Over the last decades, New York has devoted ever-increasing resources to economic development, without seeing much return on its investment. In his budget message, Gov. Andrew M. Cuomo noted that spending on economic development had tripled over the past decade without achieving meaningful success in job creation. When all the state's tax expenditures on business are combined, they now amount to $8.2 billion per year.
This multibillion-dollar enterprise is failing because, in most cases, the state is rewarding businesses for things that they were going to do anyway. Furthermore, too often the state aids one company at the expense of other local businesses, so that any jobs created at the recipient are offset by jobs lost at the competitors. Many programs do not even require job creation in exchange for assistance. Many become overly cozy with the businesses that they aid.
The redevelopment of the Donovan Building by the Erie Canal Harbor Development Corp. is a prime example of bad policy. The corporation spent $5.5 million gutting the building and removing asbestos from it. Then it prepared a request for proposals which, as The Buffalo News correctly opined, appeared rigged to favor the Benderson company. (It did not help when corporation Chairman Jordan Levy stated that he and the president of Benderson had been best friends since childhood).
Not surprisingly, Benderson submitted the only proposal. Upon being selected, Benderson stated that it would seek tax breaks from the Erie County Industrial Development Agency, which The News estimated might be worth $5.6 million to $8.9 million.
What is Benderson doing with the building? First, it is providing a new home for Phillips Lytle, the corporation's law firm for many years. Moving a law firm one block from the HSBC tower to the Donovan Building is not economic development. It only helps one law firm and developer at the expense of other law firms and developers.
Now Benderson has announced plans for a Marriott Hotel in the building. Subsidies for hotels do nothing except favor one hotel over another in the competition for a finite pool of customers. According to The Buffalo News, taxpayers have already invested $65 million in downtown hotels, for an average of $52,000 per room, through a range of tax breaks and incentives. When does the gravy train end?
The public and some leaders are catching on. At a recent meeting of the Erie County IDA, County Executive Mark C. Poloncarz questioned incentives for the Millennium Hotel and called for a moratorium on tax breaks for retail and service businesses.
Now what we need are statewide reforms that prevent development agencies from wasting scarce taxpayer dollars on projects that do not grow the economic pie, but simply reslice it to favor the companies with the best connections and the most skill at working the subsidy game.
Sam Magavern is co-director of the Partnership for the Public Good.