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Who, What, Where, When?: Tracking the City’s Discretionary Economic Development Deals

Who, What, Where, When?: Tracking the City’s Discretionary Economic Development Deals

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Published by: Bill de Blasio on Nov 03, 2011
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Fiscal Brief 
New York City Independent Budget Office 
Clickherefor more information on the law requiring economic development reporting @www.ibo.nyc.ny.us
November 2011
Who, What, Where, When?:
 Tracking the City’s DiscretionaryEconomic Development Deals
New York City
Independent Budget OfceRonnie Lowenstein, Director110 William St., 14th oor
New York, NY 10038Tel. (212) 442-0632Fax (212) 442-0350
Since scal year 1994, the city’s Economic Development Corporation has been required to issueannual reports on the discretionary economic incentive deals it (and its related entities) make withbusinesses and nonprot organizations to stay in, expand in, or relocate operations to New YorkCity. At the request of Public Advocate Bill de Blasio, IBO has used the 17 reports published throughJanuary 2011 to create a database that allows us to look at the distribution of deals involving bondnancing and other discretionary benets across industries, boroughs, and Mayoral administrations.We found that the number and ination-adjusted dollar value of all projects started each year has generallybeen greater over the past decade than during the 1990s, although both the number and size of new projectsdeclined sharply after 2007. For both measures, 2000 was the peak year. IBO’s other ndings include:Over half of the 1,098 projects are located in Brooklyn and Queens, and over a quarter are inManhattan. Manufacturing accounts for a quarter of the projects—the most for any industry—andprojects for education, health, and social service organizations comprise 24 percent.The dollar value of projects involving construction, manufacturing, and wholesale trade companiesare on average the smallest, while information and nancial services projects are by far the largest.Projects benetting businesses found primarily in Manhattan in the nance, information, professionalservices, and company management sectors account for over half the value of all projects in allboroughs. Moreover, new projects in Manhattan account for at least half (and frequently far more) of  the value of all projects begun in 11 out of the 23 scal years covered in the reports.The number of projects initiated each year and their aggregate value generally rose over time, with eachpeaking in 2000. Beginning in 1999, a change in the law that allowed the city to provide tax-exemptnancing for not-for-prots led to an increase in the share of projects benetting education, health, andsocial service organizations. The authority to undertake these projects ended in January 2008.Projects beneting nancial service and information rms accounted for the majority of the valueof new projects in the Koch, Dinkins, and Giuliani Administrations, but under Mayor Bloomberg sports and recreation—in other words, stadiums—have been the leading beneciaries.The Economic Development Corporation reports enable us to develop important comparativeinformation. But even with signicant improvements in methodology in recent years, the reports donot provide all the data necessary to evaluate the city’s job-creation and job-retention efforts in termsof cost per job or to determine the types of projects that create or retain the most employment.
The Economic Development Corporation (EDC) is anot-for-prot corporation under contract with New YorkCity to provide a variety of economic developmentservices including the granting of a various discretionarypublic-sector benets to businesses and not-for-protorganizations in exchange for staying in, expanding in,or relocating to New York City. These benets include tax-exempt bond nancing, land sales and leases of cityproperty, exemptions from mortgage recording and/or
sales taxes, and payments in lieu of real property taxes
(PILOTs), with the payment usually discounted from what the property tax would have been. EDC also staffs the New York City Industrial Development Agency (IDA) and theNew York City Capital Resource Corporation (CRC), serving as a conduit for discretionary benets that each entity isauthorized to provide.
Although discretionary incentivesgranted by EDC have an impact on the city’s budget andEDC testies at City Council budget hearings, EDC is nota city government agency, and its budget is not subject toCouncil approval.
With the goal of enabling the City Council and others toevaluate projects’ scal impact and their effectivenessin creating and retaining jobs and stimulating economicactivity, Local Law 69 (LL69) was enacted early in scalyear 1994. The law required EDC to submit to the Councila report for each scal year detailing specic discretionaryretention and job-creation deals. Each year’s report is simply titled “The Local Law 69 Report.”
The deals contained in the reports include projects undertaken by EDC on behalf of IDA or CRC. (In this brief, we refer to the deals included in the reports as “EDC projects” or simply “projects.”) The rstvolume produced by EDC pursuant to Local Law 69 was forscal year 1994, covering projects begun in that year plusothers initiated in the prior seven years.Local Law 69 required EDC to report on all projects involving discretionary benets where the total loan, grant, or taxbenets exceed $250,000, or where the sale and leaseof land preserves or creates 25 or more jobs, for sevenyears after assistance begins. The law also specied thedata for each project to be presented in each year’s report,including: the name, location, and industry of the companyor not-for-prot organization receiving benets; the projectednumber of jobs to be created or retained by the project and the actual level of employment during the year; the types of assistance being provided; the cost to the city of providing assistance during the year and since the start of the project; the cumulative and year’s scal benet to the city fromeconomic activity and tax revenue generated by the project;and the projected scal cost and benet of the project for the remainder of the seven-year period.The wealth of data presented in the Local Law 69 reports,unfortunately, did not allow researchers to estimate the scal cost to the city of retaining or creating jobs, todetermine which projects have been most successful, or todiscern changes over time in the effectiveness of projectsundertaken. The number of projects included in thereports and the length of time for which project informationwas provided were too limited. Data on the number of jobscreated or retained by projects were largely incomplete,improperly estimated, or inconsistently reported. Moreover, the reports systematically underestimate the costs to thecity of EDC projects and overestimate their scal benets.Also, because multiyear totals of costs and benets(whether past or projected future benets) were not inpresent-value terms, meaningful comparison of projects
was impossible. In a 2001
, IBO published its
analysis of Local Law 69’s implementation, commenting on the limited distribution of the Local Law 69 reports anddetailing the shortcomings of the methodology and data.In response to the criticisms of IBO and others, in 2005 the City Council enacted Local Law 48 (LL48), superseding Local Law 69. The new law required EDC to expand thescope and distribution of the reports, to revise some of  the methods used to estimate projects’ scal costs andbenets, and to report estimated costs and benets inpresent-value terms. Although Local Law 48 has improved
 the distribution of the reports and made the estimatespresented in them more useful in general, many of the
problems of inconsistent and incomplete data remain
unaddressed. And it remains impossible to make use of 
 the data obtained from all of the EDC reports together toevaluate the efcacy of the incentive projects in creating  jobs or the projects’ scal impact. (Click
herefor more
details on Local Laws 69 and 48.)Two important features of the assistance projects,however, can be tracked over time using the reports: the location of projects and the industries of the rmsreceiving benets. With Mayor Bloomberg and communitygroups calling for “ve-borough” economic developmentin the city, it is useful to know where projects receiving discretionary economic benets are located, andwhether there has been any marked change over timein the distribution of projects by borough. Because the
borough information in most all cases is consistent forprojects across different report volumes, it is reliable fordetermining project location.Tracking the distribution of discretionary economicincentives by industry over time is also useful in informing  the policy debate. Some observers are concerned that the city’s tax base has become too reliant on the nancialactivities industry and thus too vulnerable to the industry’sinherent volatility. Others believe that fostering industrialdiversity in the city’s economy—particularly manufacturing activity—should be a public policy aim in order to create jobs with the potential to propel less-educated residentsinto stable middle-income employment. Although theindustry classication of some companies and not-for-protorganizations benetting from EDC projects sometimesvaries across different volumes, IBO has developed amethod for dealing with the inconsistencies.At the request of Public Advocate Bill de Blasio IBO hascompiled data on all the deals listed in all the Local Law 69and Local Law 48 reports produced through scal year 2010 to determine the distribution of EDC discretionary incentiveprojects by borough and industry, and to examine whetherand how the projects’ location and industry have changedover time. The data and how it has been used are describedin the next section. (Note: In this brief we refer to the entireset of reports produced under Local Laws 69 and 48 as “theLL69/48 reports” or simply “the EDC reports.”)
Project Distribution by Boroughand Industry: A Simple Count
No single borough is the predominant location of  the projects reported in the LL69/48 volumes, andamong all industries, the largest number of projectsare in manufacturing, a shrinking sector of the city’seconomy. The borough with the most projects over the1994 through 2010 period is Brooklyn—340 projects,accounting for 31.0 percent of the total. Manhattan andQueens have 25.7 and 26.6 percent of the projects,respectively, while the Bronx and Staten Island have 14.1percent and 2.6 percent, respectively. (For the smallnumber of projects having locations in more than one
Data and Methodology
Using the data the LL69/48 reports issued for scalyears 1994 through 2010, IBO constructed a data setof EDC projects, where a project is dened as providing one or more benets given to a business as incentives toretain or create a specic number of jobs at one or morelocations. For each project we have included: the starting date of the project, dened as the date on which EDCentered into agreement with the beneciary; the boroughlocation; the industry of the beneciary; and the amount of investment in the project by the beneciary which we use asa proxy measure of project size. (The project size measure isdescribed in the section entitled “Projects by Borough andIndustry: Based on Project Size.”) EDC provides informationon most projects in more than one LL69/48 report, andwe consolidated the data across reports; where there wereinconsistencies across reports, generally data from laterreports were used. We lled in missing information on thelocation and industry of projects using information obtainedfrom EDC’s staff, EDC press releases, or Web sites of specic companies or trade associations.Creating the data set also entailed consolidating someprojects separately presented in the EDC reports andexcluding some others. Together, the 17 reports to datecontain roughly 1,600 different projects, benetting 1,200 different businesses or nonprot entities. Butsome of what have been listed as separate projects byEDC (typically, a series of tax-exempt bond issues) are,in fact, components of a package of benets designed to retain or create a specic number of jobs at a specicsite. Whenever possible, IBO consolidated the data,reducing the number of projects by several hundred.Also, because there was an abnormally large number of projects reported only in the 1994 volume, and becausemany of these lacked key information, we excluded these projects. As a result of these consolidations andexclusions, 1,098 projects benetting 978 companiesand nonprots were included in the data set.The classication of projects into specic industry groupsis based largely on the Standard Industrial ClassicationSystem and—since 2005—the North American IndustrialClassication System codes for beneciaries found in the LL69/48 reports.
Projects where the beneciarieslisted are site developers (usually a construction orreal estate rm) have been reassigned to the industryof the business or businesses ultimately occupying  the site. Where this information was not available, sitedevelopers are listed in the real estate category, with the construction category reserved for constructioncompanies permanently occupying the project site.

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