My name is John Petro and I am an Urban Policy Analyst at the Drum Major Institute for Public Policy--a non-profit, non-partisan think tank based here in New York City.

The Empire Zone program is the state’s largest economic development program. Since it was created in 1986, the Empire Zone Program has come under increased scrutiny over its effectiveness, especially in relation to its high cost of approximately $550 to $600 million a year. This cost comes in the form of lost tax revenue including sales taxes, property taxes, wage taxes, and tax credits on corporate or personal income.

The program’s aim is to create jobs and encourage investment in economically distressed areas of the state by lowering the cost of these investments. It is thought that by reducing taxes in these geographically-defined areas, they will become more attractive to private investment. However, low taxes alone will not attract business. In fact, the money lost in tax revenue would be better spent making public investments in these areas and, especially in New York City, making infrastructure improvements in the city’s neighborhoods.

One of the primary goals of the Empire Zone program is job creation. However, there is a weak connection between the dollar amount of benefit a participating business receives and the number of jobs that the business creates. A 2004 audit by the New York State Comptroller found that in a statistical sample of Empire zones, 70 percent of Businesses that received tax incentives failed to meet job creation goals. Twenty-three percent actually cut the number of jobs in New York State while simultaneously receiving tax breaks under the program.

Additionally, the program does not guarantee the creation of living wage jobs. While the value of some benefits increases as wages increase, a business may still receive subsidies for creating poverty-level jobs. The stated aim of the Empire Zone program is to address the pervasive poverty that exists in these areas, but creating jobs that do not pay a living wage will not achieve this goal.

In New York City, there are a number of businesses that have benefited from the Empire Zone program while creating few or no jobs. Here is one example highlighted by the non-profit organization Good Jobs Frist: “A real-estate investment company, in Hunts Point, Bronx, expected to claim $1.26 million for only three jobs with an average wage of $8/hour. That’s about $420,000 per job.” The company only invested $231,819 at the site.

The Empire Zone program is a geographically-defined program—it is aimed at economically distressed areas of the state. However, by designating a project “Regionally Significant,” the boundaries of an Empire Zone may be expanded outside of the original Empire Zone. In New York City, the Chinatown/LES Empire Zone was expanded to include the East River Science Park, a new development for biotech firms on the East River at 28^th Street. It is unclear how the inclusion of this project will leverage jobs for unemployed New Yorkers in Chinatown and the Lower East Side, apart from the creation of temporary construction jobs.

Additionally, the state has no recourse if a company decides to leave the state or significantly reduces the size of its work force after receiving tax breaks. Other jurisdictions, like the state of Minnesota, use what are known as “Clawbacks” to hold the recipients of public subsidies accountable. Businesses who fail to reach job creation goals or who move out of the state must repay the state a portion of the subsidy-- with interest.

As I said before, the state and the city’s economic development goals would be better served by making public investments in the targeted areas, rather than simply providing tax breaks to private companies. Investments in public transportation, streetscape improvements, Brownfield remediation, upgrading utilities, and investing in human capital would all be appropriate economic development strategies in the areas that are currently in Empire Zones. Whereas individual businesses may come and go, these investments would be long-lasting, would strengthen the area’s relative competitiveness, and would create real benefits for current residents.

Thank you for your consideration of my testimony.