Initiative for Development Accountability
It's Time to Reform COMIDA
With upstate New York grinding into an advanced case of post-NAFTA Rust Belt-itis, community leaders are working hard to bring new jobs to the area. The pressing question is whether they are working smarter or just harder.
Community leaders have many tools at their disposal to help develop the economy. Industrial Development Agencies were set up to use tax breaks to attract manufacturing jobs to the area.
For years New Yorkers have wondered how the IDA's are performing.
Last year Jobs With Justice released a report entitled Getting Our Money's Worth: Are Businesses Getting Tax Breaks to Cut Jobs? The report assesses IDA's around the state. The results were similar to what Metro Justice found in Monroe County (COMIDA isn't Spanish for Free Lunch) and frequently worse. IDA's in other parts of the state have subsidized Wal-Mart's, McDonalds and Cintas, an industrial laundry paying $8.50/hour. IDA reporting around the state is also sloppy. Seventeen IDA?s didn?t have enough data to assess their job creation performance (here in Monroe County COMIDA).
NYS Comptroller Allen Hevesi also released a report showing that two thirds of the subsidized businesses in the IDA's he audited aren't creating the jobs they promised. That's the same ratio that we found in Monroe County with COMIDA.
The opponents of IDA reform say that the sky will fall if New York imposes wage standards on businesses receiving subsidies. Meanwhile, back in the reality-based world, a recent study by Good Jobs First found that a rapidly-growing number of U.S. jurisdictions - at least 89 - now apply job quality standards to companies that receive economic development subsidies. The standards - including wage, healthcare, and full-time hour requirements - apply to deals in at least 43 states, 41 cities, and 5 counties. Many officials praised job quality standards as important tools to help them target subsidies to companies that create high-quality jobs, thereby avoiding the "hidden taxpayer costs" (e.g., food stamps Medicaid, and the Earned Income Tax Credit) generated by poverty-wage work. Such standards will reward corporations that are creating jobs and raising wages. That will help the state's economy, not hurt it. These standards apply only to companies that are taking public assistance. If the company doesn't want to be responsible for results, it doesn't have to accept help from the taxpayers.
Wage standards do not necessarily depress economic growth. The Fiscal Policy Institute released a report recently showing that states that had increased the minimum wage actually had better small business and retail job growth.
As Greg Leroy pointed out at the 2006 Metro Justice Annual Dinner, tax incentives are only one factor in business relocation decisionmaking. Businesses consistently point to many other factors including the educational level of the work force, proximity to markets, excellence of infrastructure, utility costs and quality public services. In fact, as Greg Leroy points out in his book, The Great American Jobs Scam, Robert Alty, one of the most experienced site location consultants, says "the single most important factor in site selection today is the quality of the available workforce." And that quality is undermined as school districts lose revenue to questionable IDA tax breaks.
There are several areas in which IDA's need to be overhauled.
| Reform | Problem |
| Taxing authorities need to be empowered to recoup subsidies if businesses do not deliver on job creation. | Under the current system, IDA’s are giving tax breaks without requiring businesses to follow through on their promises of job creation. During the years 2002-2004, COMIDA gave out $24 million dollars in tax breaks but the overwhelming majority of businesses (63%) didn’t hold up their end of the bargain and deliver the promised jobs. Over a quarter of the businesses actually layed off workers. Yet they still got to keep the subsidies! |
| Town and school boards need to be at the table and involved in IDA decisionmaking about projects in their jurisdictions. | Under the current system, IDA’s give away the revenue of other towns, cities and school districts without consulting those taxing authorities. In some places in New York Superintendents don’t even know about the tax breaks until they read about it in the paper. Jim Breese, Supervisor of Henrietta, estimates that Henrietta homeowners paid an extra $524 in taxes during 2002-2004 due to COMIDA tax breaks. Brighton Town Councilman Ray Tierney estimates that the COMIDA tax breaks in Brighton were the equivalent of 142 homes being taken off the tax rolls. In Fairport, the school district loses the equivalent of a teacher a year due to COMIDA tax breaks to businesses in that town. |
| Roll out COMIDA’s local labor agreement statewide. Define all IDA projects under Wicks law, meaning all construction would be at prevailing wages. | Under the current IDA system, subsidized businesses can hire out-of-state contractors who bring in non-local workers at low wages while local workers remain unemployed. |
| IDA subsidized businesses should pay a living wage. | Under the current IDA system, there are no wage standards for jobs created. Government shouldn’t be in the business of encouraging more low-wage jobs. Government shouldn’t be exacerbating market trends. Government should act counter cyclically. There’s a high road and a low road. The low road is low wages, low skills, low-cost products usually accompanied by low taxes, sprawl, weak infrastructure, a low level of public services, and high externalized costs such as environmental damage. |
| Or, an economy can follow a high-road model: highly skilled workers producing high-quality goods and services that command a higher market price. The high-road model results in low environmental impact, and is supported by a strong infrastructure, urban revitalization, good public services, and a responsible and fair tax policy to pay for it. | |
| Community Impact Reports provide a mechanism to determine whether a subsidy will do harm to other business owners, green space or the housing market. | IDA’s are prohibited from subsidizing retail businesses because they operate in fixed markets. New retail businesses don’t tend to expand economic activity. It’s more like a zero sum game that doesn’t result in net job creation. COMIDA however, has given tax breaks to restaurants, collision shops, spas, dentists and CPA’s. Small business owners work hard to grow their businesses and are upset that COMIDA is subsidizing their competition. Also, IDA’s frequently subsidize businesses that are building in green spaces, encouraging sprawl and the hollowing out inner ring suburbs and cities. COMIDA has subsidized hotels even though the vacancy rate is high. |