Home » Economic Development in New York City: A Look at the Priorities, Policies, and Problems at the Local Level

Economic Development in New York City: A Look at the Priorities, Policies, and Problems at the Local Level

By Konstantin Zborovskiy

Nominated by Professor John Liu, Zborovskiy’s essay was the required final research paper in PAF 9144, Budgeting and Financial Analysis II, Spring 2015. Professor Liu writes:

The paper demonstrated the student’s mastery of a major topic of the course and was graded on research content and analytical argument.  Specifically, the paper earned high marks in the following criteria:

  • Organization – content of paper is easy for reader to follow
  • Balance – opposing views and interpretations, if any, are presented
  • Analysis – arguments advanced by paper are supported, quantitatively or qualitatively
  • Relevance – the paper ties in strongly with the course material
  • Bibliography – research sources are substantive and appropriately cited.
Photo of Brooklyn Navy Yards by Harrison Boyce

Photo by Harrison Boyce



Contemporary economic development, as exercised in both the city and state of New York, is a strategic and concerted policy effort to maintain economic competitiveness on a regional, national, and—in the case of New York City—global scale. While economic growth is one common measure of economic development, it is as often the result of market forces as public policy. There are other significant measurements, indicators, and areas of concern when discussing economic development, including job creation, housing development, neighborhood renewal, improvement of infrastructure, business attraction and retention. Collectively, these areas of concern are what economic development policy tries to address; however, the emphasis placed on each is largely determined by the political will behind the efforts.

In New York City, the emphasis has shifted under the new guidance of Mayor de Blasio. Instead of a focus on rapid growth through incentivizing construction, as was the case under the Bloomberg administration, the new mayor has chosen to focus his policy on addressing issues of inequality. For New York State, Governor Cuomo’s vision has shaped policy since 2010 and has been marked by a continued emphasis on regional economic development, highlighted by a push to use the state’s expansive higher education system as a hub for technology companies. Despite different political agendas, the tools Mayor de Blasio and Governor Cuomo each have at their disposal are very similar.

New York State and New York City each have their own vehicles to serve as drivers of their development policy; these are, respectively, the Empire State Development Corporation (ESD) and the New York City Economic Development Corporation (NYCEDC). Both of these agencies are quasi-governmental, non-profit corporations contracted by their respective governments. This allows them to be quicker and more agile in the execution of projects than “regular” agencies, which may have more drawn-out approval processes, have more stringent burdens or requirements to fulfill before undergoing projects, or take longer to navigate through the Request For Proposal (RFP) process (State of New York, Office of the Comptroller, 2011). Often, this easier path to project kick-off comes not just from eliminating red-tape, but also bypassing important levels of controls. The reality is that the perceived benefit of added efficiency from the utilization of these entities does not come without controversy or criticism. However, by veering away from heavily subsidized capital investment targeted at large developers, and investing more in the human capital of its citizens, the NYCEDC can position New York City for a more robust, diverse, and resilient economic future.

What’s in the Toolbox?

Economic development corporations like ESD and NYCEDC are an instrument of the executive branch – they are created by the government for purposes such as managing government land, property and buildings; negotiating contracts and land sales; building and maintaining infrastructure; and attracting and retaining companies. The use of quasi-governmental, non-profit entities like economic development corporations allows for action to be taken at a speed and efficiency that traditional government agencies cannot match (State of New York, Office of the Comptroller, 2011).

These entities will offer tax incentives to real estate developers in exchange for construction that includes affordable housing. Tax incentives may also be granted to companies that create jobs by moving into—or staying in—the locality. Other methods include conduit financing, capital investment in both private ventures and public infrastructure (e.g. Barclays Center, East River Ferry System), training the local workforce to be more attractive to companies, providing consulting for entrepreneurs, and using public space to boost new ventures (e.g. MakerSpace, StartUp NY) (Empire State Development Corporation, 2015).

The Economic Snapshot

As of March 2015, New York City has mostly recovered from the effects of the 2009 recession; total job numbers are up to 4.15M, a historic high; for New York State that number was over 7.75M in March 2015, according to the New York State Department of Labor (New York State Department of Labor, 2015). However, economic recovery has not been even across industries or wage groups. According to a 2013 report by the Citizens Budget Commission, New York City’s job growth has occurred in mainly low-wage sectors – specifically in food and health services. NYCEDC’s testimony in the preliminary budget hearings for FY 2016 confirmed this uneven recovery, citing that over 140,000 of the 258,000 jobs recovered since 2009 have been in retail or food service (City of New York, City Council, 2015).

These industries have an average annual salary of under $40,000, a note echoed by the Real Gross City Product (GCP), which shows a slight annual dip each year between 2010 and 2012. Further, the GCP is lagging behind the Real Gross Domestic Product (GDP) output of the US as a whole (City of New York, Office of the Comptroller, 2014). In addition to increasing inequality – exacerbated by the unequal economic recovery that saw the return of many low and high paying jobs, but not many of the mid-wage jobs that support the middle class – employment rates are still relatively low in New York City. The city’s 6.6% unemployment rate remains above the national average, which was 5.5% in March for the US. The rest of New York State appears to be faring better, with a total NYS unemployment rate of 5.7%, and just 5.1% when excluding NYC (New York State Department of Labor, 2015).

What remains is a positively-trending, but still challenging, picture. New York City, like much of the country, faces a rapidly aging infrastructure that, according to Mr. Kimball, outgoing President of NYCEDC, will require billions of dollars of investment (City of New York, City Council, 2015). The de Blasio administration has committed to tackling inequality and plans on leveraging, and investing in, city-owned assets in an effort to accomplish both of these goals.

The Budget

For Fiscal Year 2016, New York City’s budget includes $125M for NYCEDC to fund a portion of their operating expenses; this figure reflects a combination of state and federal grants and funds for administering programs which originated externally to NYCEDC. As an example, approximately $99M is allocated for the administration of seven contracts for the Department of Small Business Services. This appropriation has decreased from Fiscal Year 2015 by nearly $40M. At that time, NYCEDC was slotted for $163M in city funds, approximately $155M of which were utilized (City of New York, Office of the Mayor, 2015).

By comparison, New York State is projecting $65M for the Department of Economic Development in Fiscal Year 2016 after having allocated $76M in Fiscal Year 2015, a decrease in funding of over $10M. In addition, the Empire State Development Corporation is projected to receive nearly $76M in Fiscal Year 2016, a $13M decrease from its $89M in Fiscal Year 2016 when it was allocated $89M. However, this drop in funding appears temporary, as Governor Cuomo’s budget projects annual allocations of greater than $70M for the Department of Economic Development and over $135M for ESD (State of New York, Office of the Comptroller, 2015) as part of their five-year outlook.

The 10 year capital budget for NYCEDC shows a total allocation of $3.4B for economic development projects. However, this number is likely to grow over the course of the next 10 years; currently, $2.1B of that projection is scheduled for allocation between Fiscal Year 2016 and 2019. This would leave just $1.3B for the out-years, and factors into account only the maintenance of current NYCEDC assets rather than work on new projects and future capital investments. In total, the 10-year budget for economic development is just 4% of the City’s Capital Plan (City of New York, Office of the Mayor, 2015).

For New York State, the 10-year capital budget shows a total investment of approximately $10.5B for economic development, including fairly stable outlays between Years 2 and 9 (2017-2024) with a range of $1.06B to $1.3B (State of New York, Office of the Governor, 2015). As a whole, economic development accounts for just under 10% of the total Capital Plan; the third highest individual category after Transportation and Higher Education. Even the 2016 allocation of $957M, the lowest until the final year of the Capital Plan, represents a 76% increase over the amount invested in the 2015 Fiscal Year. This is representative of a strong policy push by Governor Cuomo to turn around the upstate economy through significant investment in infrastructure and by providing development grants to local governments and development corporations (State of New York, Office of the Governor, 2015).

Tax Incentives

A measure not included in the budget figures is the loss of future revenue associated with the use of tax incentives. Tax incentives are one of the most commonly employed strategies by municipalities and local economic development corporations. Unfortunately, given the zero-sum approach many localities (and states) take towards economic development, an “incentive-war” is a barely staved-off threat. Specifically, ever-escalating tax breaks are offered across city and state lines, and given to corporations and developers in order to ingratiate them to the community. Because businesses are free to choose where they base their operations and they gain a tremendous amount of leverage over municipalities and states, that seek to either lure them (and their accompanying jobs) or retain them within their borders (Bagli, 2014).

According to a 2004 study conducted by Peters and Fisher, it is estimated that states and local governments spend approximately $50B each year bidding against each other in an effort to attract these job-creating firms (Davis, 2013). As previously mentioned, almost all of this cost is based on interstate competition, as state governments have larger budgets. Despite the staggering sums being spent on these corporate subsidies, Fisher et al found that state and local taxes account for less than 2% of a major firm’s operating expenses. Further, up to 90% of relocation decisions would have occurred independent of the provision of any tax incentives (Satow, 2014). This leads to the awkward conclusion that most of the subsidy money (in the form of lost revenue) is being given away by state and local governments without much real benefit being created.

While these tax incentives are seen as useful policy tools, they can quickly become very costly for taxpayers without many of them realizing it; in 2013, New York State spent $1.7B on a range of 50 tax credit programs (State of New York, Office of the Comptroller, 2015). Because most tax incentives take the form of credits in future tax years, they impact local budgets as lost revenue rather than immediate expenditures. This creates a situation where a heavy-laden tax incentive package may be politically expedient if it brings a major corporation to a locality. The political capital gained from such a maneuver may be immediate and any costs would be deferred. Such an arrangement is certainly a challenge for would-be fiscal stewards, as the political pressure to compete in the tax incentive arena could lead even the most stalwart opponent to rethink their position lest they be branded as anti-job creation.

In New York City, a recent benefactor of such subsidy tactics is FreshDirect, which received a package valued at over $100M to augment their own investment in their new Bronx headquarters. This package included subsidies from both NYCEDC and ESD, as well as smaller sums from the Bronx Borough President’s Office and the Bronx Overall Economic Development Corporation (BOEDC), a local development corporation with strong ties to NYCEDC. New York State provided approximately $35M of these funds, but the lion’s share came from an approximated $74M in the form of “sales tax exemptions, mortgage recording tax deferral, and real estate tax exemptions” (City of New York, City Council, 2014).

It should be noted that FreshDirect is originally a Queens-based start-up operating out of Long Island City that was helped along in 1999 by an assistance package from NYCIDA, an arm of NYCEDC. FreshDirect’s success in exceeding its original growth projections from that deal likely played a role in helping it secure such favorable terms, as did its projected growth from 1,963 current full-time equivalent employees (FTEs) to 2,927 by 2021 (City of New York, City Council, 2014). Should FreshDirect fail to meet the projections, they would be subject to clawbacks, or the recovery of funds equal to a portion of the subsidies they received. In the past, dealing with such clawbacks effectively has been an issue for NYCEDC.

Finally, providing tax incentives for relocation or retention of businesses creates a domino effect that potentially causes businesses that would otherwise not have considered moving across state lines to seriously consider doing so. Further, jobs are created when businesses are successfully poached from across stateliness. This process creates competition for businesses that are already operating locally (Dennis Van Roekel, 2012). Sometimes this kind of competition breeds innovation that benefits everyone; at other times, it results in “the Wal-Mart effect”—the local business winds up losing to the newcomer and going out of business—thereby negating much of the supposed positive benefits of job creation for the community due to the loss of pre-existing jobs. These risks are real and, combined with the high opportunity cost associated with offering tax incentives, make this a questionable approach as a solution to the challenge of economic development.

NYCEDC and ESD have attempted to create a workaround for the problem of an incentive bidding-war by investing heavily in locally grown start-ups. This is most clearly illustrated by the 17 incubator sites across New York City that are managed by NYCEDC and the designation of participating SUNY campuses across the state as tax abatement zones for start-up companies through contracts with ESD (Adams, 2014). As of 2015, the StartUp NY program has cost $53M, with just 76 jobs created to date, or $697,000 per job (O’Brien, 2015); while it is worth noting that much of that cost was on initial expenses, such as an expansive advertisement campaign that will (hopefully) wane as the program matures, it is still a tremendous investment without much return. The Cuomo administration hopes that as more companies choose to start and expand in the state, the jobs will materialize as well. At the moment, however, the program is far from a shining example of effective government policy.

NYCEDC is not without its own challenges around job creation policies and associated projects. In 2007, NYCIDA, a subsidiary of NYCEDC, reached an agreement with the New York Yankees to use city-owned park space in the Bronx to build garage space and parking lots to complement the New Yankee Stadium. This project was supposed to pay for itself and create 20 full-time jobs and 70 part-time jobs. Currently, the garages are gravely struggling financially and it is unclear how many jobs were actually created. The project cost NYCEDC approximately $40M and ESD another $70M in direct funds, plus an additional $237M in tax-exempt municipal bonds that has not been paid back and has accrued an additional $8M in interest (City of New York, City Council, 2014).

An example of a positive policy being undertaken by New York City is to diminish the importance of tax incentives on capital projects as a cornerstone strategy, and instead “mandate a first look [hiring] process” for businesses that contract with the city to ensure that local residents are at the front of the line when it comes to hiring. We are seeing this in action as part of the deal to bring Wegman’s, a popular grocery chain, to Brooklyn. As part of the agreement, Wegman’s will interview exclusively from residents of the three nearby housing projects for the first two weeks of hiring for its total of 200 full-time jobs and 600 part-time jobs (Chaban, 2015). It is also notable because it appears that the developer, Steiner NYC, will pay for the entire development – no information has yet been released on the rates of rent that Steiner will pay to the Navy Yards on its 96 year lease, but so far this appears like a departure from the deals of the Bloomberg administration that heaped tax-subsidies on real-estate developers and businesses alike. Only time will tell if this deal truly will work as a win-win once all of the details are finalized and released, but if it does, it may signal a departure from the tax-incentive laden theory of economic development.

Workforce Development

Ultimately, the job creation benefits of tax incentive deals are uncertain at best and disastrous at worst. However, the trap appears to be too enticing for politicians to resist. An alternative method of stimulating economic development may be through workforce development. One theory for attracting top companies to New York City suggests that focusing on developing a highly skilled, modern workforce will entice companies in a way that tax incentives covering 2% of operating costs cannot (Donald J. Boyd, 2013).

In New York City, the technology, media, and bioscience sectors have received particular attention. This has been the case both in terms of the previously mentioned incubators – 8 of the 17 focused on media and technology – and connecting talent to employers through partnerships like the Tech Talent Pipeline (City of New York, City Council, 2015). Another notable example is SBS’s partnership with the Flatiron School (a popular programming bootcamp), which offers a fellowship for web developers. This innovative public-private partnership provides an effective route to high-wage jobs (starting at $50,000 annually) for some non-college grads, but is unlikely to be able to scale on a level that would have a significant impact on some of the inequality the city currently faces (Gamerman, 2015).

In an effort to tackle this challenge, Mayor de Blasio has begun to take steps to implement the findings and recommendations of the Career Pathways report. In addition to the First Look NYC policy that will require contractors to hire New York City residents in order to work with the City, NYC will invest $60M in training programs as part of the effort to bridge the skill gap for low-skill workers (City of New York, 2015). The de Blasio administration has also pledged to triple the current annual investment in training programs to $100M for “career-track, middle-skill occupations” (City of New York, 2015).

Oversight Challenges

As previously mentioned, when companies have failed to live up to their end of the bargain on subsidies imbedded in economic development agreements, the jurisdiction that issued these subsidies is entitled to recoup its investment. NYCEDC has had trouble with, and drawn criticism for, their handling of enforcement actions wherein clawbacks were warranted, as well as for not insisting on inserting these clawback provisions for all contracts they entered into.

What’s more, according to the Independent Budget Office (IBO), NYCEDC “held $144M in unrestricted cash and investments” at the end of 2014 (New York City Independent Budget Office, 2014). While the IBO estimates that the city could boost annual revenues by approximately $30M by requiring NYCEDC to remit any end-of-year profits to the city, this would reduce the fiscal buffer for an agency focused on development at a time when they may need it most – in the event of a downturn. Given the long-term nature of the investments made by NYCEDC, many of which are part of their capital budget, and combined with NYCEDC’s operating budget being funded through its own revenue-generating activities, this “war-chest” can be part of a reasonable and fiscally responsible strategy. However, it must be managed properly and held to a high standard of transparency. Additionally, these holdings appear to be in line with Mayor de Blasio’s policy preferences, as he looks for further fiscal buffers against the eventuality of the next economic downturn.

Former Comptroller John Liu battled with NYCEDC over the corporation’s lack of transparency on several occasions. While StartUp NY is struggling in its first full year of programming, an established NYCEDC oversaw a deal with Hollow Metal Factory Outlet Corp. from 2000-2009, which included a $300,000 tax incentive, that only turned into a total of two created jobs. Other NYCEDC projects from Fiscal Year 2009 such as The Bear Stearns Companies, the Depository Trust Company, Information Builders Inc., Merrill Lynch & Co., Time Inc., Viacom, and VNU USA missed their job creation targets by a combined 8,120 jobs (City of New York, Office of the Comptroller, 2010). Published audit reports by both the City and State Comptrollers prompted further investigation by the City Council. As recently as the beginning of the 2015 Fiscal Year, the City Council issued a reproach of NYCEDC’s practices. Since that time, NYCEDC has not engaged in any deals with large corporations and, crediting the growing economy, have not seen any businesses fall short of their targets and trigger clawback clauses (City of New York, City Council, 2014).


While economic development policy is still very far from a science, New York City appears to be taking an approach that is allocating resources away from large corporate subsidies and towards the training and development of its workforce. The hope is that such investment will spur companies to seek out New York City as a place to do business, instead of New York City needing to convince and bargain with companies to come, or stay, inside the city limits. NYCEDC is uniquely positioned to facilitate that piece of the puzzle, and to forge partnerships with industry leaders, in guiding New York City towards that goal. But it will require the strategic deployment of funds—not towards incentive-laden plans that have not shown conclusive proof of succeeding, but to promising new strategies that have shown a verified proof-of-concept. There is no “magic pill” to figure out economic development, especially not in a global economy such as the one in which New York City competes. However, the new reality of public policy is that each decision must be made cautiously, and with an eye towards measurable and tangible outcomes.




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