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Economic Subsidy Recipients Who Fail on Job Promises to be Held Accountable in NY
Nathan Newman on August 2, 2007 - 8:20am
State creates economic development program to encourage business investment in the state. State hands out billions in economic subsidies. State finds out many companies have taken the cash and failed to deliver on promised jobs.
This precise scenario is all too common in so many economic subsidy programs across the country.
But this week, New York took action to hold as many as 3000 companies accountable for the job creation promises they made through their "Empire Zone" program. The Empire State Development Corporation, which oversees the program, sent out letters to companies that had met less than 60% of their job creation goals saying that they may lose the tax breaks they received under the program. Companies sent letters include Wal-Mart, Lowe's and a range of other businesses across the state. These companies received over $3 billion in tax breaks since 2000, which shows both how badly the program had drifted and the seriousness of the new Spitzer administration in taking on the problem.
This action came two weeks after a report by consulting firm A.T. Kearney found that a program meant to help revitalize pockets of poverty had allowed new tax-subsidized zones to proliferate with little accountability based on "political patronage" and "commercial manipulation." A coalition in New York led by Jobs with Justice has been campaigning more generally to revise economic subsidies in the state, so this new drive by the Governor for accountability in development funds is welcome.
New York is hardly alone with this problem and there are good legislative solutions, with over twenty states enacting various forms of "clawback" provisions to make companies payback development funds when they fail to deliver on job promises. Notably, after studies showed that Minnesota was handing out high levels of subsidies with poor returns, that state enacted what many consider model legislation to enforce accountability standards on companies receiving public funds-- and require them to give the money back if they fail to deliver on promised quality jobs for their communities.
Hopefully, New York can learn from Minnesota's experience and create new rules to assure that economic subsidies actually build the state's economy, not just reward politically agile corporate lobbyists.