ISSUE IN BRIEF: OutsourcingStaff Contact: Ken Pokalsky
The Business Council strongly opposes legislation that would place restrictions on the ability of business to engage in either "outsourcing" or "offshoring" activities.*
These proposals ignore the realities of our increasingly global economy, and will do more harm than good to New York's economy, businesses and workers. Mainstream economists from both parties have said "outsourcing" of some jobs cuts costs for consumers and makes businesses more efficient, ultimately resulting in more U.S. jobs, rather than fewer.
Moreover, New York's economic problems are not caused by the off-shoring of jobs, and will not be solved by anti-outsourcing legislation. The legislature would do more to secure jobs, and promote job creation, by focusing on key economic climate factors such as the cost of health care insurance, workers' compensation, electric power and property taxes, which impose significant competitive disadvantages on New York State businesses.
The most onerous bill now under consideration in New York (A.1213/Brodsky) would prohibit a business that has received state financial assistance from moving any "employment, jobs or positions" out-of-state. "Violators" could be required to repay the state the value of state financial assistance received after the effective date of this bill, and could face a mandatory five year ban on receiving any additional state assistance.
This bill has several major shortcomings:
- it would impose severe economic penalties against businesses that have fully met their obligations to the state under existing economic development programs. A business would be subject to benefit recapture and a prohibition on future incentives if economic conditions force a job reduction in one facility or division, even though the facility or division receiving assistance under a state assistance contract has met all requirements of that agreement.
- This bill would have other adverse impacts on state development programs. For example, under the Empire Zone program, a business could have a temporary reduction in in-state employment. Under existing Empire Zone law, that business would be denied benefits for that year, but would remain eligible for benefits in subsequent years in which it meets its employment test. Under this legislation, if that company also had moved even one job out of New York State, it would be forced to repay the value of state incentives, and be banned from any additional state incentives (including Empire Zone benefits) for a five year period.
These prohibition on, or penalties for, "outsourcing," would significantly impair the state's ability to retain existing businesses, or attract new business or new investments to New York. Under these proposal, the acceptance of state assistance would come with severe limitations on a firm's ability to move employees or business operations to meet business needs, irrespective of the justification for doing. We question how many businesses would be willing or able to accept such stringent conditions in order to qualify for state assistance.
The Business Council does not oppose measures to increase the accountability of major state economic development programs, where needed. For example, we believe the Governor's Empire Zone reform proposal contains appropriate provisions regarding the tracking of, and reporting on, costs and benefits within that program.
However, we strongly oppose measures that place unreasonable limits on business activity, and impose draconian, retroactive penalties based on unreasonable criteria.
* The term "outsourcing" typically refers to situations where a function had been performed within a company, but is now done under contract by non-employees. The reference to "off shore" jobs would apply to purchase of services from businesses performing the work overseas, irrespective of whether such jobs or services were ever performed by New York or U.S. businesses or employees. Often, it is unclear which of these different economic scenarios the intended target of this legislation is.