Cuomo, Paladino & Remedies For Our Ailing Economy

If the seven-member comedy act that was the October 18 gubernatorial debate can be said to have had a serious message, it was likely this: It’s the jobs, stupid. Amid the prostitution jokes, one of the most pressing questions of the night was how New York’s next governor plans to address an economic future that looks, by anyone’s reckoning, bleak.

Neither Andrew Cuomo nor Carl Paladino returned multiple requests for comment, but both have issued statements or proposals that provide insight into their plans. Paladino has addressed the state’s economic future by issuing policy statements that amount to sound bites: He says he wants to cut income taxes and business taxes on manufacturing, while slashing spending by 20 percent his first year in office. Cuomo, meanwhile, has written a 224-page policy treatise, The New NY Agenda: A Plan for Action, containing a 33-page chapter devoted to economic development.

Among Cuomo’s promised reforms:

A $300 million “Jobs Now” tax credit that would refund payroll taxes for any new employees hired by New York businesses and kept on the job for at least one year.

Revamp the Empire Zone economic development program to focus on key growth industries. Subsidy recipients would also be required to indicate how many jobs they promise to create. Those who achieve their goals would get subsidies equal to 80 percent of state income tax withholding for the new jobs; companies creating less would be subject to a “clawback,” forcing them to repay the subsidies on a pro-rated basis.

Revamp the existing Industrial Development Agencies, by instituting “regional economic councils” that would oversee development strategy and prevent local agencies from using state money to poach jobs from elsewhere in New York.

Cap local property taxes and otherwise reduce regulatory and tax obstacles for companies wishing to move to New York.

Some of Cuomo’s proposals should please critics of the current subsidy system – the need for “clawbacks,” for example, has been a common refrain among development experts who say that too often, companies collect taxpayer dollars and then fail to supply the promised jobs. And two of his proposals – “Jobs Now” and his revamped Empire Zones — would encourage companies to create higher wage jobs, by tying the size of company’s subsidy to its level of employee pay.

Still, numerous questions remain as to how effective Cuomo’s proposals would be at actually reforming economic development in New York.

For example, clawbacks may seem foolproof – if a company doesn’t meet its job goals, the state gets its money back. Yet the government must first ask for its money back – an unappealing option to public officials who don’t want to appear “unfriendly” to business. According to documents compiled by the subsidy-watch group Good Jobs New York, Pfizer received $46 million from the New York City IDA in 2003, in exchange for creating 1,000 new jobs. When the company instead announced layoffs, the IDA declined to implement the deal’s clawback provision, merely vowing to reject any Pfizer request for additional subsidies. In another deal, in 2006, Met Life received $27 million to relocate 1,750 workers from Manhattan to Long Island City, and then reneged. Instead of seeking to collect $24 million through a clawback provision, the city merely fined the company $5 million, and restructured the deal to ease Met Life’s job requirements.

Some observers are also concerned that Cuomo’s close ties to many advocates and beneficiaries of traditional economic development deals will present a roadblock to significant change. Matt Ryan, organizing director for the labor-community coalition New York Jobs With Justice, which issued its own proposal for IDA reform this summer, notes that Cuomo’s recently created Upstate Business Advisory Council includes such business leaders as Jordan Levy, who as chair of the Erie County Harbor Development Corporation opposed attaching a living-wage requirement to subsidies for a proposed Bass Pro superstore in Buffalo.

Cuomo has also received significant campaign contributions from major recipients of development aid in New York State. Jerry and Robert Speyer, who have given more than $100,000 to the Cuomo gubernatorial campaign, are principals of Tishman Speyer, the megabuilder that partnered with the NYC IDA for the new Yankee Stadium project. Alexander and Helena Durst of the Durst Organization, which built the 42nd Street Bank of America building that, according to Good Jobs New York, received hundreds of millions of dollars in low-cost bonds and tax breaks, each gave $20,000 to Cuomo’s campaign. Cuomo also received the endorsement of the Business Council of New York State, in large part for his support of a state cap on local property taxes – a move that Green Party gubernatorial candidate Howie Hawkins suggested at the debate could lead to a budget crisis akin to those that have plagued California since it enacted its Proposition 13 property-tax cap in the 1970s.

Paladino’s tax-cut plan has its own pitfalls. A recent study by Michael Mazerov of the D.C.-based Center on Budget and Policy Priorities projected that cutting state business taxes “would produce no net short-term stimulus.” The study said that’s because many states would balance their budgets by offsetting their resulting revenue loss with expense reductions. The government jobs lost from those expense reductions would likely equal those that might be created through the business tax cut. And, concluded Mazerov, cutting business taxes could actually lead to a loss of in-state jobs, as private spending is more likely to be siphoned off to out-of-state stockholders than state expenditures. Mazerov notes that Ohio, the one state to dramatically reduce business taxes in recent years, has since seen its shares of national income, employment, and investment fall relative to the average state.

Ultimately, neither Cuomo nor Paladino call for increased transparency and accountability in the administration of economic development, complains Ryan. Ryan would like to see IDAs list on their websites, in an easy to understand fashion, the projects they’re funding. He notes that the New York City Economic Development Corporation “has a website that’s geared toward letting businesses operating in New York know what subsidies are available. But we don’t really have a complement for the average citizen.”

There’s also the question of whether a new governor would even be able to implement economic development reform, given Albany’s contentious politics. State Assemblymember Sam Hoyt of Buffalo has for years pushed his own IDA reform plan – one that would meet Jobs with Justice’s demand for a living-wage requirement for state-subsidized jobs, among other things – but has seen it falter in the state Senate. Paladino’s tax-cut plan would likewise require the cooperation of the legislature, even if he were to use gubernatorial vetoes, as threatened, to impose spending cuts.

“We’re encouraged that there’s a moment to get this right, and a moment of almost unprecedented need for working New Yorkers,” says Ryan. Yet he worries that restructuring IDAs and Empire Zones will not be enough unless state leaders are willing to further rethink New York’s approach to development subsidies. “The current economic development system is at best a Frankenstein. If we’re going to stitch these programs together, the question remains, is there going to be a brain?”