By Julissa Ferreras-Copeland
How do we know whether city programs to spur our economy actually work?
Last year New York City spent $2.8 billion on tax breaks designed promote economic development. These tax expenditures represented more of the people’s money than spending on Departments of Environmental Protection ($1.2 billion) and Sanitation ($1.5 billion) combined.
In New York City’s annual budget process, we subject agency spending to rigorous evaluation. As chairwoman of the City Council’s Finance Committee, I hold hearings with almost every committee in the council and hear from dozens of commissioners and other administration representatives about their work. We receive reports and ask questions to understand whether they are meeting their stated goals. Before agreeing to a budget, we make sure our money will be well spent.
The same rigor and public evaluation is not applied to the city’s tax expenditures. A tax expenditure is when the city does not collect tax revenue and instead allows different entities to keep the tax dollars in their pockets. The tax break is intended to induce a specific action beneficial to the public.
But a Tax Expenditure Task Force that I chaired discovered that the city has no process to evaluate and understand whether these programs are actually working. We need one.
The numbers clearly illustrate why we must gauge the effectiveness of these benefit programs. In fiscal 2016, the city collected $59 billion in tax revenue. Not included in that figure were tax expenditures worth $7.7 billion. If these taxes had been collected, they would have represented 11.5% percent of city tax revenue. Economic-development tax expenditures represent $2.8 billion out of this $7.7 billion. We cannot continue to forgo collecting more than $1 out of every $10 we could receive without knowing if that money achieves its purpose.
There are close to 30 economic-development tax expenditures in the city’s current budget, ranging in size from a few million to multiple hundreds of millions of dollars. Some are breaks in business taxes, while others offer different incentives. One example is the Industrial and Commercial Abatement Program, or ICAP, which provides tax abatements for commercial and industrial construction for varying periods of time. The program cost $28.4 million in fiscal 2016. Another is the Commercial Revitalization Program for Lower Manhattan and the Garment Center. This program cost $33 million. Its purpose is to stimulate economic activity in lower Manhattan and the garment district and to promote the most productive use of city real estate.
All of these programs have worthy aims, and understanding exactly what creates economic development is very difficult. But without evaluation we will never fully understand the impacts of our actions, and will never be able to scale up what works or change what does not. That is not a prudent way to make policy.
The Tax Expenditure Task Force formed almost two years ago under City Council Speaker Melissa Mark-Viverito’s leadership. Its members were diverse, hailing from the business, labor, community, real estate and academic sectors, and included my colleague Councilman Dan Garodnick. We held a series of lively discussions, studied other jurisdictions’ systems, and finally agreed upon 10 recommendations for creating a rigorous and independent evaluation structure.
We believe the Independent Budget Office should conduct a review of at least one tax expenditure per year, and that the Finance Committee should provide oversight, including providing IBO questions about the tax expenditure being reviewed. I introduced legislation last week to establish that process. The proposal would not limit review to only one program if the council would like to evaluate more—its goal is to establish a floor, not a ceiling.
Evaluating our expenditures is good government. Council oversight will bring transparency to the often murky waters of tax benefit programs and inform the public about their outcomes. In addition, an evaluation process would improve our advocacy in Albany. Tax breaks, while administered by the city, are passed into law in Albany. The council and the mayor advocate every year for a state budget that helps city residents. Those efforts would be well served by analyses of the effectiveness of our tax giveaways.
If these programs do not achieve their stated goals, we should put the resources to better use. If they do, we should consider expanding them.
Other jurisdictions have begun asking similar questions, and there are models to follow from states like Colorado and Virginia, and cities like Washington D.C. It is time for New York City to do the same. Our taxpayers deserve it.
Julissa Ferreras-Copeland, D-Queens, is chairwoman of the City Council Finance Committee.