The New York Sun

March 16, 2004 Tuesday

HEADLINE: The Great Giveaway

BYLINE: ERROL LOUIS

It's budget season, and the great giveaway of 2004 is in full swing. As civic watchdogs and the state's top fiscal officer have warned, corporations are lining up at the public trough, seeking to feed until they want no more. Few public voices have been raised in protest.

At the same time that ordinary New Yorkers are preparing to pay some of the steepest tax bills in the country next month, huge corporations are busy persuading state and local government agencies to hand over hundreds of millions in all sorts of tax breaks. There's little accountability or uniformity to the system of corporate welfare, so it's impossible to say with any certainty how much is being dished out, or to which companies.

The theory behind many of the tax-break programs is that the corporations receiving exemption will create new jobs or keep old ones in the city. But Good Jobs New York, a civic group that monitors corporate subsidies, recently published a disturbing report on the tax-break deals struck by New York City officials over the last decade, often in exchange for promises of job creation and retention.

According to the report, available at www.goodjobsny.org, individual deals valued at $7 million to more than $200 million were struck, lasting an average of more than 20 years. Despite the promises of job retention, the companies receiving the breaks ended up cumulatively cutting 3,000 jobs.

A recent report by State Comptroller Alan Hevesi found a comparable degree of giveaways in the state's Empire Zone program, which gives tax breaks to companies. Nearly half the companies that took part in the program created fewer jobs than promised and nearly a quarter lost jobs.

In many cases, according to Mr. Hevesi, poor government bookkeeping allowed many firms to violate their job-creation agreements with impunity, receiving tax breaks even though they cut their work force instead of building it up. Thus did state and local economic development agencies around the state commit a perfect waste of public resources, providing valuable incentives in exchange for outcomes that never materialized.

Imagine the uproar that would ensue if it came to light that a group of city and state workers had spent $10 million of taxpayer money on nonexistent goods and services. Government employees who proved to be so wasteful would be considered incompetent or perhaps criminally corrupt. They'd be investigated and disciplined - probably fired or perhaps even arrested. At a minimum, they'd be removed from having any control of the public treasury.

But every year, city and state officials arrange for the dishing out of hundreds of millions in public benefits to various corporations - followed by little or no uniform monitoring of precisely what the public is getting in exchange. And the deals, once struck, can run for decades beyond the tenure of the officials who originally negotiated them.

In November 1997, for example, the city struck a deal authorizing more than $27 million in grants and tax breaks for Merrill Lynch over a 15-year period. In exchange, the company was supposed to keep 9,000 jobs in New York City.

But at the time the deal was struck, the company had 9,693 employees in the city. It thus instantly qualified for $1.45 million in sales tax exemptions for "job growth." If the bureaucrats negotiating for the city had insisted on using the company's true staff level as its baseline, the public would have saved well over $1 million.

Merrill Lynch also serves as a reminder that tax breaks and other development benefits should be conditioned on good corporate citizenship. A few years after inking its deal with the city, Merrill Lynch agreed to a $100 million settlement with state Attorney General Eliot Spitzer for allowing undisclosed conflicts of interest between the firm's research and investment divisions.

Just as the city's rules forbid agencies from doing business with companies that are proven to be tax scofflaws or linked to organized crime, the city and state should reduce or terminate tax exemptions and other benefits to firms that break the law. Yesterday, for instance, Mr. Spitzer announced a record $675 million settlement with the Bank of America for violations related to its mutual funds division; the deal included the removal of the directors of the mutual funds division.

But Bank of America is still in line to receive $42 million in public subsidy from the Industrial Development Agency in connection with its plan to build a new office tower near Bryant Park, and the bank is pushing for hundreds of millions more in city and state benefits. Mr. Spitzer and other officials should let corporations know that the punishment for malfeasance will include cancellation of public subsidies and benefits.

Above all, the city and state need to craft a uniform, easy-to-understand system of reporting the value and terms of subsidy deals, especially deals promising the creation or retention of jobs. The city's current ordinance, Local Law 69, doesn't require disclosure of the terms of individual subsidy deals and doesn't require close tracking of whether companies promising job creation are actually keeping their promises.

As a result, wasteful and broken deals can go on indefinitely, with the public only discovering a problem when civic groups or the occasional politician decides to issue a report, often years after the damage has been done. That's not good enough.

"Revamping Local Law 69 seems to be the most efficient way to improve transparency," Bettina Damiani of Good Jobs New York said yesterday. "We want the City Council and the general public to realize there are times they're being deceived."