Evaluating New York State’s economic-development programs

Questions have been raised about the effectiveness and cost of several of New York’s recently adopted economic-development programs, including Start-Up New York and the Excelsior Jobs program. [The Business Council] believes that economic-development incentives are a useful tool, when well-designed and thoughtfully applied.

We would like to share several comments and recommendations on these programs.

The Excelsior program replaced the effective, but expensive Empire Zones program. It is a far more limited program than Empire Zones, with modest credits, tight criteria, annual caps on total credits, and gives Empire State Development broad discretion to determine the level of credits provided to specific applicants — which are almost always below the maximum level authorized by the state legislature. Importantly, the program was designed to achieve significant cost-benefit returns to the state, and to only provide the actual values of incentives once jobs are created and/or investments are made. Our major concern is that the job and investment thresholds for consideration for Excelsior credits make the program inaccessible for most small businesses.

We suggested reductions in job and investment thresholds, especially for manufacturing. These reductions were introduced by Assemblyman Schimminger Assembly bill 10156 (also as Senate bill 7583, by Senator Young.) Unfortunately, while the New York Legislature approved adjustments to several other tax-credit programs in 2016, it did not pass the Excelsior legislation. Meanwhile, the program is leaving economic-development resources on the table. The legislature did allow left-over credits to be issued after the program’s scheduled expiration in 2024, but also reduced its overall credit cap by $150 million — a major disappointment. Given the state’s low growth rates Upstate, the legislature should expand the program’s ability to support small businesses looking to invest and grow, and assure that the full value of the program is effectively deployed each year.

Regarding Start-Up NY, we share concerns raised by others when it was adopted, especially the unlevel playing field it would produce relative to other operating businesses and business parks. We also note that it is a program with the added complexity of involving colleges and universities in economic development in an unprecedented way. This approach resulted in program-deployment challenges that undoubtedly led to its slow start.

On the positive side, we saw this program as providing a mechanism to secure in-state growth of university-based innovators looking for locations to scale-up to production levels — addressing a major concern that we were losing growth potential offered through state-supported university-based research and development. We still believe that should be a major focus of the program. Again, Start-Up NY was designed to produce a substantial cost-benefit return to the state, and to only provide tax benefits once activities have been performed.

However, the lagging economy in upstate New York — where the population has continued to shrink and whose economic recovery is less than half that of downstate — has necessitated more attention in the area of economic development.

One program of real interest is the Global New York Fund, which promotes business development in growing foreign markets. We have found within our membership great interest in global exports and expanding into foreign markets, particularly in the areas of food and beverages. This program shows great promise for small- to mid-size businesses entering the growing craft beer, wine, and distilled-spirits industry — one of the few industry segments in Upstate showing real and substantial growth. But again, this is just a small segment of business and industry.

No matter how well-designed and deployed they are, financial incentives can only be applied to a small fraction of a state’s employer community.

Therefore, the more pressing question in New York, and especially in upstate New York, is what are we doing to improve, or harm, the state’s overall economic climate?

Year after year, various think tanks, policy organizations, and others release their state-by-state, business-climate rankings, and New York consistently ranks at or near the bottom in these assessments. Our state and local taxes are too high, our regulations too onerous, and our policymakers are too beholden to special interests that benefit from the status quo. Despite these conditions, and the near universal acknowledgement by elected officials that our state’s business climate needs to improve, the two signature items passed during this year’s budget were mandates on business that will cost them money, force some to close, and result in jobs leaving the state. I am of course referring to the $15-per-hour minimum wage and the most expansive paid family-leave mandate in the country.

This budget and the 2016 legislative session is also noteworthy for what it did not include; tax relief targeting unincorporated small businesses such as LLCs, sub-S corporations and partnerships, were proposed in the executive budget, and were supported in budget resolutions passed by both houses, but were dropped from the final agreement. While the personal income-tax cuts adopted in the fiscal-year 2017 budget will provide some relief, eventually, for small business, we still support adoption of an increased exclusion of small business and farm income. We urge the Assembly to revisit this issue next session.

Also not addressed in 2016 were a number of other business issues such as workers’-compensation reform, energy-policy reforms, and mandate relief. As we approach the 10-year anniversary of the 2007 workers’-comp reform, we need to address its unintended consequences, which have produced an even more costly program, with employers facing a 9 percent premium cost increase for 2017.

Ironically, as the ill-advised “Section 18-a” energy assessment heads to final phase-out, the Public Service Commission (PSC) [on Aug. 1] adopted the “clean energy standard” that will produce $17.6 billion in added costs by 2030. With this action, it is clear the PSC has failed to properly evaluate the significant costs associated with the Clean Energy Standard. Had the PSC properly understood the cost of this policy, it could have modified the Clean Energy Standard to ensure that electric power was provided at just and reasonable rates for all customers.

Beyond workers’-comp reform and energy, we also must once and for all reform the Scaffold Law to apply the comparative negligence standard that exists in virtually every other case of tort action. We also need to expedite approvals for clean, inexpensive natural-gas development to meet growing energy needs as we transition to increased usage of renewables, reform the SEQRA environmental-review process, provide significant and lasting mandate relief for our local and county governments, embrace ride-sharing and other new economy businesses in a manner that fosters their growth while providing necessary protections, invest in education and workforce development, and enact the litany of additional reform measures we have been calling on for years.

Fortunately, we need not look too far in the past to find examples of the state passing smart, pro-growth legislation that reduces costs for all New Yorkers. Recent years have seen some important broad-based improvements, including the real property tax cap, corporate-tax reform, a cap on state spending growth, estate-tax reform, and others. But more needs to be done.

We have a unique opportunity to shape the future of New York state, and we should make sure we take advantage of that opportunity. We welcome an open dialogue and encourage the Assembly, Senate, and the [governor’s] administration to engage in an informed, rational discussion of what can and needs to be done to promote private-sector investment and job creation in all regions of New York.

John T. (Johnny) Evers, Ph.D., is director of government affairs at the Business Council of New York State, Inc., which says it is the state’s largest statewide employer advocacy association, representing 2,400 businesses. This opinion article is drawn and edited from Evers’ Aug. 3 testimony to the New York Assembly Standing Committee On Economic Development, Job Creation, Commerce and Industry.