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The Most Important Economic and Fiscal Decisions Facing the Next Mayor

Managing Economic Development Programs in New York City: Lessons for the Next Mayor from the Past Decade. The Most Important Economic and Fiscal Decisions Facing the Next Mayor A Citizens Budget Commission Conference December 6, 2013. “But-for” Challenges in Evaluating Economic Development.

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The Most Important Economic and Fiscal Decisions Facing the Next Mayor

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  1. Managing Economic Development Programs in New York City: Lessons for the Next Mayor from the Past Decade The Most Important Economic and Fiscal Decisions Facing the Next Mayor A Citizens Budget Commission ConferenceDecember 6, 2013

  2. “But-for” Challenges in Evaluating Economic Development • Problem: How do we know the policy or program is making a difference? • Would activities otherwise not have occurred in NYC? • Are programs creating new activity or simply moving it around the city? • Can we separate the impact of contextual factors from program results? • Is the benefit from new economic activity worth the cost?

  3. General Guidelines for Effective Economic Development Programs • Use jobs as the prime criterion for assessment • Clearly identify all costs and benefits • Be transparent: publicly report costs and benefits • Regularly monitor and evaluate criteria and results

  4. Four Objectives • Promote growth in the number of jobs and scale of economic activity, and by extension, the tax base • Enhance residents’ access to “quality” jobs providing adequate wages and benefits • Diversify local economic activity across industries and boroughs • Maintain the city’s central position within the region’s economy

  5. Job and Aggregate Wage Growth Have Outpaced the Nation Index of Average Annual Private Employment, NYC and US, 2000-2012 Index of Aggregate Private Sector Wages, NYC and US, 2000-2012

  6. Mixed Performance: Quality, Diversity and City Share of Jobs • “Quality” jobs: 68% of new jobs since 2000 in three sectors– health, leisure, retail trade– with average wages lower than national average • Economic diversification: Employment shares increased in Brooklyn and the Bronx; education and health services and leisure and hospitality jobs now 34% of local economy, up from 26% • Regional core: City share of regional jobs and personal income now higher than in 2000

  7. Contextual Factors have Bolstered Performance Since 2002 • Positive trends • Crime has trended downward, resulting in the “safest big city” title • Public school graduation rates and testing results shows positive trend • International in-migration continues while domestic out-migration has ebbed • Negative trend • High tax burden increased

  8. Five Economic Development Tools

  9. NYC Economic Development Spending Now Surpasses $2.7B Annually; Doubled Since 2002 Annual Spending, 2002 and 2012 Conduit Debt Outstanding

  10. “As-of-Right” Property Tax Expenditures • 2007 City study found 77% of projects did not pass the “but-for” test • Study led to partial reforms • Reforms failed to address fully: • Benefits tied to property appreciation rather than initial investment • Unnecessarily long benefits (up to 25 years) • Benefits to retail projects • Benefits for projects in Manhattan CBD that did not require inducement

  11. Other As-of-Right Tax Benefits Largely For Two Older Programs

  12. Discretionary Tax Benefits: Insufficient Information to Know if They are Working • Cost of benefits directly administered by EDC: $273 million in 2012 • Total project subsidies per job vary widely within industries, as well as across industries • Annual EDC reports do not includes all project subsidies, making evaluation difficult

  13. Capital Spending • Since FY2002, $6.4 billion in New York City capital for economic development • Many projects not accompanied by economic analysis demonstrating measurable benefits • Whitney Museum vs. Hunts Point • EDC also serves as capital project manager for city projects with limited job creation goals

  14. Conduit Financing • Provides access to low-cost financing • Net cost to City is relatively small • More cost-effective than capital grant support • Used by growing industries: health and social services, education, arts and recreation

  15. Zoning • Zoning should support the evolution of the City’s economy • Over 36 percent of land has been rezoned since 2002 • Creation of more mixed-use special districts has enhanced flexibility of land use

  16. Seven Lessons for the Next Mayor • As-of-right property tax expenditures: Additional reform to make them more cost-effective • Other as-of-right tax expenditures: Evaluate longstanding programs for insurance and airlines • Discretionary tax expenditures: Establish clear standards for size of subsidies

  17. Lessons for the Next Mayor(continued) 4) Capital: Invest in neighborhoods, not firms; develop local infrastructure with long-term development potential 5) Conduit financing: Look to conduit financing, rather than capital grants, for individual firms 6) Zoning: Expand special mixed-use districts to facilitate diversified job growth 7) All tools: EDC should focus on job creation and enhancing transparency

  18. Managing Economic Development Programs in New York City: Lessons for the Next Mayor from the Past Decade The Most Important Economic and Fiscal Decisions Facing the Next Mayor A Citizens Budget Commission ConferenceDecember 6, 2013

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