Why Jobs Go Where They Go: A Closer Look
To understand clearly why jobs grow in one place and not elsewhere, it’s helpful to understand what every business is trying to achieve. That is, to create the best possible service or product, at the lowest possible cost — because that’s the way to maximize the odds you’ll stay in business, make a profit, and maybe even be able to grow.
That’s true of the sole proprietor who makes a living running the corner store, as well as the nationwide retail chains; the accountant who coaches soccer on weekends and the firms that trade billions every day on Wall Street; the independent craftsman and the biggest Fortune 500 manufacturers.
Almost everyone understands why the small business owner needs to make a profit — it’s the only salary she takes home every week. And, being the proprietor means she has most likely invested her own savings — or money borrowed from family or friends — into the business. Growing profits are more than a regular income; they are the best safeguard against the inevitable crises and business slumps that otherwise would not only interrupt "salary," but jeopardize the original investment as well.
Our money, the marketplace and the CEO
Most of us don’t invest in our own small business, of course. But most Americans do invest. Until a few years ago, that usually meant putting money into a savings account. Today, for many, the favored place to put savings is not in a bank account but into mutual funds that, in turn, invest in shares of publicly traded companies and/or bonds issued by those companies and various government agencies. In 1980, 564 mutual funds nationwide served some 12 million shareholder accounts with assets of $135 billion. Today, according to the Investment Company Institute, each of those figures has risen more than ten-fold: There are more than 6,000 funds (a number of which specialize in seeking investment opportunities overseas); more than 144 million shareholder accounts; and assets totaling more than $3.3 trillion.
Working Americans have moved billions of dollars into stocks and mutual funds in recent years for a simple reason: to earn the best return possible, so they can afford to pay for college education, retirement or other goals. And to do that, investors seek the funds that provide the highest rate of return.
How do the managers of those funds meet investors’ needs? By investing in the shares (or bonds) of companies that, in turn, make consistently high profits and thus produce growing value for stockholders.
What happens to companies that do not make consistent profits? The value of their stock goes down, meaning it’s no longer as attractive to stockholders who count on growth and income. So those shareholders (including public and private pension funds which represent retirement savings for millions of workers) put pressure on (or elect new) corporate directors. Those directors, in turn, put pressure on the (or hire a new) chief executive officer.
To put it more briefly, the management of every public company lives by a simple rule: Create profit for shareholders, or get out. That’s what all of us — through our savings and our pension plans — are demanding.
That’s the way the market works. And companies that do business in New York are every bit as much subject to it, as are corporations elsewhere. (A number of former CEOs of New York companies can testify so personally.)
A competitive business world grows more so
Growing ownership of corporate stock, either directly or through mutual funds, creates millions more points of pressure for businesses to do ever better. That’s one major reason the marketplace — always competitive — is now more aggressively competitive than ever in terms of both cost and quality.
There are other reasons. Perhaps a quarter to one-third of products made by the average manufacturing worker in New York are sold in foreign markets — where they compete with products made by other worldwide companies. Meanwhile, those same companies are also competing for customers right here in the United States.
Like the market for manufactured goods, financial markets are becoming more globalized. For example, according to The Economist, some 50 foreign governments borrow in American capital markets today, compared to 15 a decade ago. That’s an illustration of how capital has a greater tendency than ever before to flow where returns will be greatest. As the publication observed, "The reward for pursuing the right policies will become bigger. Sound economic policies will earn more generous returns while policy blunders will be punished more severely."(1)
Industries that represent huge chunks of the economy nationally and in New York — trucking, airlines, banking and finance, natural gas and electricity — have been or are about to be deregulated. Replacement of regulation with competition means a better deal for the consumer, and a boost for the economy overall — along with new pressure on those businesses to compete as never before.
Technology that gets "smarter" every day allows companies to improve products and services, often while reducing cost. And in a competitive marketplace, if you can do something better or less expensively, it usually means you have to do so. Because if you’ve learned how to do it better, the competition has learned also, or will soon.
The fundamental need to do things better, at lower cost, extends to every area of corporate operations today. Certainly, it’s a basic part of a decision such as opening a major new corporate facility.
That explains the painstakingly detailed list of items in the site selection "checklist" summarized in the previous chapter. Now, further thoughts on some of the major items.
The importance of labor laws
While financial incentives are often the subject of debate, another important, economic development-related issue usually gets little discussion at all in New York: our longtime reputation as a business-hating, union-dominated state.
Recall that Motorola representatives said publicly one of the major attractions of Virginia is its status as the northernmost right-to-work state. Business location experts hear frequently that a new plant must be sited in a state with such a law (which does not interfere with voluntary union organizing, but prohibits labor contracts establishing mandatory union membership as a condition of employment).
In fact, the evidence that labor laws can drive jobs away is quite strong, as a recent staff report for the Federal Reserve Bank of Minneapolis shows.
The study(2) examined manufacturing job growth and its share of total employment along borders between states with, and states without, right-to-work laws. The hypothesis was that, if right-to-work laws are important to businesses, those who intended to locate somewhere in a given border region would more often choose to do so in the state with a right-to-work law.
Measuring job growth from 1947 (when Congress passed the Taft-Hartley Act, allowing state right-to-work laws) to 1992, the study found "a marked difference in average growth" between counties on opposite sides of the state borders. Those with RTW laws saw manufacturing jobs more than double, growing by 104 percent, while those without a RTW law saw industrial employment increase by barely half as much — 55 percent.
"Growth in right-to-work states is remarkably higher than in the remaining states," the study says. "There is a sharp difference in growth rates right at the boundary where the policy changes."
While using the presence or lack of a right-to-work law as a proxy for a good or bad business climate, the Minneapolis Fed study observes that other state policies add to the picture. It notes, however, "States that have right-to-work laws tend to adopt other pro-business policies compared with states that do not have these laws." (In an effort to illustrate what a pro- or anti-business state is like, the study states nonchalantly that New York "is widely believed to be extremely anti-business.")
"It is certainly clear," the study says, "that states that have right-to-work laws use them to promote their state." No question about that. Ads touting right-to-work laws in South Carolina, Virginia, Louisiana and Florida have appeared in trade magazines for site selection executives in recent months. (Each of those states has been beating New York in the competition for job growth.)
A different labor strategy
New York has a number of options to make its labor environment less "extremely anti-business," to use the term from the Minneapolis Fed study. There is little sentiment in Albany for enacting a right-to-work law. But that does not mean we should not — and cannot — do anything about this problem.
The image of New York as a union-dominated state, though not wholly accurate, is a big liability in our effort to attract business from elsewhere. The reality, however, is that — precisely because they are so strong — New York’s unions have the capacity to reverse the harmful effects of this image.
Unions in New York could work actively to dispel the view that our labor environment is "extremely anti-business." In fact, while our state has seen its share of bitter labor-management disputes in the past, many unions are adopting a more cooperative approach because they recognize their members’ jobs are at stake. And in numerous industries, management and unionized employees work together every day to improve quality while reducing costs; a number of national and state quality awards have gone to unionized firms here and elsewhere.
New York’s unions could (as a state AFL-CIO report hinted at four years ago) adopt a proactive strategy designed to make New York more appealing to businesses from out of state. In brief, such a strategy might include:
- Lobbying vigorously for certain improvements in the state’s business climate, such as benefit-neutral reform of unemployment insurance taxes, and repeal of the gross receipts tax on utility customers. This lobbying effort would have to be both visible, and successful, if it is to convince out-of-state employers that unions in New York can be an asset, rather than a hindrance, to economic growth.
- Working closely with local industrial development agencies and other economic development entities to recruit and retain employers, whether union or non-union. In the past, the union movement has often fought, rather than assisted, IDAs, partly because the agenda of public-sector unions is to keep taxes high. (In other cases it’s motivated by animus against non-union companies who are eligible for the incentives.) But the interest of private-sector unions is to expand the private-sector job base.
- Assigning high-level union leaders to take on a diplomatic role, in cooperation with Empire State Development, to call on business development prospects around the country and in other countries. Unions want out-of-state businesses to come to New York; they should have a chance to tell them that face-to-face. Unions could also actively support efforts such as the Empire State Business Alliance, a joint state-utility organization that promotes New York as a place to do business.
- And abandoning arcane work-rule practices in certain places where (by an unfortunate coincidence) these practices are both unusually pervasive, and unusually visible to executives visiting from out-of-state -- specifically the airports, convention centers, hotels and entertainment venues in New York City. Unions in the city’s convention and construction industries have agreed to eliminate some traditional "rights" that raised costs and reduced productivity; much more remains to be done.
The hard truth is that, today, some employers will not come to New York because they fear they will be forced into dealing with labor problems created by our labor laws and rules. That doesn’t mean they want the freedom to treat employees badly -- some of the most generous and accommodating employers, both in this state and elsewhere, are partly or entirely non-union. They are, however, used to operating without the pesky procedures a unionized workforce sometimes creates. (In fact, many non-union companies go the extra mile to be good to employees just to make sure they won’t have to put up with those complications. Such companies are often the subject of organizing efforts that employees vote down because they prefer to remain non-union.)
How can we make sure out-of-state employers concerned about labor issues want to come to New York? Among other things, by pointing out that our workers — both independent and unionized — are highly productive. Our manufacturing workers have the fifth-highest value added per dollar of wages in the country, producing $6.36 for every dollar in wages, according to Census Bureau data. States such as Virginia, North Carolina and Georgia are far behind.
In addition to helping promote New York as a good place to create jobs, organized labor could take a helpful step simply by recognizing the role economic development incentives play in creating jobs for workers in states such as Virginia and Ohio — and championing, instead of opposing, their use in New York.
In its 1993 report, the New York State AFL-CIO expressed the kind of opposition to economic development incentives that, in the past, held sway in our top governmental circles — opposition that held us back from getting in the game of attracting new jobs.
"State and local tax abatements and tax-exempt industrial development revenue bonds used to lure plants and industries from one region, state (emphasis added) or community to another must be abolished," the report said. Wait a minute — we shouldn’t use incentives even to attract jobs for New Yorkers from other states? Countless construction, manufacturing and other jobs (many of them unionized) have been created or kept in New York because of such incentives. We don’t need to abolish them; we need to use them more.
Labor recognizes the problem
Yet, unions in New York are clearly aware of our economic problems. The AFL-CIO report itself pointed out, "The state economy is a mess. ... New York has got to do things differently." It made other important observations, such as: "New York’s revitalization depends chiefly on the resurgence of the private sector."
And the 1993 report called for redevelopment of manufacturing, in particular, with this stirring passage: "The dominant view of too many in state government — seldom expressed openly — is that manufacturing is a lost cause. Many think that nothing can stem its decline. ... We categorically reject the view that the best that can be hoped for is a slowing of the decline of manufacturing."(3)
Unions have sometimes taken a direct role in lobbying for a better business climate — or to avoid major worsening of it. An example occurred in 1991, when Governor Cuomo and the Legislature enacted major energy tax increases that threatened to drive thousands of jobs out of New York. Union leaders from a number of plants that were at risk of closing, and state AFL-CIO President Edward Cleary, joined plant managers and corporate executives in asking that the new taxes be repealed. The effort succeeded — in large part because of the broad lobbying base, including the voice of labor. Similar involvement by organized labor might make the difference in winning urgently needed elimination of the gross receipts tax on energy and telecommunications utilities. As did the energy taxes adopted and then repealed in 1991, the GRT makes New York uncompetitive — and that’s a problem for, among others, unionized utility workers.
Some 15 other states — most with lower UI taxes than ours — have reduced unemployment taxes recently or are planning to do so.(4) Seven of the states are in the South; each has added jobs at a substantially better rate than New York in recent years. Others in the group include competitors such as Michigan and Ohio.
One immediate step New York could take to keep from becoming less competitive is to eliminate the needless burden on employers who have paid far more into the UI system than former employees have taken out. The state Labor Department announced a first step in that direction recently, saving most businesses $14 per employee a year. Truly leveling the playing field for employers with positive UI accounts could save companies some $70 per worker, annually. Support for such a move by organized labor would help make New York companies more competitive without a single change to benefits. It would also send a positive message that employers with records of employment growth or stability should have a more favorable rate than those that don’t grow, and do lay off workers more regularly.
Rebuilding our manufacturing sector, and the rest of our economy, is the most important job facing all New Yorkers. It’s time leaders in business, government, labor and other spheres started working together to get the job done.
Tell a friend about New York
How do corporate decision-makers form their attitudes about which states are good for their business and which are not? Partly from their direct experience. And, where they lack direct experience, they rely in large part on the same type of information all of us seek for any major decision — advice from friends and colleagues we respect.
That’s one of the key findings in a recent, national survey of corporate executives involved in site selection decisions. More than two-thirds, 68 percent, of respondents said "dialogue with industry peers" is one of their most important sources of information about a state’s or region’s business climate. Newspaper and magazine articles were cited by 60 percent of respondents to the survey by Development Counsellors International, a New York City firm. Business travel was mentioned by 52 percent of executives.
Eventually, all of those things will pay off for New York. Business leaders here are already convinced things are changing — a Public Policy Institute survey in early 1996 found more than 58 percent viewed the state more favorably as a place to do business after Governor Pataki’s first year in office. (Even so, 88 percent of the respondents still said doing business is harder in New York than in competing locations.)
Executives around the country (who have less current knowledge about us) are even harder on the Empire State. The Development Counsellors International survey showed New York ranked worst among the 50 states as a "least favorable" place to do business (see table, following page). We need to keep changing for the better — and to make sure the world knows about it!
States in training
New York State’s education system — elementary and secondary schools, and our system of colleges and universities — has long been one of our most important competitive advantages. To maintain that advantage, we need to continue setting higher standards of achievement, and make sure every school meets them.
Of more immediate relevance to many employers is a particular kind of education — training for the jobs that must be filled today. Despite our failure to create as many jobs as we should, some communities face the ironic problem of lacking enough workers. That’s particularly true in a number of skilled trades, where high employment levels and "aging out" have dried up the availability of already trained skilled workers. And there are many New Yorkers — high school students who do not choose to attend college and welfare recipients who will be moving into the working world, among them — who could take advantage of expanded training opportunities.
A related issue is making sure the workers of today are able to keep working five to 10 years from now. Then, the market will demand different skills, and many of today’s businesses will have been replaced by new ones as part of the vast, always ongoing economic change described in Chapter 1.
Some other states are far ahead of New York in meeting this new challenge. North Carolina has added thousands of manufacturing and other jobs in recent years partly because its community colleges offer free, custom training of workers in specific skills needed by businesses.(5) The state also provides a Worker Training Tax Credit, up to
| We Haven’t Convinced Them Yet "Least Favorable Business Climate" Survey Findings |
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| Rank | State | Rank | State | Rank | State |
| 1 | New York | 14 | Montana | 27 | Hawaii |
| 2 | California | 15 | Louisiana | 28 | Kentucky |
| 3 | New Jersey | 16 | Maine | 29 | Maryland |
| 4 | Massachusetts | 17 | Oregon | 30 | South Dakota |
| 5 | Connecticut | 18 | West Virginia | 31 | Utah |
| 6 | Alaska | 19 | Wyoming | 32 | Iowa |
| 7 | Florida | 20 | Arizona | 33 | Kansas |
| 8 | North Dakota | 21 | Michigan | 34 | Vermont |
| 9 | Pennsylvania | 22 | Colorado | 35 | Indiana |
| 10 | Mississippi | 23 | Ohio | 36 | Oklahoma |
| 11 | Minnesota | 24 | Texas | 37 | Rhode Island |
| 12 | Idaho | 25 | Washington | 38 | Wisconsin |
| 13 | Illinois | 26 | Alabama | ||
| Source: Development Counsellors International survey. Higher ranking indicates less favorable business climate. The following states were not mentioned by any respondents as candidates for the worst business climates: Arkansas, |
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$1,000 per employee in certain areas, against eligible training expenses. A five-year carryforward for any unused credits maximizes the effectiveness of the credit.
Virginia’s incentives for Motorola’s $3 billion investment included improving the engineering curriculum at nearby universities. Georgia recently attracted 2,500 programming jobs in part by designing and paying for a six- to eight-month computer training program tailored to the specifications of the employer, a fast-growing credit-card processing company. The program doubled the size of the computer-science department at Columbus College.
Certainly, community colleges and four-year institutions in New York — both public and private — are already deeply involved in worker training (beyond offering traditional college-level education). In the Capital Region, for instance, Hudson Valley Community College has performed nearly $6 million worth of non-credit training for major employers such as NYNEX, General Electric and Albany International.
Those connections between business and our education community are highly valuable. We need to do much more. One promising idea, advanced by Senate Majority Leader Bruno and others, would use distance learning technology in conjunction with the resources of the University at Albany, Rensselaer Polytechnic Institute and Hudson Valley Community College to provide state-sponsored training for high-technology industry.(6) Governor Pataki’s budget proposes several million dollars for a new program that sounds similar, with funding available statewide on a competitive basis. That’s a good step.
Taking training further
A worthwhile step further would be to create a state-level job training assistance fund, along the lines of the JOBS NOW fund for incentive financing, to be used by employers of, say, 300 or more workers. Another approach could be to create a tax credit, not subject to the AMT, that would be used by businesses obtaining training from community colleges or other institutions. And community college funding could be restructured to guarantee a sufficient funding stream for free training for expanding businesses.
North Carolina isn’t the only competitor state offering job training; a number of states provide it "as of right" to qualified employers. BMW located a major new factory in Spartanburg, S.C., several years ago in large part because the state offered to help with training of employees.
"One of the main factors influencing the decision was the state’s intense pre-employment worker training program," consultant Robert M. Ady commented. "BMW found qualified workers and a flexible educational structure ready and waiting — a system fully oriented toward meeting the demand for both service and industrial workers."(7)
"The South Carolina education package included training in technical skills, leadership-team building, new management techniques and youth apprenticeship programs," the consultant added. "They will be developed jointly by BMW and South Carolina. Much of the training will be carried out in a state educational facility to be built on site for the exclusive use of BMW. ... South Carolina will handle all recruiting, screening and testing of potential employees, which may require the processing of as many as 50,000 applicants. The state will advertise for employees, screen and evaluate their educational levels and evaluate and assess their work-related experiences."
Sounds incredible, doesn’t it? Many in New York, of course, would sniff that South Carolina has to go to such lengths because it’s such a backwater it wouldn’t have a chance otherwise. Reality check: this medium-sized Southern state has been beating us out for quite a while. During the 1980s, when New York’s manufacturing sector was hemorrhaging some 400,000 jobs, South Carolina’s held steady. From 1990 to 1995, its personal income grew by 30 percent — fully half again as much as New York’s. In 1995, the Palmetto State led the nation in new manufacturing facilities, adjusted for the size of state population.
Here in New York, our job training system is a confusing, often ineffective hodgepodge of more than 50 programs with overlapping purposes and functions, operated by some 15 state agencies. Both job seekers and business owners who need help have a hard time obtaining truly useful assistance.(8) Those programs are still in dire need of consolidation, refocusing on results for the customers — workers and businesses.
Both of those customer groups would be well served by allocating more of our job training dollars into training for specific companies or employer groups. From 1991 to 1993, New York cut spending on such programs from $23 million to $2 million. As a result, we ranked 47th among the 50 states for spending per worker. Little funding has been restored since.
Other states, though, are moving ahead. Texas moved from last in spending for customized training programs to one of the top in the country, creating a $50 million SMART Jobs Fund in 1992.
Keep reducing overall business costs
The last thing we can afford, of course, is to let up on improving New York’s business climate. We must keep reducing the cost of keeping and creating jobs here.
"The cost of doing business in many South Atlantic states provides an attractive incentive, particularly when compared with the high costs of doing business in New York and California," the business information company Dun & Bradstreet said in releasing a recent report on employer migration among states. From 1991 to 1995, New York’s record of jobs moving in or out of the state was the worst in the country, D&B found. The Empire State lost a net 83,469 jobs to other states, with South Atlantic states such as North Carolina and Virginia attracting more than 20,000 of those. Business owners and managers weren’t just leaving for warmer weather or right-to-work laws; New Jersey and Connecticut took a combined 36,867 jobs from New York. (The good news: We added 62,150 jobs that came from other states during the period, including overall net gains from California, Texas, Illinois, Kentucky, West Virginia and Oregon. The bad news: The total number of jobs lost elsewhere, before counting those added, was 145,619.)
We’ve begun to make progress on big-ticket business expenses such as taxes and energy costs, but there’s a long way to go. In a recent survey of professional economic developers around the state by the New York State Economic Development Council, for example, the state’s most frequently cited economic development liability was our tax structure. And the states cited as our top competitors for new business and jobs all have lower costs across the board. They were North Carolina, Pennsylvania, South Carolina, Ohio, New Jersey and Virginia.
In the last three years, New York has made dramatic progress in reducing our general business taxes and personal income taxes. The next target in attacking New York’s historically high cost of government should be local property taxes on businesses.
Latest available data from the U.S. Census Bureau show our property tax burden is the fourth-highest in the nation, and 63 percent above the average of all states (see table, page 33). Those costs are especially discouraging for businesses that require large amounts of real estate — such as major manufacturers, a key target of our economic development efforts.
The property tax problem for businesses in New York is made worse by the tendency of many localities to hide their high costs from voters by imposing an unfair proportion of the property tax burden on commercial and industrial properties. In Niagara County, for instance, business property owners pay rates 160 percent higher than — that is, more than 2.5 times the rate of — residential property owners. More than a dozen other localities also artificially shift costs from homeowners to businesses. The discriminatory shift is perhaps worst of all in New York City, where utility and commercial property is taxed at rates five times those for homeowners. Is it any wonder the city has driven jobs away?
Governor Pataki’s proposal — now embraced by the Senate Majority as part of its tax reduction plan — to reduce property taxes by providing a new, state-funded exemption does not directly help businesses. The proposed cap on future school tax increases, though, could at least limit new costs for employers. Without such a cap, there is real danger of further cost shifts to commercial and industrial property taxpayers. As the Governor and the Legislature negotiate property-tax proposals, it’s vital that the impact on businesses — on our economy — be near the top of the agenda.
Our estate tax, costliest in the nation by far, gives family-owned businesses and major investors an incentive to move jobs and capital away. The Governor and Senator Bruno have proposed eliminating New York’s extra estate tax, as have Assemblyman Robin Schimminger and others — both Democrats and Republicans — in the lower house. Such a step would convince many business owners that things are truly changing in the Empire State, and keep significant investment capital in the state.
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Property Taxes Per Capita, 1993 |
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| Rank | State | Amount | Rank | State | Amount |
| 1 | New Hampshire | $1,410 | 27 | California | $666 |
| 2 | New Jersey | 1,366 | 28 | Virginia | 655 |
| 3 | Connecticut | 1,284 | 29 | Pennsylvania | 637 |
| 4 | NEW YORK | 1,188 | 30 | Indiana | 624 |
| 5 | Alaska | 1,125 | 31 | Ohio | 621 |
| 6 | Vermont | 1,010 | 32 | Georgia | 585 |
| 7 | Michigan | 982 | 33 | North Dakota | 564 |
| 8 | Rhode Island | 967 | 34 | Hawaii | 515 |
| 9 | Wisconsin | 919 | 35 | Nevada | 508 |
| 10 | Massachusetts | 914 | 36 | South Carolina | 505 |
| 11 | Illinois | 913 | 37 | Idaho | 479 |
| 12 | Wyoming | 890 | 38 | Utah | 461 |
| 13 | Maine | 878 | 39 | North Carolina | 425 |
| 14 | Oregon | 837 | 40 | Missouri | 390 |
| 15 | Minnesota | 837 | 41 | Mississippi | 388 |
| 16 | Nebraska | 787 | 42 | Tennessee | 371 |
| 17 | Iowa | 777 | 43 | Delaware | 347 |
| 18 | Montana | 765 | 44 | West Virginia | 322 |
| 19 | Texas | 749 | 45 | Kentucky | 306 |
| 20 | Florida | 749 | 46 | Oklahoma | 292 |
| 21 | Washington | 739 | 47 | Louisiana | 274 |
| 22 | Maryland | 726 | 48 | Arkansas | 261 |
| 23 | Arizona | 701 | 49 | New Mexico | 238 |
| 24 | Kansas | 696 | 50 | Alabama | 183 |
| 25 | Colorado | 686 | U.S. Average | $727 | |
| 26 | South Dakota | 681 | N.Y.S. % above average | 63% | |
| Source: Public Policy Institute calculations from U.S. Census Bureau data | |||||
Other taxes also require attention. As Governor Pataki has proposed, our insurance tax can be reduced for major New York insurers, making it easier for them to maximize employment here, with little or no cost to the state treasury.
The Senate Majority’s wide-ranging proposal to reduce business taxes would make thousands of New York companies more competitive for growth and jobs. The gross receipts tax on energy and telecommunications customers, to name just one, raises costs for many key industries. The same is true of our high petroleum taxes.
Major reforms to New York’s general corporate taxes, enacted in 1994, have helped improve our climate for investment. In addition to eliminating a 15 percent corporate surcharge, those reforms made our Investment Tax Credit more effective. That was accomplished by lowering the floor — known as the Alternative Minimum Tax — that companies must pay regardless of how many tax credits they have generated by making huge investments in New York. The AMT essentially serves as a cap on how much our tax code can reward the investments that create tremendous new numbers of jobs; some economic development experts believe its application to new investment should be repealed entirely.
In a related area, the ITC could be broadened to cover investments of non-retail service firms. The financial services sector, for instance, is absolutely critical to the state’s economy, especially downstate. A more favorable tax law could generate more investment, and more jobs, in financial and other service industries.
The Fiscal Policy Institute, a think tank sponsored by public employee unions and other organizations, is promoting legislation that would enhance the state’s Employment Incentive Credit — giving businesses additional tax credits when they add jobs. That’s a good idea, used in a number of other states. The institute’s proposed legislation would, however, put sharp new limits on the ITC. That would move New York in the opposite direction of our competitor states, which continue to add incentives for new investment.
The usefulness of New York’s research and development tax credit is limited because it applies only to capital investment. Many other states also allow use of the R&D credit against researchers’ salaries and other expenses; such a reform would enhance the Empire State’s attractiveness as a research center.
Our high energy costs are a major problem. More than 100 companies around the state now benefit from low-cost economic development power, which provides electricity at rates within the range of most of our competitors. Employers who are not able to take advantage of the program, however, pay rates that are far above, and sometimes double, the national average.
The Public Service Commission has set an ambitious timetable for bringing competition to our electrical industry, and has begun to act on individual plans with each major utility. That will reduce rates substantially — although perhaps not for several years. (And it’s worth noting that other states, with rates already lower than ours, also expect cost reductions as they enter the competitive electric marketplace.)
In the meantime, the state could make low-cost economic development power more widely available. Governor Pataki has proposed legislation, supported by the Senate, to do so. The Assembly has its own proposal. Both would set aside substantial additional amounts of low-cost power, but the bills differ in other respects. The sooner the state’s leaders reach agreement, the better off our economy will be.
The Governor and the Senate are also behind legislation to give utilities a new financing mechanism that could reduce rates by hundreds of millions of dollars. The Assembly has indicated it might support a narrower version of the bill.
1. "Who’s in the driving seat?", in A Survey of the World Economy, The Economist, October 7, 1995.
2. The Effects of State Policies on the Location of Industry: Evidence From State Borders, Staff Report 205, Thomas J. Holmes, Federal Reserve Bank of Minneapolis Research Department; rev. September 1996.
3. Toward A New Economic Strategy for New York State, New York State AFL-CIO, Albany; May 1993.
4. "South Takes Aim at Jobless Insurance Tax," The Wall Street Journal, Jan. 27, 1997; p. A-2.
5. "To Bolster Economies, Some States Rely More On Two-Year Colleges," The Wall Street Journal, page A-1, November 26, 1996.
6. "State targets jobs of future," Times Union, Albany, January 5, 1997.
7. "Why BMW Cruised Into Spartanburg," The Wall Street Journal, July 6, 1992.
8. See Workforce Get Ready: Creating Job Training Programs That Will Help New York’s Workers -- And Our Economy, The Public Policy Institute, July 1995.
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