In the prevailing political climate of soaring budget deficits and spending-cut pressures, economic development officials are watching the progress in Albany this spring of reform legislation that one said would be “the death knell” for industrial development agencies in New York.
Democratic sponsors of bills pending in the state Assembly and Senate said the proposed changes would make the state”™s 115 IDAs more accountable, efficient and transparent in their operations with the goal of creating jobs “that move people firmly into the middle class or better,” as Assemblyman Sam Hoyt, the Assembly bill”™s sponsor, said at a recent hearing in the Capitol.
State Comptroller Thomas P. DiNapoli, in his recent annual performance report on the state”™s industrial development agencies, said an estimated 226,602 jobs were gained in 2007 from 4,130 IDA-assisted projects statewide. The state”™s job gain was down 1 percent from 2006.
Total spending for IDA-backed projects in 2007 amounted to approximately $60.7 billion, a 48 percent spending increase from 2006. Net tax exemptions from IDAs for project developers rose 30 percent in 2007, to approximately $593 million.
The average cost to IDAs for one job created was $4,527, the comptroller reported. That cost was up nearly 9 percent from 2006.
“By any measure, that is a remarkably low level of investment for job creation,” said Brian T. McMahon, executive director of the New York State Development Council, a 900-member lobbying and marketing organization for IDAs and other public and private business development entities.
Critics of the incentive program for businesses disagree. At an Assembly hearing this month on the proposed IDA reform measures, Assemblyman Richard L. Brodsky, the Westchester County Democrat, called the performance of IDAs “a statewide scandal.”
“If this was a program for poor people, it would have been shut down years ago. We need to stop this and save the taxpayer literally billions of dollars,” said Brodsky, a co-sponsor of the Hoyt bill. The hearing of the Assembly standing committee on local governments at which he spoke brought more than 200 advocates of IDA reform to Albany.
“More than ever before we need IDAs that have measurable results and absolute transparency and we need IDAs that achieve the goal of creating good jobs in a tough economy,” said Hoyt.
Yet opponents of the proposed legislation said it would have the opposite effect by deterring businesses from investing in New York and would further cripple the state”™s ability to compete for businesses with neighboring states. They said some measures in the bill only duplicate already implemented IDA reforms included in the state Public Authorities Accountability Act of 2005 or ordered by the Comptroller”™s Office.
McMahon said the legislation”™s wage mandates are especially “onerous.” Contractors on IDA-assisted construction and renovation projects would be required to pay the region”™s prevailing wage. Companies receiving financial assistance from IDAs would be required to pay all employees no less than the median wage for all occupations for a period extending five years after financial assistance has ended.
McMahon said the state median wage for all occupations is $36,000. “For a YMCA or a group home for the mentally disabled, to have to meet that requirement would be difficult,” he said.
McMahon said the prevailing-wage mandate would add about 28 percent to the cost of IDA construction projects upstate, where more non-union workers are employed.
IDA financial incentives for private developers typically amount to 10 percent to 20 percent of a project”™s cost, depending on the business type and size, he said. If the wage mandates are imposed, an employer who does the math will conclude “that I might be better off doing business in Pennsylvania or Connecticut,” he said.
The new law also establishes an IDA complaint process that could allow a project opponent to halt or delay a project while the state Department of Economic Development examines the complaint. “That provision alone could kill, many, many good worthwhile projects,” McMahon said. “There”™s no comparable requirement anyplace else in law and this would simply be a punitive measure against the IDAs.”
With the complaint process and proposed reporting requirements for IDAs and businesses, “It”™s really a matter of slowing down the process in some cases and also making it more costly for businesses,” said Ellen Lynch, executive director of the Yonkers Industrial Development Agency. “It starts to really negate the benefits” of IDA assistance. “The financial benefits are kind of like not worth the trouble” for companies.
Lynch said the state IDAs were created as public benefit corporations separate from municipal government “because they wanted the agencies to be more nimble and be more responsive and be more able to meet the needs of the businesses” coming into areas needing jobs and investment. “I think generally the more and more you try to make IDA be like government and the more you try to bring it in under government, the less effective it”™s going to be.”
“The legislation would be the death knell for the IDAs,” said McMahon, and would make them “useless as economic tools.”
Theresa G. Waivada, executive director of the Westchester County Industrial Development Agency, urged lawmakers at the Albany hearing this month to consider how their legislation “can become a stimulus tool for economic resurgence rather than a deterrent to local and county governments trying to inch our way out of a recession that has not yet hit bottom.” Among other criticism of the Hoyt bill, Waivada said its measures would “bog down active IDAs with unnecessary, costly and duplicative procedures requiring hiring of additional staff” and would “wear down volunteer board members to the point of resignations.”
Waivada and other economic development officials want legislators to restore IDAs”™ tax-exempt bonding authority for nonprofit projects, which expired last year. Another pending bill in Albany would do that.
Since that bonding authority expired, more than $2.3 billion of nonprofit construction and expansion projects have been stalled by the state”™s inaction, according to McMahon.
He noted the federal stimulus program significantly expands the use of tax-exempt bonds that IDAs can issue for projects. But most of the additional federal authority will end after 2010. “As a result, the longer New York fails to act to extend this authority for IDAs, the less we will benefit from the changes included in the stimulus program,” he said.
“It seems irresponsible to us that they would allow the nonprofit law to continue to expire,” he said last week.
Despite the recent strong show of opposition to the state”™s current IDA program, McMahon said he does not sense an increasingly hostile climate in Albany for IDAs. “I think that legislators in this environment, when we”™re in a deep, deep recession, we”™re hopeful that they”™re beginning to understand the role of IDAs and local development efforts,” he said.
