Comments on the New York City Charter Revision Commission’s preliminary recommendations on “public reporting and data access”

June 28, 2005. Testimony by FPI Executive Director Frank Mauro.

Comments on the New York City Charter Revision Commission’s preliminary recommendations on “fiscal stability”

June 27, 2005. Testimony by FPI Executive Director Frank Mauro.

Prospects for Information Technology Jobs in New York’s Finance Sector

June 2005. A report prepared by the Fiscal Policy Institute for the CUNY Institute for Software Design and Development through a project funded by the Alfred P. Sloan Foundation. In August, Randi F. Marshall of Newsday wrote about the report: Technology’s Human Need.

The Problem with the Hudson Yards Property Tax Breaks

June 16, 2005. A brief by FPI Deputy Director and Chief Economist James Parrott. (PDF) Also see the veto message issued by Mayor Bloomberg explaining his June 9, 2005,veto of City Council legislation requiring greater accountability in the expenditure of PILOT revenues.

Groups Urge Lawmakers to Make Industrial Development Agencies More Accountable, More Transparent and Less Corrupt

June 15, 2005. Group press release, plus eight simple ways to reform IDAs:

Industrial Development Agencies Law Due to Sunset on June 30, 2005

Groups Call Upon Legislature and Governor to Make Real Changes That Will Make The Program More Accountable, More Transparent and Less Corrupt

Over 100 community, religious, education, health care, labor and human services organizations from throughout New York State have endorsed a joint statement of principles to reform the state’s Industrial Development Agency laws. The joint statement was issued today at a press conference at the Legislative Office Building in Albany.

Portions of NYS’s Industrial Development Agency Legislation (Article 18a of the General Municipal Law) sunset on July 1 and 2, 2005. Industrial Development Agencies are designed to provide subsidies at the local level to attract or retain businesses in communities across the state.

The groups urged that the Legislature use the following 8 principles in reauthorizing the law:

1. Ensuring Broader Oversight and Coordination

2. Developing Community Impact Reports

3. Mandating Basic Standards

4. Improving Reporting Requirements

5. Requiring Enforceable Clawback Penalties

6. Increasing the Effectiveness of IDA Public Hearings

7. Ensuring that IDAs are run transparently

8. Establishing meaningful penalties for IDAs that violate anti-piracy provisions

“We need to ensure that our tax dollars are being used to create quality jobs that benefit local residents and do not put our small businesses at an economic disadvantage with their larger, more politically-connected, big-business competitors,” stated Ron Deutsch of SENSES. “We need to eliminate the corruption in this program by making sure that local IDA Boards are more representative of the communities they serve and that local IDAs fund projects that pay a living or prevailing wage, provide employment benefits, maintain high worker retention and full-time employment ratios, hire people from the local community, and provide job training.”

Adrianne Shropshire of New York City Jobs With Justice (NYC JWJ) noted that in order to hold these local IDAs accountable they should develop Community Impact Reports for each project that detail the quality of the jobs created or retained, the effect on housing in the area, the effect on other businesses, the effect on open space and the effect on infrastructure, such as transportation, schools and water and sewers. “Communities should have the information needed to decide whether a development project is really in the best interest of the community. Public money should not go to projects that don’t benefit the people who live in the area.”

Metro Justice, community-based peace and justice organization in Rochester with close to 1,000 dues paying members, has been tracking the activity of the County of Monroe Industrial Development Agency (COMIDA) for the past 8 years. “In Monroe County we have seen our local IDA (COMIDA) degenerate into a feeding trough of corporate welfare for well-connected businesses,” stated Barbara Orsino, a member of Metro Justice. “At COMIDA meetings we’ve seen the appointees to the COMIDA board give tax breaks and subsidies for the purchase of company vehicles, telephone and computer equipment to restaurants, law firms, tennis clubs and financial service firms, all of which simply move jobs from one local business to another. Among the most egregious actions of corporate welfare have been recent IDA grants to the Sutherland Corporation, a business that outsources jobs to overseas firms. We need to reform this program to remove the cronyism and to stop putting our communities small businesses at a competitive disadvantage with larger IDA sponsored businesses. You also know a program like this has major conflict of interest issues when the lawyer for COMIDA is also the same lawyer representing the corporations applying for the subsidies.”

“IDAs are in desperate need of reform,” said William Cooke of Citizens Campaign for the Environment. “These agencies are charged with handing out public funds and IDAs must be more accountable to the public. The State Legislature has the opportunity to address many of the IDAs biggest abuses and they should,” Cooke concluded.

Frank Mauro, Executive Director of the Fiscal Policy Institute, insisted the law should be reformed to establishing meaningful penalties for IDAs that violate Article 18-A’s anti-piracy provisions. Mr. Mauro cited a recent Court of Appeals decision In the Matter of Main Seneca Corporation v. Town of Amherst Industrial Development Agency; BDO Seidman, LLP, where the court held that the anti-piracy provisions of Article 18-A had been violated by the Town of Amherst IDA and upheld the penalty imposed by the lower court, that Uniland Partners repay the portion of the taxes that it had avoided in regard to the facilities occupied by the firm (BBO Seidman) that the Amherst IDA had illegally pirated from the City of Buffalo. Mauro stated that, “It seems perverse that the Town of Amherst, on whose behalf the Amherst IDA was established and on whose behalf it operates should get a bonanza (the back tax payments) rather than a penalty. Amherst got the business which Buffalo lost and it, after the fact, got back the taxes that it had offered as an inducement to attract the business. It seems that for the law’s anti-piracy provision to be meaningful, a penalty should be assessed on the IDA not the business, or at least on the IDA in addition to the business. The legislature should amend the law to provide for a more appropriate penalty in future cases of this type.”

“Our research revealed that many deals negotiated by the New York City IDA gave millions of dollars to some of the world’s wealthiest corporations without creating the jobs that were promised. Incorporating better transparency and reporting standards into IDAs statewide would give New Yorkers a way to make sure that good jobs are being created in exchange for subsidies,” said Stephanie Greenwood of Good Jobs New York.

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8 Simple Ways to Reform IDAs

Portions of the law (Article 18-A of the General Municipal Law) that establishes the state’s 100+ Industrial Development Agencies (IDAs) and governs their operations are scheduled to sunset on July 1 and July 2, 2005. The need to deal with these expiring provisions provides the Legislature with the opportunity to strengthen the accountability of the IDAs to the state’s taxpayers for carrying out the important powers and duties with which they are entrusted by Article 18-A.

Many of the purposes of the state’s 100+ IDAs, such as advancing job opportunities for New Yorkers, advancing their health, general prosperity and economic welfare, and improving their prosperity and standard of living are clearly very important objectives. To the extent that IDAs can operate in ways that help to secure these objectives, the people of the state will clearly be better off. In practice, however, many questions have been raised about the IDAs’ operations and activities.

Given the findings of a May 2004 report by Comptroller Alan Hevesi and an earlier audit of Erie County IDAs by former Comptroller H. Carl McCall, and the experiences of our various organizations in monitoring the activities of IDAs in different parts of the state, we believe that any reauthorization of the expiring provisions of Article 18-A should adhere to the following principles. Doing so would give communities the power to ensure that state and local tax dollars are not given to favored businesses at the expense of other businesses with which they compete, working families, and the environment.

1. Ensuring Broader Oversight and Coordination

The first critical policy change for Industrial Development Agencies is enforcement of new and more stringent guidelines on board membership. In many cases, there are serious conflicts of interest arising from the affiliations of local IDA board members and the IDA staff. These members’ decisions have raised concerns about how, and to whom, subsidies are granted and have generally tainted the agency and its programs. By establishing mechanisms to eliminate conflicts-of-interest and ensure cooperation among local IDAs and by setting broad board membership guidelines to require a blend of business, organized labor, educational, environmental and community representatives, we will gain better coordination and oversight and thus improved performance of our IDAs.

There are also many instances of different IDAs operating in the same geographic area (i.e., a city IDA and a county IDA or county IDAs in consecutive counties) with competing agendas that do more harm than good to the local communities. We need to ensure approval by all local governments whose tax revenues, long range plans and/or service requirements are affected by agency projects.

We must also close loopholes that let companies to get subsidies by exploiting loopholes that allow funding for training facilities, tourism and corporate headquarters.

2. Developing Community Impact Reports (CIRs)

A CIR can be an essential tool in assessing the potential positive and negative impacts a proposed project will have for the communities where the project will be located. The CIR would study, among other things, the quality of the jobs created or retained, the effect on housing in the area, the effect on other businesses, the effect on open space and the effect on infrastructure, such as transportation, schools and water and sewers. An independently conducted CIR should be required of all subsidy applicants and should be conducted during the application process over a significant period of time from initial public disclosure of the project application to completion of the CIR. Subsidy approval should be conditional on the completion of a satisfactory CIR and on an agreement within the subsidy contract to address recommendations made in the CIR.

3. Mandating Basic Standards

The standards applied to businesses applying for IDA assistance should be strengthened. Mandating basic employment, community, civil rights and environmental benefits standards on subsidy deals will ensure that subsidy recipients create quality jobs, meet community needs, and have a positive environmental impact in our neighborhoods. Such standards would include paying a living or prevailing wage, hiring locally when possible, protecting greenfields and community benefits standards.

We should further ensure that IDA benefits are not given to firms that violate state laws including those dealing with environmental
quality, worker safety, and fraud. The law governing the Empire Zones program includes a provision that makes compliance with environmental, worker safety and certain other laws a condition for receiving and maintaining certification as a business eligible for zone benefits. IDAs have no comparable requirement.

4. Improving Reporting Requirements

Improved reporting on subsidy contracts is necessary to make economic development more accountable to our communities. Statewide reporting standards would make certain that companies report progress on their commitments in a uniform and timely way and that local agencies use this information in making further subsidy decisions and also provide it to the public in a useful form.

This should include annually-updated information on job creation and retention, information on Payments in Lieu of Taxes (PILOTs) and information on all government assistance provided to a project (not just assistance provided by the IDA).

5. Requiring Enforceable Clawback Penalties

The subsidies afforded to IDA recipients should be retracted if a given establishment fails to meet the agreed-to contractual obligations. When entering into a contract with the IDA, the business should have to agree to job retention and creation goals and an enforceable clawback procedure. Clawbacks are a type of penalty through which a city or county cancels, reduces, or recovers a subsidy when the recipient fails to deliver on its contract obligations. In other words, if a company does not uphold provisions of the subsidy contract, the City can recapture its subsidy based on provisions established in the original agreement. Assuming stronger reporting requirements are in place, the locality will have adequate information to determine if subsidy recipients are meeting contractual obligations as established in the subsidy agreement.

6. Increasing the Effectiveness of IDA Public Hearings

Under current law, public hearings come at the end of the IDA review process and right before the IDA board is about to vote on a proposal. At the time these hearings are held, the IDA, its staff, its attorneys, and sometimes other consultants, as well as the project applicant, its staff, attorneys and consultants have frequently spent months if not years developing and refining a proposal. It is not surprising that by the time the public hearing is held, both sides in these negotiations are fully committed to the project to be voted upon.

Public hearings at this point in the process are necessary, but the public must be given earlier notice of applications that have been filed with the IDA and some idea as to when those projects are likely to come up for a vote. A possible model for this is the scoping session requirement under the State Environmental Quality Review Act. Another shortcoming of IDA public hearings is that they are frequently devoid of the IDA board members who will vote on a project. The IDA law should be amended to require that a board member who has not participated in a required public hearing on a proposed project should not be allowed to vote on that project. Under such an approach, we would be ensured that at least a majority of IDA board members would attend the required public hearings.

7. Ensuring that IDAs are run transparently

The IDA law should be amended to require that IDAs’ standard tax exemption policies, hearings on deviations from these policies and copies of approved deviations are sent at least annually to the state and the chief executives and all members of governing boards of all affected local governments, that any changes to those standard tax exemption policies be transmitted promptly to those same officials, and that these policies and any changes be made available to the public and be posted on the IDA’s website.

Each IDA should be required to maintain, and make readily available to the state and all local elected officials and the public, a current schedule of all PILOT payments due each year and the amount of each such payment allocatable to each taxing jurisdiction on whose behalf the PILOT is being collected and a list of project owners who are late making required PILOT payments, how much they owe and how long they have owed it.

IDA boards should be required to respect local plans (such as smart growth plans), to consider impact of proposed projects on local service delivery requirements, and to ensure that all PILOT payments received are promptly and fully transmitted to the treasuries of the local governments on whose behalf those PILOT payments were collected.

8. Establishing meaningful penalties for IDAs that violate Article 18-A’s anti-piracy provisions.

In its decision In the Matter of Main Seneca Corporation v. Town of Amherst Industrial Development Agency; BDO Seidman, LLP, the New York State Court of Appeals held that the anti-piracy provisions of Article 18-A had been violated by the Town of Amherst IDA and upheld the penalty imposed by the lower court, that Uniland Partners repay the portion of the taxes that it had avoided in regard to the facilities occupied by the firm (BBO Seidman) that the Amherst IDA had illegally pirated from the City of Buffalo. It seems perverse that the Town of Amherst, on whose behalf the Amherst IDA was established and on whose behalf it operates should get a bonanza (the back tax payments) rather than a penalty. Amherst got the business which Buffalo lost and it, after the fact, got back the taxes that it had offered as an inducement to attract the business.

For the law’s anti-piracy provision to be meaningful, a penalty should be assessed on the IDA not the business, or at least on the IDA in addition to the business. For example, the first time that an IDA violates the law’s anti-piracy provision, it could be suspended from doing any deals for six months, the second time a year, and the third time two years, etc. On the firm’s side, if a payment of the type imposed in this case is required, the payment could be to the “pirated” municipality (in this case Buffalo) rather than to the “pirating” municipality (in this case Amherst).

The Future of Social Security: Where are We Going?

June 12, 2005. A presentation given by FPI Senior Economist Trudi Renwick at a Rockland County Community College forum.

Funding a Sound Basic Education for All New York’s Children

June 2005. This issue brief is an updated and condensed version of FPI’s original January 1999 report on this subject. The update is based on: the Campaign for Fiscal Equity’s Schools for New York’s Future Act, FPI’s analysis of the fiscal implications of that proposal, and the Institute for Taxation and Economic Policy’s April 2005 report, Achieving Adequacy: Tax Options for New York in the Wake of the CFE Case. Read the brief >>

Privatization without Competition equals Huge Losses

June 7, 2005. By FPI Executive Director Frank Mauro: how New York State’s approach to “contracting out” wastes hundreds of millions of dollars a year without increasing service quality. Report >>

Who foots the bill for $6-billion rail job?

June 6, 2005. While Pataki and Bloomberg push for a Manhattan-JFK link, more pressing projects are at risk. An op ed by FPI Senior Fellow David Dyssegaard Kallick, Newsday. Read >>

The Path Not Taken: How New York State has Increased the Tax Burden on the Middle Class and Cut Taxes for its Highest Income Taxpayers by Over $8 Billion a Year

June 4, 2005. A little bit of tax history by Fiscal Policy Institute Executive Director Frank Mauro.

In 1972, New York State had a personal income tax with 14 brackets, ranging from a low of 2% to a high of 15%.

Since that time the state government has significantly restructured the state personal income tax in a variety of ways. Among the changes that have been made since 1972 has been a move to something that is much closer to a flat tax. This has been done by eliminating brackets from both the bottom and the top of the old structure.

For example, the lowest rate in the old structure was 2%. But the 2% and 3% brackets have been eliminated, so the lowest rate is now 4%.

At the other end of the spectrum, even more brackets have been eliminated. The 15%, 14%, 13%, 12%, 11%, 10% 9%, 8%, and 7% brackets are all gone.

New York now has a 5-bracket/5-rate system, with both the 5 rates and the 5 brackets in very tight ranges.

All five of New York’s current rates are between 4% (the current lowest rate) and 6.85% (the current highest rate).

And the brackets are just as compressed. A single person reaches the top 6.85% rate once his or her taxable income reaches $20,000. A married couple is in the top bracket when their taxable income is $40,000 or more.

For three years (2003, 2004, and 2005), New York State has had two temporary brackets on people with higher incomes. This year, for example, the state has a temporary top rate of 7.25% for single individuals with taxable income above $100,000. For married couples, this temporary top rate applies if their taxable income is above $150,000. The second temporary rate is 7.7% and it applies to all taxpayers with taxable income above $500,000.

To address the impact on eliminating the bottom two brackets (the 2% and 3% brackets) on low income working families, the state has adopted two income-based credits – the household credit and the state earned income tax credit. Those credits help people at the low end of the income distribution, which is good; but, they do not blunt the impact on middle income families of the state’s move to a relatively flat rate income tax structure.

Rather than eliminating so many rates from the top of the bracket structure, New York State could have helped middle income families much more if it had kept its old tax structure but stretched out the brackets each year to reflect the effects of inflation and indexed the state’s personal exemption as well. New York State, in fact, no longer has a personal exemption for taxpayers and their spouses, and the exemption for dependents has been set at $1,000 since 1988. Over this same period, the federal government’s personal exemption has been increased from $1,950 to $3,200. That means that a married couple with two children gets exemptions of $12,800 when calculating their federal income tax but only $2,000 when calculating their state income tax.

If New York State had pursued this alternative approach, lets call it Plan B – of indexing its tax brackets and its personal exemption for inflation, rather than cutting brackets from the top, 95% of New Yorkers would be paying less in state income taxes than they pay under the current law but (and this is a very big but) the state would be collecting $7.7 billion more in tax revenue each year. And, if it had been collecting that additional income tax revenue, the state would not have had to cut and freeze state revenue sharing with local governments as it has on so many occasions; and it would have been able to increase the share of school budgets covered by state aid. What we actually got instead were cuts in revenue sharing and smaller increases in school aid than would otherwise have been possible. And this meant bigger increases than necessary in local property taxes and school taxes – again hitting middle income families very hard.

So, how can it be that New York State could have pursued a policy that would have meant lower income taxes for 95% of taxpayers but more revenue for the state treasury? It sounds impossible but it’s true, and the reason why it is true is because so much of the income growth in New York State and in the United States over the past 20 years has been concentrated at the top end of the income distribution.

Instead, since the late 1970s, New York State has pursued an income tax policy that has meant higher than necessary income taxes for middle income families and huge tax cuts for the best-off 5% of state taxpayers – many of whom are actually residents of other states (primarily Connecticut and New Jersey) who commute into New York City to work.

Here are some examples. Because New York State cut income tax rates from the top rather than implementing Plan B, a family of 4 with income of $50,000 is paying about $1,000 more in income taxes than it would have if New York had pursued Plan B. For a family with income of $100,000 that tax difference is $2,000. The biggest losers are families earning about $150,000, who are paying about $2,500 more under the current 5-bracket, 6.85% plan than they would be paying under Plan B with 14 brackets and a top rate of 15%.

At the other end of the spectrum are the big winners. A family earning $500,000 is now paying $22,000 a year less than they would be paying if Plan B had been implemented. At the $1 million level, this savings is about $63,000 and at $2 million, it is about $145,000.

Why has New York State pursued such an attack on the middle class just to provide huge benefits to those who have the least difficulty in making ends meet? Has this been a conscious effort at class warfare? or, Have our policymakers just been oblivious to the impact of the state’s misguided tax policies?

A few states have taken steps to ensure that legislators no longer have to make such decisions in the dark. They have done this by requiring independent nonpartisan analysis of the impact of proposed tax changes on people at different income levels. New York should follow suit. But even, if this approach is successful, it will just prevent us from going further in the wrong direction.

What New York state needs to do now is to undo some of the damage of the last 25 years. It needs to move in the opposite direction to make the tax system fairer and to generate the revenue necessary to fund a statewide solution to the Campaign for Fiscal Equity lawsuit and to reduce the pressure that we are now placing on the property and sales tax bases.