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Right questions, wrong decisions on subsidies for big firms in NYC

August 5, 2010

Deloitte has an office in the city's municipal building on the same floor as the City Comptroller

At the New York City Industrial Development Agency’s public hearing last week, two proposals generated notable controversy: one to bestow millions in tax breaks on Big Four accounting firm Deloitte LLP, and another to revive a subsidy agreement from 1998, still worth millions in unused credits, for information services giant Thomson Reuters. This past Tuesday, the IDA board approved both projects, but not before a handful of board members engaged in a robust dialogue with IDA staffers, especially on the Thomson Reuters proposal.

The Deloitte proposal could have benefited from an even more vigorous discussion. For one thing, it smells like the same old game in which companies pit states and regions against each other in bidding wars for investment. As an IDA staffer explained, the agency “took seriously” a “threat” that Deloitte would leave the city for “other opportunities,” namely New Jersey. (Deloitte LLP plans to use the subsidy to help pay for moving its headquarters from one highly prized Manhattan office location—midtown—to another—Lower Manhattan.) And yet IDA staff also reassured the board that the proposal wasn’t about retention, but about growth. As EDC President Seth Pinsky stated, Deloitte will get no benefits until it increases its employment numbers within NYC. (more…)

NYC Considers Big Subsidy Packages for Thriving Firms While Cutting Vital Services for Poorest Residents

July 16, 2010

Later this month, the New York City Industrial Development Agency will consider lucrative subsidy packages for two of the world’s largest corporations: “big four” accounting firm Deloitte, LLP, and Thomson Reuters, a multimedia news and information provider. Meanwhile, despite recent reports of an improving unemployment rate, 385,000 New Yorkers are still jobless—twice as many as there were two years ago—and in the name of budget crisis, the city is slashing critical services for its poorest residents, from seniors and children to those with HIV/AIDS.

Why are these profitable firms up for tax breaks when everyone else is forced to sacrifice and there’s no guarantee these subsidies will create jobs for those who need them most?

Even in good times, there would be ample reason to question the wisdom of these deals. Let’s begin with Deloitte: The firm wants taxpayers to finance what amounts to a reshuffling of space in Lower Manhattan—a move from 2 World Financial Center, where it currently subleases space from Merrill Lynch, to 4 World Financial Center. (Bank of America acquired Merrill in 2008, and both firms have received hefty subsidies from the city and state.) Deloitte has allegedly been considering leaving the Financial Center in favor of other locations within the city. The company already received a $14 million cash grant under a program the state created to retain large businesses in Lower Manhattan after 9/11, not to mention millions in BEIP subsidies in 2008 from neighboring New Jersey. It is also likely that Deloitte received—or will receive as a result of its impending move—generous benefits from the Lower Manhattan Relocation and Employment Assistance Program, though the city withholds the names of participating businesses under a “tax secrecy” provision.

It’s also worth noting that Deloitte benefits from contracts worth tens of millions of dollars with New York City and state (not an unusual arrangement), and even has an office on the 6th floor of the city’s Municipal Building. The issue of double dipping aside, the potential for corruption should be of concern. Last fall, Pennsylvania’s Auditor General found that Deloitte was being awarded subsidies from the very entities it was auditing. While there’s no evidence that this is the case in NYC, Deloitte’s business practices in other contexts should be taken into account.

IDA is also considering a proposal to allow media giant Thomson Reuters to steer unused subsidies from a 1998 agreement toward seven new locations in Manhattan. This might not sound so bad, except that the only information the public has to evaluate this proposal, an IDA Annual Report from 2005, shows that Reuters failed to meet job targets. It also shows that the company only used $2.4 million out of $26 million in subsidies. The public deserves the latest data on the true value of the remaining subsidy, Reuters’ employment record in the city since 2005, and the impact of its 2009 merger with Thomson Media on its job figures. IDA will release project details a week prior to the July 29th public hearing, but whether these and other critical questions will be answered remains to be seen.

Adding to the issues with the Thomson Reuters deal, the Newspaper Guild of New York has filed a complaint with the National Labor Relations Board charging that the company plans to cut wages of reporters and other employees by an average of 10 percent this year without the union’s consent. Reuters denies this claim, but at the very least no subsidies should be considered until this dispute is resolved.

Both the Deloitte and Thomson Reuters deals are rife with transparency and accountability issues—not to mention Deloitte’s deep connection to the Wall Street crowd that got us into the economic crisis in the first place. This would be unacceptable even in good times. But with our most vulnerable residents set to suffer even more as the city and state retrench, New Yorkers should be especially outraged.

Led by Community Groups, Newly Elected Officials Put Accountable Development in NYC on Front Burner

February 22, 2010

The rotten political culture in New York has forced ordinary New Yorkers to become increasingly savvy at making their voices heard, particularly when it comes to big development projects. And it’s making a difference. Advocates in the Northwest Bronx, for example, led by the Kingsbridge Armory Redevelopment Alliance (KARA), spent years organizing for a plan for the Armory that would bring good, permanent jobs to neighborhood residents. In a dramatic climax at the end of 2009 to their dogged efforts, they managed to defeat a proposal that fell short of these basic standards.

Blocking the city’s determination to take the low road represents remarkable progress, but what New York desperately needs is development policies that guarantee concrete benefits for local residents. Could a brand new crop of elected officials who are talking tough on accountable development provide a critical moment for advocates to finally accomplish just that?

Early signs are promising. Take the city’s new Comptroller John Liu, who spiced up February’s board meeting of the New York City Industrial Development Agency by voting ‘no’ on tax breaks for several projects, including a Western Beef grocery store proposed for the Bronx that, according to its application for benefits, would pay employees an average wage of about $19,000 a year with no benefits. Stating his concern that the current system lacks “clear processes and standards for project development and approval,” Liu pledged to “examine how scarce public resources are used to advance our City’s economic development.”

The proposed Western Beef would fulfill an urgent need for grocery retailers in this part of New York City, but Liu’s call to examine IDA’s way of doing things more closely could lead to more analysis of the consequences of subsidizing companies that pay poverty wages in order to address other legitimate problems such as food deserts.

Just over a week after his debut at the board meeting, Liu was at it again, suggesting in a bold op-ed in the Daily News that New York is behind other cities like Los Angeles and Milwaukee in embracing equitable economic development policies, a point neighborhood advocates have also fought hard to convey. He called for city developers to stop “stifling” neighborhood voices, and for remarkably high standards of transparency, accountability, and inclusiveness in Community Benefits Agreements, a promising tool that has thus far proven little more than a sham in New York City.

Other public officials appear to be hopping on the accountable development train, too. In another recent Daily News op-ed, the city’s newly-elected Public Advocate Bill de Blasio toughly proposed a citywide code of conduct for businesses that receive public subsidies, and called for requiring firms to pay a prevailing wage, and to stay neutral when workers try to form a union. These are all positive signs that some of the city’s newly elected officials may have gotten the message that voters have long been pushing. Now is a critical time for advocates to stay on alert and keep these officials on the right track.

Not to deny the handful of veteran public officials who have been pressing for policy reform, like Manhattan Borough President Scott Stringer, who has been advocating for stronger accountability at the New York City Industrial Development Agency for some time now. Stringer’s appointee to the IDA board, Kevin Doyle, stands out as one of the few board members willing to ask challenging questions about IDA’s decision-making processes.

In addition to ensuring that large development projects are a boon to local residents, creating more equitable development policies will also help exorcise the larger culture of corruption that bedevils the city and state. This was most recently played out in the indictment of Bronx City Councilman Larry B. Seabrook on charges that he stole cash from the city through a series of money laundering schemes, including one connected with the new Yankee Stadium. It’s all too easy to view such scandals as the bad behavior of stray individuals, and stop there. But by condoning a process that excludes community input and encourages wheeling and dealing behind closed doors over transparent, democratic means, our current approach to development reinforces the very culture that incubates such tainted public officials.

Ordinary New Yorkers are clearly prepared to keep fighting for a different way. Hopefully Liu and de Blasio will do them justice by continuing to show real leadership on these issues, creating momentum for other elected officials to fall in line.



NYC Approves Recovery Zone Bonds for Project that Won’t Aid Recovery

December 16, 2009

The New York City Capital Resource Corporation (CRC) is blurring job numbers on stimulus bond projects again. On December 15, 2009 the CRC’s board voted to issue $19.8 million in tax-free Recovery Zone bonds on behalf of Arthur Management Corp. to finance the construction of a parking facility in the Bronx. The facility will serve St. Barnabas Hospital, which created Arthur Management in order to be eligible for the financing.

CRC staff insisted the new facility will create six permanent jobs. What they didn’t mention was that 28 jobs will be displaced when the old facility is torn down because the new one will rely heavily on automation, allegedly saving the hospital $500,000 a year. Good Jobs New York staff and organizers from the Committee of Interns and Residents (CIR) who testified against the deal questioned the logic of using stimulus bonds intended to “contribute economically to the neighborhoods in which projects are located,” as the city’s own criteria state, for a project that could result in a net loss of 22 jobs.

Even the argument that saving a hospital some money aids recovery doesn’t hold up in light of the millions in bonuses St. Barnabas, despite being in financial straits, recently gave to its top executives. The hospital has also spent hundreds of thousands of dollars–and plans to spend more–attempting to overturn a 1999 National Labor Relations Board decision that cleared the way for resident physicians to legally unionize. In the meantime, the NLRB was obligated to impound secret ballots generated when staff voted earlier this year on whether to unionize, an indication that St. Barnabas’s relationships with unions and its employees is less than the standard New Yorkers should expect from companies seeking public subsidies.

Runaround on Job Numbers for Stimulus-Financed City Point Project

September 18, 2009

Is the New York City Economic Development Corporation (EDC) cooking up different sets of job numbers for the City Point project depending on its audience?

Conflicting figures in hearings, meetings, official documents, and the press over the past week are cause for some raised eyebrows at the very least.

City Point is a large mixed-use project planned for Downtown Brooklyn that was just approved for $20 million in tax-free financing in the form of Recovery Zone Facility Bonds (RZFBs), a new program created by the federal stimulus bill (ARRA). The bonds are intended to finance the project’s first phase, consisting of 184,000 square feet of retail space.

Brooklyn activists testified against the deal at a September 10 public hearing on grounds that EDC is failing to leverage the subsidies to ensure jobs will pay a living wage, provide benefits, and go to local residents. Activists also want to see 10 percent of space in the new facility set aside and made affordable for small businesses that were displaced to make way for City Point.

But it’s hard to stay focused on issues of job quality when you have to spend time sorting through the different claims on job numbers.

Here’s a breakdown:

Those who testified on the project did so based on a formal cost/benefit analysis posted on EDC’s website shortly before the hearing. In these documents, EDC projected that City Point will create 68 new permanent jobs and 108 construction jobs during the first phase of construction. (This round of bonds is only intended to finance the first phase, not the entire development.)

Less than a week later, on September 15, EDC staff told New York City Capital Resource Corporation (CRC) board members who were to vote on the allocation that the project would generate 208 permanent jobs and 328 construction jobs. (CRC is part of EDC.) According to EDC, these higher numbers incorporate jobs projected for a later phase of the project that has nothing to do with the current bond allocation, but which they believe will be indirectly catalyzed by completion of the first phase.

A majority of CRC board members voted to approve the financing.

EDC also touted the bigger numbers to the media, though a typo in their September 15 press release on the project explains why Amanda Fung reported in Crain’s New York Business that City Point would create 108 (rather than 208) permanent jobs, and 328 construction jobs.

These inconsistencies look especially bad in light of passionate participation at the three and a half hour hearing on September 10. Turnout was impressive. There was real debate. It was democracy in action.

But the EDC’s handling of these numbers undermines that process.

It’s misleading for EDC to promote figures that were not included in its official analysis, and that the public wasn’t given. Shouldn’t board members vote on the project based on the same numbers furnished to the public?

Brooklyn Activists Fight Use of Stimulus Bonds for Gentrification Plan

September 8, 2009

Thanks to the federal stimulus bill, a new tax-exempt bond has hit the market: “Recovery Zone Facility Bonds” (RZFBs). And while that phrase might make your eyes glaze over, keep reading, because initial indicators of how these bonds might be allocated in New York City are cause for heightened alert.

RZFBs are one of several new bond programs created under the American Recovery and Reinvestment Act (ARRA). As the name suggests, they must be used for projects within designated “recovery zones,” the boundaries of which are determined by the bond issuer (in New York State this means Industrial Development Agencies) based on indicators of “economic distress.”

RZFBs are a type of private activity bond that make commercial and industrial projects easier to finance because the bondholder does not have to pay federal, state, or local taxes on interest generated by the deal, and is thus willing to accept a lower interest rate.

It’s difficult to evaluate the RZFB program so far because states across the country—including New York—are still grappling with how to take advantage of it. New York City is the exception. The Bloomberg Administration has started things off with a bang by selecting a controversial project in downtown Brooklyn called “City Point” to receive financing through these new bonds. If the deal goes down, City Point developer Albee LLC would receive $20 million in tax-free financing for a shopping mall that will likely be anchored by a big box store such as Target.

This isn’t the first round of public money sought by this project—subsidies were approved in 2007, but then fell through due to difficulty in securing financing after the economic meltdown. Now, Albee LLC is looking to the stimulus bill for help.

Advocacy groups on the ground, led by Families United for Racial and Economic Equality (FUREE), are experiencing déja-vu. Having resisted the 2007 deal, they will oppose this round of subsidies on many of the same grounds at a public hearing scheduled for September 10. But they will have plenty to beef about without reminding the city that the site was home to the old Albee Square Mall, which was demolished in 2007 to make way for City Point. That demolition displaced scores of longtime local business that catered mostly to Brooklyn’s black community. Those stores were at odds with the city’s vision of a newly gentrified downtown, which favors chains like H&M and Bed Bath and Beyond. None of the displaced businesses were given the option to return once the new facility is built, and no requirements for local hiring or living-wage jobs were tied to the 2007 deal, despite fervent protest.

This history lesson should be the backdrop to the bigger question of whether retail development should ever receive public financing. Asking whether more Targets and Wal-Marts are really what so-called distressed communities really need is not a radical question at this point. It is well established that such economic development strategies amount to a subsidization of poverty, since retail jobs are among the lowest-paid. As an alternative, FUREE is pushing for an affordable grocery store in downtown Brooklyn, which is lacking in healthy food options.

Good Jobs New York is keeping an eye on the City Point project, as more communities across the country recognize the dangers of subsidies for retail development, and are organizing to avoid them. There may be a bright spot to this story in the Bronx: The Kingsbridge Armory Redevelopment plan—also slated to receive public subsidies—is emerging as a model of how development in New York City might be done. Due to effective community organizing, Bronx Borough President Ruben Diaz recently announced his commitment to signing a Community Benefits Agreement with the developer that includes a living wage, local hiring and community space among a long list of points. So stay tuned!

Note: This item is crossposted on the Good Jobs First’s STAR Coalition blog. (more…)


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