Losing Business

Print More

Over the past dozen years, New York City has handed out more than $1 billion in tax incentives to companies that have threatened to leave the city and take their jobs with them. That’s the equivalent of two years of services for the homeless, five years of parks. It would even pay for much of the NYPD for a year.

City officials say the tax breaks are dollars well spent on the city’s well-being. These incentive deals, they insist, bring work and increased tax revenues to New York. The companies that receive them pledge to retain hundreds or thousands of jobs in the city and, increasingly, to create large numbers of new ones.

But in the most comprehensive independent assessment to date of these subsidies, the Center for an Urban Future has found evidence that a disturbingly large proportion of the companies that have profited from city retention deals have failed to deliver on their rosy employment pledges.

They have been acquired by other companies; put themselves up for sale; gone belly-up; moved large parts of their business out of the city; or simply eliminated a large number of jobs. In many cases, companies have made these moves within months of receiving tax breaks.

The end result, in case after case, has been anything but a job boom. More than half of these companies have laid off substantial numbers of workers. And there is strong evidence that many of those firms–from flailing dot-coms to merging investment banks–may now have fewer employees in the city than they did before they received tax breaks. As investments, the subsidies sure look like losers.

It is impossible to know how many of the companies that have received city tax breaks over the years have outright defaulted on their pledges to retain and create jobs in New York. The city’s Economic Development Corporation (EDC), which fields companies’ requests for tax breaks and puts together the incentive packages, does not make any information about these firms’ employment levels available to the public, or even to the City Council. But enough of the recipients have announced major cutbacks or made other job-depleting moves to raise fundamental doubts about the effectiveness of tax incentives as an employment machine.

Over the past 12 years, nearly 80 companies have received tax breaks of $1 million or more in return for a promise to keep their jobs in the city, create more jobs and/or keep their headquarters in New York. But after receiving the breaks, fully 40 of them have fallen off the wagon. Some have announced major layoffs. Many entered large-scale mergers, which are virtually guaranteed to result in layoffs, while still others have recently put themselves up for sale–all a short time after benefiting from retention deals. In the past seven months alone, at least 16 companies that received city incentives have announced significant staff cuts.

There were other developments the city didn’t bargain for. At least four firms announced large-scale mergers or acquisitions within three months of a tax incentive deal; four others, within a year. Thirteen companies that won city tax breaks merged with other firms that have also gotten city deals. And four double-dipped, taking money from New York and then moving jobs out of the city in response to incentives from New Jersey, Connecticut and other states.

The overwhelming majority of the companies on the receiving end of retention deals are in financial services, banking, insurance and media–all fiercely competitive industries in which mergers and consolidations have become a standard order of business. At least 17 financial firms that have benefited from city retention deals have since either acquired or been purchased by other major financial companies.

The New York Mercantile Exchange, the New York Board of Trade, the Nasdaq and the American Stock Exchange have all profited from expensive retention deals. And the Giuliani administration recently promised up to a billion dollars in subsidies and tax breaks to the New York Stock Exchange. These are dicey investments at a time when trading floors at financial exchanges are being replaced by electronic trading systems.

In the past two years, more than a half-dozen dot-coms and other high-tech companies have also gotten into the act, just in time for major cutbacks in the wake of plunging stock prices and declines in venture capital funding. A majority of those companies have since announced large-scale layoffs or merged with other firms. Meanwhile, nearly every major television or cable network has received a multimillion-dollar tax incentive package to remain in New York. But in recent years, this industry has witnessed a wave of mergers, including Walt Disney with ABC, Viacom with CBS, and America Online with Time Warner.

Companies that take tax breaks, then merge with other firms, downsize or move jobs out of New York aren’t deadbeats. Most simply make rational business decisions that result in a loss of jobs. They choose to benefit shareholders rather than New York employees.

Yet mayor after mayor has showered hundreds of millions of dollars in tax breaks on corporations. The city’s justification remains the same it has always been: that without these subsidies, companies would be guaranteed to leave New York.

Yes, some will. And many more won’t. Competition from Jersey and beyond is indeed real, and tax incentives are sometimes the most obvious ways to keep companies put. But the days of the 1970s fiscal crisis are long behind us. Today, businesses are not fleeing New York, but flocking to it. The city needs to make sure they don’t have reasons to leave–by investing in schools, transportation, telecommunication and other infrastructure that help them do business better.

At best, the tax deals are a short-term stopgap, a way of offsetting the high cost of doing business here. If the city’s going to use them, it’s going to have to prove results. While the press releases announcing corporate retention packages get healthy media coverage, there’s no accountability once the ink is dry. City officials never update the public about subsidized companies’ hiring records–not one year, not five years, not 10 years after an incentive package is first announced. EDC has also never commissioned an independent study to confirm whether the companies it has so generously helped actually delivered on their promises.

As the accounts below make clear, we need information–and need it just as urgently as these companies have claimed they needed the city’s dollars.

Jonathan Bowles is research director for the Center for an Urban Future.

Leave a Reply

Your email address will not be published. Required fields are marked *