Contact: Bettina Damiani, Good Jobs New York, 212.414.9394 x 1 or cell 347.432.0315 or
Stephanie Greenwood, Good Jobs New York, 212.414.9394 x 2 or cell 973.951.9243
As City Proposes Tax Breaks for Bank of America, New Report Shows Taxpayers Have Been Shortchanged on Big Corporate Retention Deals
New York, NY (February 5, 2004) – A report released today by Good Jobs New York, “Know When to Fold `Em: Time to Walk Away From NYC’s Corporate Retention Game” (available at www.goodjobsny.org) proves that New York City’s corporate retention policy has failed to retain or create jobs despite its multimillion dollar price tag. In spite of this, the city is considering $42 million in tax breaks for Bank of America, and is holding a public hearing today on the proposed subsidy at the New York City Industrial Development Agency (IDA) 10:00 am at 110 William Street in Manhattan.
Analyzing dozens of agreements between the IDA, (a public authority) and corporate subsidy recipients -- obtained through the Freedom of Information Law and never before made public -- Good Jobs New York compiled thirteen of the most egregious deals and found that the city agreements actually allow firms to lay off up to 20 percent of employees before triggering any real penalties.
“Our report finally sheds light on a process that allows some of the world’s wealthiest corporations to take money from taxpayers and then pay back residents and employees with layoffs,” said Bettina Damiani, Project Director of Good Jobs New York. “The secretive process by which corporate retention deals were negotiated allowed New York City taxpayers to be misled about the benefits of these deals.”
Bank of America is highlighted in the report because it received tax breaks to retain 1,700 workers at the World Trade Center in 1993. In 1998, the city canceled future benefits for BoA because the firm only had 800 employees, but did not require the Bank to pay a penalty despite the $1.7 million in benefits the company received. Details of this were never made public until Good Jobs New York released them last fall while preparing this study. At the time, BoA was applying for tax-exempt Liberty Bond financing for its new office tower at 1 Bryant Park.
The report is a revealing snapshot of tax giveaways that ballooned during the 1990s when large companies like Merrill Lynch, CBS and Bank of America threatened to leave New York City even in the midst of a Wall Street boom and flourishing media industry. Many of the threats to flee were questionable, while others were laughable. Despite this, firms were given large tax breaks and other subsidies to keep operations in New York City. Yet, the precise terms and costs of the deals were never made available to the public.
Highlights include:
Ø All the agreements GJNY examined had “employment cushions” allowing companies to lay off workers - many up to 20 percent - without having the subsidy cancelled.
Ø Many agreements contain job retention targets lower than the number of jobs companies actually had at the time they signed their deals. (For example, although Merrill Lynch had 9,693 workers, it signed an agreement to keep only 9,000.) This “low-balling” allows companies to fire or transfer workers without incurring penalties.
Ø Only one subsidized company that GJNY studied, Dillon Read, paid the city back ($219,000) when it moved its operations out of New York City.
Ø Public reporting on the outcomes of these deals – as mandated by the City Council (Local Law 69) provides data that is inconsistent with internal IDA reporting documents. The annual report, prepared by outside contractors, contains partial, often inaccurate information, making it impossible for the City Council to evaluate the success or failure of individual deals.
Has the Bloomberg Administration Changed the Course of Corporate Retention Deals? Not Really.
The report also notes that the current Mayoral administration and leadership at the New York City IDA (the agency responsible for negotiating and allocating subsidies to businesses) have made improvements in public access to information in the last year. Reforms include posting public hearing notices on the IDA’s web site; permitting access to information about proposed deals prior to the public hearing; and changing the dates of public hearings to allow decision makers time to review public comments prior to voting.
Yet, despite the recent changes in transparency and Mayor Bloomberg’s comments last year that his administration had “essentially ended corporate welfare as we know it,” it is unclear how the proposed Bank of America deal and other deals differs from those awarded in the 1990s. For example, the Bloomberg Administration has approved a $24 million deal for Hearst Corporation and $47.5 million for Pfizer Pharmaceuticals, but details regarding job retention and language on possible clawbacks, (money back guarantees) have not been made public.
“The Bloomberg administration has been willing to distance itself from past subsidy deals, but so far refuses to make the terms of its own corporate retention deals public,” says Stephanie Greenwood, GJNY’s Research Analyst.
In addition, the costly, attract-the-big-fish approach to economic development persists in the administration’s plans for Lower Manhattan and the Far West Side. Massive economic development projects that give tax breaks to corporations and developers under the guise of creating jobs must be re-examined, the report states. Suggestions on how the city can do a better job of ensuring taxpayers get the best bang for the buck include:
Ø Including “clawbacks” also known as money back guarantees, in all subsidy agreements. Officials must ensure that strong clawback provisions require companies that fail to live up to their commitments to return any subsidy received and pay appropriate penalties;
Ø Requiring beneficiaries of subsidies and their subcontractors to provide full time jobs with family sustaining wages and adequate benefits. Anything less is a double whammy on the city’s already stretched social services such as healthcare and housing;
Ø Encouraging projects to benefit the New York City economy by providing jobs for city residents. Construction projects should include job training opportunities and encourage buying and producing materials locally;
Ø Improving transparency in the process of negotiating subsidy deals. Additionally, information on job levels gathered while monitoring deal outcomes should be made available on the web.
Additional information and copies of the report are available at www.goodjobsny.org
GJNY is a joint project of the Fiscal Policy Institute (FPI) and Good Jobs First. FPI (www.fiscalpolicy.org) is a nonpartisan research and education organization that focuses on the broad range of tax, budget, economic and related public policy issues that affect the quality of life and the economic well-being of New York State residents. Good Jobs First (www.goodjobsfirst.org) based in Washington, DC is a national leader in providing timely, accurate information to the public, the media, public officials and economic development professionals on best practices in state and local job subsidies.
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