bear by unscrupulous competitors while ensuring that all workers received some minimally acceptable level of compensation. Unfortunately, the level of the minimum wage, particularly in New York State, has been allowed to decline to a level at which it is unable to serve as a meaningful floor under the low wage job market. On economic, social and moral grounds, it is essential that the minimum wage, at both the federal and state levels, be increased and indexed to changes in an objective measure such as the Consumer Price Index or Average Hourly Earnings.

Some workers are covered by both the federal and state minimum wages (and are thus protected by whichever of the two happens to be higher at a particular point in time), while others are covered by one but not the other, and some by neither. The federal minimum wage reached its high point in terms of purchasing power on February 1, 1968 when it and the state minimum wage were both increased to $1.60 per hour.

In July 1999 dollars, this would be the equivalent of a $7.80 per hour. (The New York State minimum wage reached its all time high in purchasing power on July 1, 1970, when it was increased to $1.85 per hour, the equivalent of $7.91 in July 1999 dollars.)

A job at those wage levels made it possible for a worker to get his or her feet on the ground, to support a family and to lay the foundation for a better future. In the 1960s and 1970s, the earnings of a full-time, year-round worker receiving the minimum wage were enough to lift a family of three above the poverty line. That is no longer true. Despite the increase of the federal minimum wage to $5.15 per hour on September 1, 1997, a person working full-time, year-round at that level will earn only 72% of the poverty line for a family of three, and have less than two-thirds of the purchasing power of a similar worker in 1968.

At the state level the situation is even more egregious, where New York’s minimum wage is $4.25, more than 17.5% below the federal minimum. Ever since New York moved to a single minimum wage in 1960, our state’s governors and legislatures have almost always moved to increase the state minimum wage in tandem with changes in the federal minimum wage. Yet, for some unexplained reason, New York has not conformed with the 1996 (to $4.75) and 1997 (to the current $5.15) increases at the federal level. This is, by far, the longest period of time that New York has ever gone with a minimum wage below the federal minimum. In fact, over the course of the last 25 years, New York has on only one other occasion (in 1978, for nine months) lagged behind the federal government in increasing the minimum wage. In fact, during two periods in the late 1960s and early 1970s (the first lasting 13 months and the second almost four years), New York maintained a minimum wage above that of the federal government.

This situation is even more difficult to explain when one compares New York to other high wage states. Of the ten states with average weekly wages above the national average, New York is the only state with a minimum wage below the federal minimum. Four of the other high wage states (Illinois, Maryland, Michigan and New Jersey) have minimum wages that equal the federal $5.15, and five have higher minimums (Alaska, $5.65; California, $5.75; Connecticut, currently $5.65 and going to $6.15 on January 1, 2000; Delaware, currently $5.65 and going to $6.15 on October 1, 2000; Massachusetts, currently $5.25, and going to $6.00 on January 1, 2000, and $6.75 on January 1, 2001). The state minimum wage is also higher than the federal in Oregon ($6.50), Vermont (currently $5.25 and going to $5.75 on October 1, 1999) and Washington (currently $5.70, going to $6.50 on January 1, 2000, and being adjusted for inflation based on the CPI on January 1, 2001 and annually thereafter.)

Contrary to the conventional wisdom, most minimum wage workers are adults working full-time, and increasing the minimum wage by reasonable amounts (such as the four most recent increases that were all in the 40 to 50 cent range) neither reduced employment nor fueled inflation. The 1999 Economic Report of the President noted that, based on the many studies that have examined the issue, the “weight of the evidence suggests that modest increases in the minimum wage have had very little or no effect on employment”. Evidence of recent years, particularly the studies by economists David Card and Alan Krueger, also refutes the claim that state level minimum wage increases above the federal standard reduce employment.

The “flow of funds” criticism of a minimum wage increase – that businesses will only be able to comply with increases in the minimum wage by increasing prices or reducing employment – ignores two other key variables: corporate profits and executive compensation. It also ignores the very reality that make the need for restoring the value of the minimum wage so important at the present time: Our economy is experiencing substantial productivity-driven increases in total income but the resulting gains in prosperity are not being broadly shared.

Both the federal government and New York State should increase their minimum wages to levels that will ensure that these wage floors can do their job. Restoring the purchasing power of the minimum wage to its late-1960s level would require a higher minimum wage (something in the range of $7.65 per hour) than the Congress or the State Legislature is going to implement overnight. On the other hand, if legislation were enacted to increase the minimum wage to that level in several “reasonable” steps, its value would be eroded by inflation by the time it was implemented. An attractive alternative would be to establish a target minimum wage of $7.65 an hour, to adjust that target annually for inflation, to increase the actual minimum wage by a fixed amount, say fifty cents per year, until it reaches that moving target, and thereafter to have the actual minimum wage equal the target. Consideration should also be given to the possibility of indexing the target minimum wage to changes in average hourly earnings rather than to a measure of inflation such as the Consumer Price Index. Such an approach would have the advantage of ensuring that low wage workers share in the overall income growth being generated by productivity improvements. Indexing on the basis of changes in the Consumer Price Index, on the other hand, has the advantage of familiarity since it is used in many state and federal laws.

 

State of Working New York 1999: The Illusion of Prosperity

September 1, 1999. Prosperity bypasses most New Yorkers. Wages fall, the upstate economy falters, and the ranks of the working poor rise over the 1990s. Press release below.

Prosperity Bypasses Most New Yorkers

Wages Fall, Upstate Economy Falters and Ranks of Working Poor Rise in 1990s

On this Labor Day, most New Yorkers find themselves less economically secure than a decade ago, according to a new report from the Fiscal Policy Institute, a New York State economic think tank.

Using a wide range of government data, The State of Working New York, The Illusion of Prosperity: New York in the New Economy paints a grim statistical portrait of New York State. The Institute finds that economic reality for most New Yorkers is out of sync with the positive news coming from Wall Street. “The Dow may be up, but family incomes and wages are down for most New Yorkers except the very well off,” said James Parrott, the report’s primary author and the Fiscal Policy Institute’s Deputy Director and Chief Economist.

Three broad trends are identified in the report:

  • Wages and incomes for most workers and families are declining in relation to the cost of living;
  • The state generally has been losing high paying jobs and gaining low paying jobs and the quality of individual jobs is also deteriorating; and
  • New York’s economic growth has been slow and uneven throughout the 1990s, with upstate lagging and downstate heavily dependent on Wall Street.

Some of the report’s major findings are as follows:

  • Middle income families have seen their incomes decline by 8% since the late 1980s while incomes for those in the bottom 40% of families have fallen by 13-15%. The richest 20% have had average income gains of nearly 30% over the decade.
  • As a result, the gap between rich and poor and between the rich and those in the middle is greater in New York than in any other state. The number of New Yorkers in poverty increased by one-third since 1989 to 3 million. Twenty-five percent of the state’s children, and 40% in NYC are growing up in poverty. New York’s poverty rate is now 16.5%, exceeding the nation’s, which  declined in the 1990s.
  • The median hourly wage fell 6.3% in the 1990s despite a 7.9% increase in productivity per worker. For Black and Hispanic men and women, median wages fell at least one-and-a-half times as much as they did for men and women overall.
  • New York has a higher percentage of people without health insurance than the U.S., and fewer New Yorkers have employer health and pension coverage than 20 years ago.
  • According to the 3 major economic indicators–job, income and output growth–the performance of New York’s economy has trailed the nation’s since 1992, and has lagged most of the 8 comparable industrial states of the Northeast and Midwest.

In New York City, the number of working poor families has jumped by 84% in the 1990s, more than three times greater than the U.S. increase. Income and wage declines in NYC since the late 1980s have been steeper than for the state, with incomes falling by almost
20%, on average, for all but the top 40% of families. The benefits of the Wall Street bull market have been highly concentrated among the well off, with the top 7% of New York households receiving 85% of all capital gains, most of which stem from the sale of stocks.

Since 1989, upstate regions have lost 175,000 high-paying manufacturing jobs, the core of the upstate economic base, and gained low-paying service jobs. Sluggish job and income growth in the 1990s has resulted in outmigration and net population declines. The report profiles each of the state’s 10 regions in detail.

To redress the state’s economic failures, the report makes recommendations in three areas: restoring wages to a decent level; investing in people and productive capacity, and redirecting state and local economic development policies. Four of the report’s specific recommendations are:

  • Increase and index the minimum wage to its 1968 level (approximately $7.65 in current dollars) in several reasonable steps, as part of a broader strategy to restore wages to a decent level and create an environment in which businessesthat pay a living wage are not undercut in the market place.
  • Strengthen the state’s educational system: ensure that all children receive a sound basic education; provide the resources necessary for all students to meet the new academic standards; and restore the State’s commitment to high quality andaccessible higher education.
  • Build an effective workforce development system utilizing the strengths of community and labor organizations to eliminate barriers to employment and guarantee that jobs pay a livable wage with benefits and offer opportunities for careeradvancement.
  • Develop and implement a comprehensive revitalization plan for the upstate cities that fosters collaboration between business, labor and community organizations to fully exploit each region’s technological and entrepreneurial potential and enhance the quality of life for area residents.

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Testimony before the Assembly Standing Committee on Economic Development, Job Creation, Commerce and Industry and Assembly Committee on Small Business

May 27, 1999. The Upstate Economy: Testimony delivered by Trudi Renwick, Economist,
Fiscal Policy Institute, Utica, New York.

Thank you for the opportunity to testify on the economic development challenges facing Upstate New York. I would like to review the economic situation in the State and then talk about three issues that affect the Upstate Economy: STAR, the difficulty of the welfare-to-work transition for people with no paid work experience even in areas with tight labor markets, and the ability of the State to leverage its purchasing power to generate economic activity in Upstate New York.

While there was some improvement in the New York State economy in 1998, New York’s recovery is still weak compared to the other states and the growth that has occurred has been concentrated downstate. Even in Upstate areas with some job growth, the job growth has been in the service sector rather than in the historically higher paying manufacturing sector of the economy. As a result of the weak Upstate recovery and the loss of higher paying manufacturing jobs, New York’s poverty rate has been higher than the national poverty rate and has remained high while the national poverty rate has fallen. In addition, New York has earned the dubious distinction of having the most unequal distribution of income of any state in the nation with the fastest growth in the disparity between the rich and poor.

Over the past four years New York’s private sector jobs have averaged an anemic 2.2% growth rate. This compares to 5.1% growth in Texas, 3.9% growth in North Carolina and 3.8% growth in California over the same period. In fact, of the ten major urban industrial states, only Pennsylvania has experienced slower job growth than New York. Even as New York’s job growth rate has accelerated in the past year, of the five states which border New York — Vermont, Pennsylvania, New Jersey, Massachusetts and Connecticut — only Pennsylvania has experienced slower job growth than New York between 1997 and 1998.

Job growth in New York State as a whole has been concentrated in the Service Sector. Of the 145,300 increase in jobs between April 1998 and April 1999, 67% were in Services while another 14% were in Retail Trade. Unfortunately, New York State continues to lose manufacturing jobs. In April 1999 there were 9,700 fewer manufacturing jobs statewide than in April 1998.

The recovery appears even more anemic when we look at the Upstate Economy by itself. If the Upstate economy were compared to the other states it would rank 49 out of 51 in job growth. Of the 151,600 new nonagricultural jobs between April 1998 and April 1999, 116,400 were in the New York City or Long Island. While the rate of nonagricultural job growth for the state as a whole was 1.9% for the past twelve months, Utica-Rome’s job base grew by only 1.6%. Other labor market areas with disappointing job growth in the past twelve months include: Albany-Schenectady-Troy (.9%), Binghamton (1.3%), Buffalo-Niagara Falls (0.4%), Elmira (0.7%), Jamestown (1.0%), Rochester (0.8%) and Syracuse (1.8%). Only two Upstate metropolitan labor market areas had growth rates above the state average — Dutchess County and Newburgh – Pennsylvania. Among the non-metropolitan labor market areas, six counties lost jobs (Cortland, Fulton, Greene, St. Lawrence, Seneca and Wyoming) while only eight counties (Cattaraugus, Chenango, Essex, Franklin, Schuyler, Steuben, Tompkins and Ulster) experienced employment growth faster than the state as a whole.

Between April 1998 and April 1999 the statewide unemployment rate fell from 5.6% to 4.9%. Unfortunately, only 17 of the 52 upstate counties shared in the fall in unemployment rates. Unemployment was up in 28 counties — Montgomery, Schoharie, Broome, Tioga, Elmira, Washington, Genesee, Monroe, Ontario, Wayne, Allegany, Cattaraugus, Chenango, Clinton, Cortland, Delaware, Essex, Franklin, Fulton, Hamilton, Jefferson, Lewis, Otsego, St. Lawrence, Seneca, Sullivan, Wyoming, Yates — and remained unchanged from the previous year in another four counties — Schuyler, Tompkins, Oswego, and Dutchess.

Many Upstate counties would have even higher unemployment rates if it were not for the decline in their labor forces. For example, in 1994 the Utica-Rome labor force averaged 144,020 workers but by 1998 the labor force in Utica-Rome had shrunk to 143,472 workers. A part of the decline in unemployment from 5.6% in 1994 to 4.6% in 1998 is therefore attributable to this decline in the labor force, not an increase in jobs. According to a recent study by the Federal Reserve Bank of New York, in 1998 Upstate New York lost approximately 0.4% of its population and 0.5% of its labor force.

STAR PROGRAM

Unfortunately, the state’s tax policy initiatives have only served to make problems in the Upstate economy worse. As income inequality grows, the Pataki administration has cut personal income taxes (a progressive tax) while increasing the reliance of the state on regressive property and sales taxes.

Some claim that local taxes are the cause of Upstate stagnation. Yet Governor Pataki’s STAR program will pour billions of dollars of tax relief into downstate counties. If STAR’s $2.6 billion dollars had been distributed as school aid, Upstate counties would have received millions more in tax relief than the way this aid is distributed under STAR. For example, Oneida County would have received $12 million more in aid than under the STAR program.

Upstate cities, particularly the large cities of Buffalo, Rochester and Syracuse, but even smaller cities such as Utica and Rome are disadvantaged by the STAR program because STAR favors districts with a high percentage of owner-occupied dwellings. For example, the Buffalo City School district will receive only $20 million dollars in STAR tax relief as compared to $63 million it would receive if the STAR relief were distributed as school aid. The Rochester City School district loses $30 million while Syracuse City Schools lose $17 million. While the numbers are less dramatic for the smaller Mohawk Valley city school districts and rural counties, all of them would do better if the same dollar amount of tax relief were distributed using the school aid formula.

While the STAR program addresses an important need, it does so in an inefficient and ham-handed manner. By allocating property tax relief in a way that is unrelated to the amount of a household’s property tax bill relative to its income, it delivers much less relief to those who are truly overburdened by property taxes than would a substantial expansion of the state’s circuit breaker tax credit. The STAR plan is also flawed in that it provides relief only to homeowners ignoring the fact that tenants as well pay property taxes indirectly through their rental payments. Expanding the circuit breaker would also eliminate the potential for such unequal treatment since it provides relief to both renters and homeowners.

EMPIRE STATE JOBS BILL

The next issue I would like to address is the difficulty of the welfare-to-work transition for people with no paid work experience even in areas with tight labor markets. Research shows that closely-supervised community service jobs increase both the chances that such individuals have of obtaining unsubsidized employment and their earnings potential. The establishment of such community service jobs also protects existing low-wage workers against potential displacement. Finally, residents of the areas served benefit from the improvements and services that workers in these jobs provide.

The Empire State Jobs Program would establish about 4,000 temporary wage-paying jobs in the public and non-profit sectors and would provide the individuals placed in those positions with the supportive services, such as education and training, necessary for them to move into unsubsidized employment, while protecting existing workers from displacement and increasing the opportunities that current workers in entry-level jobs have for career advancement. The Empire State Jobs Program is a five-year demonstration project and has a requirement for an annual evaluation of the program’s operation. This demonstration approach is intended to provide a reasonable test of the effectiveness of this approach to facilitating the welfare-to-work transition.

Furthermore, despite the economic recovery, there are far more welfare recipients slated to enter the job market than low skill jobs available, particularly in high unemployment areas like the Bronx and Buffalo. One study found that there were eight new low-skill job seekers due to welfare reform for every new job created in New York state, compared to a 5:1 ratio in Connecticut and a 3:1 ratio in Pennsylvania. (1)

New York State has a long and successful tradition of creating transitional employment programs to meet pressing public needs. This tradition includes depression era programs such as the Temporary Emergency Relief Act, the Work Relief Employment Program of the 1970s and the Civilian Conservation Corps of the 1980s. Welfare reform has sparked a new interest in transitional job creation: new programs are already operating in Detroit, Philadelphia, Washington, Vermont, Baltimore and San Francisco. Recently, Governor Tom Ridge of Pennsylvania announced his intention to create 16,000 new jobs for welfare recipients.

LEVERAGING THE PURCHASING POWER OF THE STATE TO CREATE JOBS

The final issue I would like to address is the ability of the state to leverage its purchasing power to create jobs. Over the last 17 years, since the State first made its first five-year commitment to improving the physical plant of the New York metropolitan area’s mass transit system, we have seen an increasing amount of the manufacturing activity related to that capital improvement program located in Upstate New York. Because New York’s Metropolitan Transportation Authority (MTA) is responsible for a very large share of all locomotive, train car, and bus purchases nationwide, New York State has been able to encourage many manufacturers and suppliers to locate their activity in the state. It has done this without establishing price preferences or other policies which would encourage retaliation by other jurisdictions. By using a point system that gives recognition to the New York content of these vehicles, the various consortia that bid on the MTA’s business have all increased their presence in New York State. In the early 1980s bidders were working hard to get above 15% New York content. In the latest procurements, the various competitors have offered proposals with over 30% New York content.

There are several ways in which we can build upon this progress. First, New York could take job quality into consideration. Second, it needs to address the boom and bust situation faced by many of the plants that locate in the state. Firms will increase employment substantially to deliver on large contracts only to substantially reduce employment or close down completely when the project is done.

New York should also consider whether it would be able to apply its experiences in transit procurement to other fields. For example, could New York leverage the apparel needs of state and local governments to support the expansion and/or stabilization of this manufacturing industry in the state.

For additional information contact:

Fiscal Policy Institute
One Lear Jet Lane Latham, NY 12110 phone: 518-786-3156 fax: 518-786-3146 e-mail: fpi@albany.net

Notes

(1) Cochrane, S. et al. The Economic Impact of Welfare Reform. Regional Financial Review, May, 1997.

Taxpayers Deserve a Fair Shake From Businesses That Receive Government Subsidies

May 25, 1999. Legislators and coalition of statewide organizations urge New York to join national move toward greater accountability in the granting of corporate subsidies. Group press release:

“State and local taxpayers should get their money’s worth from the billions in government subsidies that are given to businesses each year in New York State,” declared the Fair Budget Campaign at a press conference this morning at the Legislative Office Building in Albany. The Fair Budget Campaign is a cooperative project of nine statewide organizations that represent religious, senior citizen, community, environmental and taxpayer perspectives.

The leaders of the campaign’s member organizations were joined at today’s press conference by legislators who are sponsoring a series of bills that would address the issue of corporate responsibility and job creation. According to Frank Mauro of the Fiscal Policy Institute, “It’s about time that New York joined the increasing number of states that are require subsidy-receiving businesses to deliver on their promises of job creation or get off the taxpayer-funded gravy train.”

The Corporate and Financial Accountability Act sponsored by Assembly Majority Leader Michael Bragman and Senator William Stachowski would do just that by requiring firms that do not deliver on their job creation promises to return their “overpayment” to the taxpayers.

Assembly Majority Leader Michael J. Bragman said, “It makes good economic sense to help companies create and retain jobs by providing targeted financial assistance, but such assistance must be well-conceived and closely monitored. The Corporate and Financial Accountability Act will ensure that every dollar the state spends on strengthening the economy will produce a significant return on investment, by requiring companies to document job creation efforts and to repay financial assistance if they fail to meet economic development goals or fail to maintain high safety standards and fair labor practices.” Senator William T. Stachowski said “It’s all very simple: New York’s taxpayers should get what they pay for. If a company accepts public dollars based on a promise to create jobs, either that promise should be kept or the money should be returned.”

“Corporations doing business in the state, particularly those that receive firm-specific subsidies, must do business in an economically, socially and environmentally responsible manner,” said Karen Scharff of Citizen Action of NY. Both the Bragman/Stachowski bill and a measure sponsored by Assemblyman Martin Luster would move the state in this direction. “This package of bills is long over due. We have seen too many examples of corporations taking the taxpayers’ money and giving nothing in return,” commented Assemblyman Luster.

Unfortunately, New York has not fully participated in the recent economic recovery and unemployment remains much higher here than in the rest of the nation. Legislation introduced by Assemblyman Felix Ortiz would change the rules governing the state’s lucrative Investment Tax Credit to increase the credit going to firms that create and retain jobs and to reduce the benefits going to firms that reduce jobs in the state. According to Assemblyman Ortiz, “If we’re going to justify tax breaks like the Investment Tax Credit on the basis of job creation, then it’s only logical that we relate the size of a firm’s break to its job creation record.”

At the same time that New York’s economy sputters along, state and local governments continue to spend billions in taxpayer dollars on grants, loans and tax breaks for corporations.

Many of the same companies that get taxpayer assistance turn around and move jobs out of state, while giving huge raises to their CEOs and other top managers. Assemblyman Bill Magee’s innovative legislation would establish residency requirements for firms receiving government assistance. “Millions of dollars in aid is being lost to companies who show no commitment to the state of our communities,” said Assemblyman Magee. “Businesses that pocket state-aid and disappear do not deserve hard-working taxpayers’ dollars.”

Legislation sponsored by Assemblyman James Brennan would require that corporations disclose the amount of state taxes that they pay. Only in this way will taxpayers be able to tell if corporate loopholes are allowing large profitable corporations to pay little or nothing in state income taxes. “For decades, major corporations have been required to disclose how much they pay in federal income taxes, but the income taxes they pay to each state have been shrouded in secrecy. This legislation will allow a few rays of sunshine onto the amount big New York corporations pay to our state and allow greater public debate about the fairness and equity of our tax law,” said Assemblyman Brennan.

“Taxpayers of New York should not be subsidizing irresponsible corporations, ” said Mark Dunlea of the Hunger Action Network of New York State. “Grants, loans and state contracts should only go to corporations that pay their employees decent wages and benefits and refrain from paying indecent amounts to top executives, provide jobs for New York residents, obey the law, and pay their fair share of state and local taxes.”

The Fair Budget Campaign also issued a Statement of Corporate Responsibility Principles:

  • Businesses that get government subsidies and tax breaks should be required to deliver on their promises to create and retain jobs in New York State.
  • Businesses that get government subsidies and then fail to live up to their promises to create and retain jobs should be required to refund their “overpayment” to the taxpayers.
  • Publicly traded corporations that are currently required to disclose the amount of federal income taxes paid should be required to do the same at the state level.
  • No taxpayer subsidies should be given to businesses that violate federal and state laws relating to the environment, safety and health, workers’ rights or civil rights.
  • State tax incentives must be designed to support job creation not job elimination.

1999 Corporate Accountability Legislation

Corporate and Financial Accountability Act – A3325 (Bragman) / S1988 (Stachowski) – Would require any state agency which distributes state assistance for the purpose of economic development to develop a financial accountability policy. This would include recovering such assistance if the recipients fails to meet the agreed upon terms (e.g., number of jobs created or retained, or other performance standards), and requiring applicants to provide information regarding history of job creation and retention, OSHA violations, equal employment opportunity credits and environmental standards (does not deny award based on violations). Denies future assistance for five years if subject to recoupment procedures.

The Investment Tax Credit (ITC) Accountability and Job Creation Reform Act – A6736 (Ortiz) – Currently businesses are allowed an investment tax credit equal to 5% of the money that they spend on plant and equipment. Under the proposed legislation, the amount of the original ITC would be reduced from 5% to 1%, but an Employment Incentive Credit would be available for up to 12 years, depending on the firm’s level of employment growth. The proposal would also eliminate the ability to carry unused credits forward to future years. This would base the ITC on job creation and retention.

Job Creation Performance – A1548 (Luster) – Applications to the Urban Development Corporation shall require information related to the applicant’s history of performance in contributing to job creation, economic stability, child care and community revitalization. Approval shall be based on such information.

Corporate Tax Disclosure – A5026 (Brennan) – There are huge, profitable corporations who pay little if any taxes on the income they may in New York. These companies shift their taxes to us while they jobs out of New York. This legislation requires certain publicly traded corporations to file reports on tax payments and finances. Information would include: total gross profit; any deduction or tax credit more than 5% of tax bill; any tax credit carryover or unused credit of more than 5%; and net taxable income.

Residency Requirements for Businesses Receiving Government Subsidies – A6090 (Magee) – Companies that receive corporate economic incentives from New York State need to ensure that those incentives are invested in New York. Establishes a residency requirement for state economic development assistance from the department of economic development, job development authority, science and technology foundation, and urban development corporation. If company receives an economic assistance award of more than $50,000 and moves out within 10 years, would be require to repay with 5% penalty and be prevented from receiving such assistance in the future.

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Testimony before the Assembly Standing Committee on Economic Development, Job Creation, Commerce and Industry and Assembly Committee on Small Business

May 11, 1999. The Upstate Economy: Testimony delivered by James Parrott, Deputy Director and Chief Economist, Fiscal Policy Institute, Albany, New York.

Thank you for the opportunity to testify on the economic development challenges facing Upstate New York. The lagging performance of the upstate economies is a serious issue. Weak job growth for an extended period in the 1990s has restrained income growth and the resulting lack of job opportunities has, unfortunately but not unexpectedly, led many people to give up entirely on New York and move elsewhere. Our state has the dubious distinction of leading the country in the rate of domestic out-migration of population in the 1990s. And last year, as the notice for this hearing indicated, we saw the labor force actually decline in many upstate metropolitan areas.

Concerted action to revitalize upstate economies is needed before this brain and skill drain worsens, putting a turnaround beyond reach. Given the powerful influence of national and international economic forces beyond the control of State government, it is imperative that the State judiciously plan how it will deploy its resources to improve, at the margins, regional and State economic performance. In recent years, the State has chosen to focus on massive tax cuts and a corporate retention approach geared to financial services. I would argue that these policies have had very little real impact on the state’s economy and have clearly failed to rejuvenate the upstate economy.

Earlier this year, the Fiscal Policy Institute included its analysis of the data on the state of the Upstate Economy in its briefing book on the 1999-2000 Executive Budget and we have attached that publication to our testimony for your reference. Also attached is a copy of the revenue section of this year’s Counterbudget, in which we set forth our analysis of why the Pataki tax cuts are not achieving the results which their advocates promised. In today’s testimony, we will not repeat these analyses. Rather we will focus on the important purpose of this hearing as stated so clearly in your hearing notice: “to examine proposals to improve the Upstate Economy.”

Without attempting to be definitive regarding a comprehensive State economic development strategy, I will discuss today two areas of economic development policy, industry clusters and high technology, that hold significant promise. The

Fiscal Policy Institute’s executive director, Frank Mauro, will be testifying at your Syracuse hearing on May 20 on the use of tax policy to stimulate the upstate economy and several related issues.

First, the Empire State Development Corporation’s Strategic Plan from February 1996 emphasizes the value of pursuing an industry clusters approach. Yet, this emphasis is not evident when the State implements its economic development priorities. Competitive advantage increasingly depends on developing and capitalizing on technologically-oriented workforce and entrepreneurial skills. In a global economy, those skills are the major assets of our State.

An industry clusters approach focuses attention on just those workforce and entrepreneurial skills and how to develop them further and address barriers to their development. To be effective, this strategy depends on the leadership of small and medium-sized firms coming together to discuss common concerns, identifying opportunities and working with government to address skills training or other infrastructure needs, regulatory issues, and joint marketing or strategic business partnerships. In practice, an outside party, which could be government or an academic or industry consultant, is often necessary to initiate the formation of an industry cluster self-help organization. In the late 1980s, the State sponsored the Strategic Industries Group Services program to encourage the creation of such industry groups.

In the 1980s, I was the representative of the International Ladies’ Garment Workers’ Union to the Garment Industry Development Corporation (GIDC) in New York City, an organization involving industry, labor and government that is often cited as one of the leading examples in the country of this sort of industry self-help organization. GIDC provides training programs for workers and management, assistance in identifying and introducing new technologies and tapping export markets, and is constantly seeking innovative ways to expand New York-based apparel production.

The second area I would like to discuss is high technology. I view high technology not so much as a specific group of industries such as biotech or electronics, but as the application of a variety of technologies and related skills needed to produce high value-added goods and services. In addition to helping facilitate greater investment in high technology industries, the State should support the development of high tech skills across the spectrum of export-oriented industries. In particular, it should substantially expand funding for employer-specific training through the community college system. If designed with business and labor input, employer-specific training can be, as a recent report from the State Comptroller indicates, “a powerful economic development tool”. (1) Such training is one of the most cost-effective investments that can be

made in increasing the technological proficiency of our existing workforce, raising the productivity and earnings of our workers and addressing business’ growing need for more skilled workers.

Other institutions that are critical in helping New York’s businesses in applying new technologies to maximum advantage in our workplaces are labor unions and technology extension programs. Consequently, I think that the State’s technology focus should include support for innovative labor-management partnerships fostering new workplace technologies. The State also should increase funding for the network of technology extension centers that assist small and medium-sized companies by providing a range of engineering and technical assistance that enhance their competitiveness. (2)

In closing, I would like to comment on the division of labor between the State and local levels in conducting economic development efforts. Creative and committed leadership at both levels is essential in the development and execution of a strategic plan. There needs to be overall coordination at the State level and the State should provide the lion’s share of the resources needed. Local leadership is critical for industry self-help partnerships and coordination with local governments and educational institutions. Needless to say, the legislature and the Comptroller’s Office have important oversight roles to ensure periodic evaluation and accountability.

For additional information contact:

Frank Mauro, Executive Director Fiscal Policy Institute One Lear Jet Lane Latham, NY 12110 phone: 518-786-3156 fax: 518-786-3146 e-mail: fpi@albany.net

James Parrott Deputy Director and Chief Economist Fiscal Policy Institute 218 W. 40th St., 3rd floor New York, NY 10018 Phone: 212-730-1551 fax: 212-819-0885 e-mail: jparrott@uniteunion.org

Notes

(1) New York’s Community Colleges: Cost-Effective Engines of Educational Access and Economic Development,” State Comptroller H. Carl McCall, March 1999.

(2) See James A. Parrott, “Labor Unions, Technological Change, and Economic Development in the New York Tri-State Region,” in Technology and Economic Development in the Tri-State Region, Collected Background Papers for the New York Academy of Sciences Roundtable Series, New York Academy of Sciences, 1997.