NY spends 8B each year on job programs. So where are the jobs?

Joseph Spector and Sean Lahman, "NY spends $8B each year on job programs. So where are the jobs?,"Democrat and Chronicle, June 7, 2017,https://www.democratandchronicle.com/story/news/politics/albany/2017/06/07/new-york-job-programs-investigation/102323140/

NY spends $8B each year on job programs. So where are the jobs?

ALBANY — In late 2015, New York announced a sweeping agreement to save four Kraft-Heinz production plants across upstate, vowing to invest $20 million to save the 940 jobs.

Now, less than two years later, the small town of Campbell in the Southern Tier is unsettled. Efforts are teetering to keep open a Kraft cheese plant in the community of fewer than 3,700 people, and the company announced in May it will continue to look for a new buyer until August, leaving 330 jobs in the balance.

"They don’t know if the plant is going to be bought by somebody or if they are just going to close the doors, and everybody just gets laid off -- the unemployment line," said the local union's leader, Rich Dexter.

The plant's fate illustrates the perilous nature of New York's economy as it pours at least $8 billion a year — more than any state in the nation — into dozens of job-creation programs that haven't met their goals.

A six-month-long investigation by the USA Today Network in New York found myriad problems with the state's economic-development efforts, ranging from under-performing programs to a lack of transparency on how taxpayers' money is spent.

And despite the spending, the labor force outside New York City continues to shrink.

Among the investigation's findings, which centered on a dozen economic-development programs that have doled out $13 billion in incentives since 2011 when Gov. Andrew Cuomo took office:

Money went to initiatives that in many cases fell short of the job goals, while others did not set any benchmarks for assessing their success or failure.

The state's Regional Economic Development Councils have pledged more than $4.4 billion to 5,300 projects since 2011, but few have job-creation targets, and potential conflicts of interest emerge.

The state's largest incentive program, tax credits for movies and TV shows, provided more than $730 million for 273 television and movie productions since 2014 — at a cost per job of $42,000.

One effort, the StartUp NY program, which provides tax-free zones to new businesses, dished out nearly $6 million in tax breaks in addition to $53 million in ads to promote it. It initially promised 3,324 jobs, but created a third of that as of the end of 2016.

Local Development Corporations, run locally, gave out nearly $1.3 billion in state and local tax breaks to 1,660 projects between 2010 and 2015. The net number of jobs came in at 1,686 — far short of 9,136 promised.

Nearly half of jobs promised by another type of local body, Industrial Development Agencies, fell short of their stated goals. And while the total cost of IDA projects rose by 22 percent between 2010 and 2015, the tax exemptions for the projects grew by 44 percent.

The review comes as the state Legislature and Comptroller Thomas DiNapoli are calling for stronger laws and better oversight of the massive incentive programs.

Also, a state scandal that led to the arrest of Cuomo's former top aides last September is centered around the state's economic-development efforts.

"I have long said that the best economic-development program the state can have is to improve the job-creation climate for everyone and reduce the cost of doing things in New York," said Assemblyman Robin Schimminger, a Buffalo-area Democrat who heads the Assembly's Economic Development Committee.

"That’s the best economic-development program, but it doesn’t create headlines."

State officials have defended their efforts, saying the Cuomo administration's investment in the New York economy is unrivaled.

"I’m proud to say upstate New York has now had a greater investment from the state government than any administration in the history of the state of New York," Cuomo said April 25 in Rochester. "That’s exactly what upstate needed. We’re now going to continue, and we’re building on that."

Indeed, the state has the most jobs in its history; the unemployment rate is nearly half what it was when Cuomo took office. He also lowered business and income taxes, as well as approved a property-tax cap.

Howard Zemsky, Cuomo's economic-development czar and head of Empire State Development, said the various business programs are aimed at luring in new companies and bolstering existing ones, as well as trying to lower the cost of operating in New York.

The state has committed $1.5 billion to transform Buffalo, is spending $700 million a year on the state's 10 economic regions and investing $10 million a year to revive downtowns. Another $500 million each is going to the Rochester area, the Southern Tier and central New York.

"The economy has gotten dramatically better over the years, and I think we’re putting in place some fundamental building blocks for a continued transformation of that economy," Zemsky said in an interview with the USA Today Network's Albany Bureau.

He said the upstate economy needs time to change a trajectory that for decades was headed downward because of a loss of manufacturing jobs and population.

Tourism, health care and agriculture have been the state's fastest-growing sectors after decades of relying on manufacturing.

"There isn’t any one silver-bullet project or idea can transform economies that have been in some state of either depletion or decimation over a 40-year period," Zemsky, a Buffalo businessman, said. "It’s not realistic to say we will grow faster than the Sun Belt overnight."

Cuomo's office declined to make the Democratic governor available for an interview about the state's programs.

Criticism and lack of transparency

The heavy spending has also been met with criticism, particularly in several recent national studies.

A Pew Charitable Trusts report in May found New York is one of the worst states in evaluating the effectiveness of its tax breaks and grants.

A month earlier, the W.E. Upjohn Institute for Employment Research found New York awarded $8 billion in incentives in 2015 — three times as much as the next three largest states combined.

"The majority of studies suggest incentives are not cost-effective, with either no statistically significant effects or large costs per job created," the report said.

The Citizens Budget Commission, a business-backed group, determined all the spending comes to $8.6 billion a year -- more than half of which came from economic-development authorities linked to local governments.

The USA Today Network's review found many of the state's programs lack clear reporting standards. The regional development councils, for example, have no clear benchmarks to objectively determine whether the $750 million it allocates each year is well-spent.

In one case, renovations to the low-income senior housing Maple Terrace facility in New Rochelle received among the most largest awards issued by the councils: $9.5 million in 2012, but records show no indication that jobs were created or if the work was completed.

The findings from the investigation were buttressed by a report in May by Comptroller DiNapoli.

He said half of Empire State Development's programs failed to meet reporting requirements. The agency had a remarkable 173 subsidiaries under its umbrella, yet only had annual reports for 15 of them. Thirty-six of programs had no reporting requirements at all.

"You need to have transparency in terms of where is that money going and what are we getting in return for it," DiNapoli told the Albany Bureau. "And don’t assume just because you are putting money in a particular program that you are getting the return intended."

Zemsky and state officials have blasted DiNapoli's audits, saying they do a "tremendous amount of reporting" on projects. At a board meeting last month, Zemsky said the reporting is the most in the state's history, blasting DiNapoli's report for being "inept."

Methodology of the investigation

The USA Today Network in New York partnered late last year with the Investigative Post in Buffalo, ProPublica and the Columbia University Graduate School of Journalism to collect data from the state's economic-development programs through Freedom of Information requests.

Then the USA Today Network took the initial findings and expanded it to include additional data and analysis to provide a comprehensive review of the state's incentives.

One of the key takeaways is that for all the money spent, job creation can be limited.

And while some programs have clawback provisions or a limit on tax breaks if the jobs aren't created, the standards are not uniform.

One of the state's largest efforts, the Excelsior Jobs Program, provides tax credits in exchange for jobs. It is often hailed as one of the state's more accountable programs.

Yet even it has drawn questions.

Records showed that between 2012 and 2016, Excelsior committed $708 million in tax credits to 450 companies that pledged to create 45,750 jobs. As of last fall, only $52 million of the credits have been given out, and the companies reported creating roughly 19,000 jobs.

That's a decent return: About 7 percent of the amount pledged was spent, but 46 percent of the jobs were created.

But those job figured have been questioned.

A DiNapoli audit last year found the state could not provide documentation to support many of the Excelsior job claims. In some cases, job-creation goals were changed retroactively, and the state was counting new employees hired, not new positions created, which doesn't account for turnover. The state disputed the findings.

Another program, called JOBS Now program, offers loans and grants to businesses willing to relocate to New York. The projects that received about $36 million in funding pledged 8,450 jobs, but have delivered fewer than half that number to date, the records showed.

Good-government and business groups want the state to create a "Database of Deals" so the public can gauge how their money is spent and crack down on abuse. The state budget approved April 9 included a requirement for the state to create an annual comprehensive economic-development report.

Cuomo's former top aide Joseph Percoco was accused last fall of accepting payments from companies seeking business with the state in exchange for using his influence in government.

Former SUNY Polytechnic Institute president Alain Kaloyeros was charged separately in a bid-rigging scandal involving some of the state's top economic-development projects.

Cuomo has said he was unaware of the alleged activities.

The state Legislature has a series of bills it is considering before its session ends in late June to try to better account for the state's spending.

"We’ve all seen the indictments. We’ve all seen the mounting evidence, and we know that something is wrong here," said Jennifer Wilson, policy director for the state League of Women Voters.

"Millions of taxpayer dollars have been wasted on one of the largest bid-rigging schemes in state history."

The scandals led some of the state's largest projects to falter.

In December, Austrian computer chip maker ams dropped plans for a multi-billion technology campus in Utica with SUNY Poly. A nearly $5 billion SUNY Poly deal with IBM and other computer-chip makers ended in 2016, and now some of the equipment from the sprawling nanocenter in Albany is being auctioned off.

In Batavia, unrelated to SUNY Poly, a massive yogurt plant owned by Muller Quaker Dairy with Pepsi shuttered last year after three years and after hoping to create 200 jobs, leaving one of the largest dairy producing plants in the nation vacant. Later, DiNapoli knocked Empire State Development for lowering job-creation requirements for the project so it could get tax breaks.

In the North Country, an Alcoa plant's future is uncertain after the state brokered a deal two years ago to keep it open through 2019 and save nearly 600 jobs.

"It’s a good place to do business, and I just hope the business we have can compete in the global marketplace," said John Burke, a legislator from St. Lawrence County, where many of the Alcoa workers live.

ESD's Zemsky said the agency has taken over the SUNY Poly projects and has assured companies the scandal won't impact state operations.

A $600 million photonics center in Rochester, for example, is now being headed by the state agency and Cuomo's office, rather than SUNY Poly. And the state is investing more than $750 million in a SolarCity solar panel factory in Buffalo, which had been tied to SUNY Poly.

"We’ve got those deals in much better spots now than they were. They were all in some condition of paralysis or disarray," Zemsky said.

Improving the regions

All the money for the projects, though, hasn't created a widespread turnaround in the economy outside New York City — where three out of four new jobs in the state were created from 2009 to 2014.

While the state's employment rate fell from 8.3 percent in January 2011 to 4.6 percent in January 2017, so too has size of the workforce outside the city, the USA Today Network's review found.

The labor force in the city grew 5 percent during that period while it fell 3.4 percent everywhere else, records from the state Labor Department showed.

A bright spot has been the lower Hudson Valley, where the labor force was up slightly and the unemployment rate was 4.1 percent.

Also, a report this month from the Urban Land Institute showed Buffalo had the 12th largest increase in its population of millennials -- those aged 25 to 34.

Upstate cities, though, continue to struggle with among the worst poverty levels in the nation and slow growth.

Buffalo, Rochester and Syracuse ranked among the worst metropolitan areas in the nation for economic growth between 2010 and 2015, a Brookings Institute Metropolitan Policy Program report in March found.

New York outside the city, particularly upstate, did not have the type of nosedive during the recession that some parts of the country felt. So as other places have grown since then, upstate hasn't, said Alan Berube, the group's deputy director.

"It actually weathered the recession OK," he said. "So while the rest of the country has been picking up steam during the recovery, most of upstate has not."

The labor force has shrunk in part because of the aging population outside the city, ranking New York as the fourth-oldest population in the nation.

Other economists painted a more optimistic picture, as did Zemsky.

The largest job loss in New York has been, ironically, a decline in the government sector, records show, where employment dropped 5 percent between 2010 and 2015 or nearly 69,000 fewer jobs.

Zemsky said he has gotten used to naysayers, but believes in the state's strategy to reverse 40 years of job declines outside the city.

"At the end of the day, you have to take the noise out and say, ‘Do we have a fundamentally sound, go-forward strategy that will make a significant impact in the upstate economy over the long haul?’" he said.

"Because the damage that has been done has no quick fix."