Defending the Indefensible

New York State Director of Empire State Development Howard Zemsky’s defense of the indefensible START-UP NY program in yesterday’s Albany Times Union is so mendacious it needs to be refuted line-by-line.

Let’s begin with the headline, “Good time for business in New York.”

Times Union staff likely wrote it, but it does reflect Zemsky’s reality-denying article. The Tax Foundation’s 2016 State Business Tax Climate Index ranked New York’s business climate #49 out of the 50 states. Our low overall ranking comes from the fact that New York is ranked 49th in corporate tax, 47th in property tax and 42nd in sales tax.

“Recent news reports have covered the Start-Up NY report and the creation of 408 new jobs in 18 months. Some are disappointed and even critical that the creation of more than 400 new jobs suggests the program is not working.”

We are a state of 19 million people. For a senior state official charged with creating jobs to praise the creation of 408 jobs in two years is beyond ridiculous.

“As for me, I'm glad we're debating how many jobs were created, as opposed to the decades-long narrative we used to have about how many jobs were lost, particularly in upstate communities.”

This snarky point ignores that each of the jobs “created” required the state to tax other New Yorkers to pay for the $120,000 per job cost.

“Start-Up NY is a business development program that offers new, relocating (from outside New York) and expanding businesses a tax-free environment for 10 years. It is designed to counter New York's reputation as high tax and to recruit startup enterprises.”

It wasn’t sold as a public relations campaign when it passed the legislature three years ago. It was billed as a job creation plan. The press release hailing the arrival of START-UP NY doesn’t mention anything about perception. It states, “START-UP NY will foster entrepreneurialism and job creation on a large scale by transforming public higher education through tax-free communities across the state, particularly upstate.”

“To date, the program has attracted more than 200 companies both big and small. Business relocation and job creation takes time to phase in, and the accurate number of jobs committed to the program is 4,100 over the next several years.”

The number of companies is irrelevant. Many of the companies involved with START-UP NY have only a handful of employees.

How can job commitment numbers be accurate? They are a guess, subject to change. Just last week the comptroller reported on the Excelsior Jobs Program run by Zemsky’s Empire State Development. The comptroller found that sometimes ESD adjusted the annual job creation requirements from the original agreement after the fact to align with the companies’ actual lower job creation totals, including for one company where "job commitment was reduced from 600 to 363 for no apparent reason."

4,100 jobs is the number Zemsky et al. hope for before the next election cycle. But an increase of 4,100 jobs represents less than one-tenth of one percent growth in the number of private sector jobs in the state. Even if we had the 4,100 promised jobs today without the six figure per job cost to taxpayers, it would be nice, but hardly a game-changer.

“As the initiative only offers tax forgiveness, and because the jobs did not exist before the arrival of the program, taxpayers aren't on the hook.”

This ignores the $53,000,000 taxpayers paid in advertising costs, plus the administrative cost to staff START-UP NY, including but not limited to the director, Leslie Whatley, who announced recently she is resigning. We also know that all corporate welfare programs are gamed by at least some businesses that are going to start or expand regardless of incentives but that play footsie with the state to get subsidies. No conservative supports the government picking winners and losers.

“It is ironic that the critics — who are primarily conservative ideologically — would choose to argue that cutting taxes is not a desirable incentive to attract business. The conservative philosophy has argued the exact opposite for years. In fact, it has been the foundation of their platform. Start-Up NY's tax-free locations should be a conservative's dream come true.”

There is a big ideological divide in this state. Perhaps START-UP NY’s only accomplishment is uniting liberals and conservatives against this failed program. For example, the liberal Fiscal Policy Institute and conservatives like me have been united against START-UP NY since it was announced in 2013.

START-UP NY represents an admission that cutting taxes on business helps create jobs. But START-UP NY is top down central planning where New York state politicians and bureaucrats, rather than private enterprise, are the key player in the economy.

“But Start-Up NY is only one of the many tools in our economic development toolbox. In today's competitive marketplace, in which state governments compete with one another to attract businesses, reducing taxes — even to zero — this program is still not enough to win the day.”

“The state routinely offers tax credits, grants and loans to incentivize businesses to make investments and create jobs. We operate a variety of programs that customize our assistance to a business's individual needs. These programs include the Excelsior Jobs Program, Global NY, the Economic Development Fund, New York Ventures and the New York State Certified Business Incubator and Innovation Hot Spot Program.”

Here Zemsky lists some of New York’s less notorious corporate welfare programs. He neglects to mention the $420 billion per year Hollywood tax credit which Cuomo’s own tax commission said three years ago should be rolled back. Also not mentioned is the fledgling Buffalo Billion which is embroiled in a corruption investigation and forces taxpayers to unwittingly be the biggest investor in billionaire Elon Musk’s teetering SolarCity.

Despite being the number one state for corporate welfare, shifting about $7 billlion dollars per year from ordinary New Yorkers to corporations handpicked by Albany, our growth rate is below the national average and over 150,000 New Yorkers have left the state each year since 2010.

“Some have suggested the state's business advertising is not productive.”

Why would START-UP NY advertise on the most expensive mass media of television when the state was trying to attract business owners who were looking to relocate to college campuses in New York, a tiny subset of a subset of the population? Trade shows, ads in business publications and a few incentivized employees willing to expend a little shoe leather would have brought in more businesses at a fraction of the cost. TV ads were used in New York to mislead us into thinking we had a good business climate without actually having to do the hard work of fixing our horrible business climate. The out of state advertising, many believe was done to bolster Gov. Cuomo's presidential or vice presidential ambition back before scandal ravaged the administration and the other two men in the room were convicted of corruption.

“The numbers indicate otherwise. New York's reputation as a high-tax, anti-business state is now a vestige of the past.”

What numbers is he referring to? Four hundred jobs in two years? If there is some reliable measure of New York’s no longer having an anti-business reputation, Zemsky would have cited it. And even if he has a poll that says a majority of New Yorkers believe we have a good business climate, that wouldn't matter because study after study says we don’t.

“New York has fundamentally reversed its anti-business culture. Corporate income taxes are at the lowest rate since 1968; the manufacturers tax is the lowest rate since 1917; and statewide, personal income tax rates are lower for every bracket than in 2010. It is a story we must continue to tell to reverse New York's past negative image — and it's working. Today, we are seen nationwide as aggressively pro-business and pro-development.”

Some state taxes are relatively low, but this is made possible by shifting burdens onto local government and school districts in the form of unfunded mandates that drive up property taxes and make it very difficult for business and homeowners to remain in New York.

New York’s negative image is due also to the heavy regulatory burden placed on businesses, an issue not addressed by START-UP NY. The governor acknowledges the problem of regulation. That’s why in April he announced he was organizing a Business Regulation Commission to study regulatory reform. Unfortunately, while they had some decent reform ideas for SEQRA and workers' compensation, they delivered their recommendations on June 3rd. With just two weeks left in the legislative session, that left no time for the legislature to act on the reform recommendations. There was no movement on Medicaid reform. Medicaid eats up a quarter of the budget.

“Our strategy has proven successful, and the facts are indisputable: The state has added 794,000 private sector jobs and experienced employment growth during 56 of the past 65 months, and the state's unemployment rate is 4.7 percent — roughly half of what it was in 2011. Those results show how far this state has come in only a few short years.”

Here Zemsky is taking credit for growth that occurred in spite of state policy, mostly in New York City, because it is the financial and media capitol of the world. Even though corporate welfare programs like START-UP NY were aimed at reviving upstate, 90% of the job growth between 2010 and 2015 has been downstate.

“This is a great time to be doing business in the Empire State.”

Tell that to Random House, for example, which closed its upstate warehouse last year and cut 286 jobs, nearly as many as the 332 jobs created by START-UP NY that year.