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Testimony of State
Senator Liz Krueger Before the Industrial Development
Agency (IDA) Regarding Bank of America’s Proposed $42 Million
Benefits Package February 5, 2004
Good
morning, I am State Senator Liz Krueger and I represent the 26th
Senatorial District, which includes Midtown and the East Side of
Manhattan. I want to thank the IDA
for allowing me the opportunity to make a statement regarding concerns that I
have with the proposed One Bryant Park Land Use Improvement Project and Bank
of America’s (BoA) proposed $42 million benefits package. While the project offers several valuable
amenities and sets a standard for the development of “Green” buildings, it
also raises serious questions regarding the use of eminent domain, corporate
subsidies, and New York’s overall strategy for economic development. Our
economic development strategy has been a defensive policy that reacts to
individual companies’ threats to leave, and has resulted in an overemphasis
on the finance and real estate industries.
In fact, with the overwhelming majority of retention deals being in
the financial services, banking, and insurance industries, they have almost
exclusively focused on Manhattan’s central business districts. According to a recent report issued by
Center for an Urban Future entitled Engine Failure, these
policies have destabilized the city’s economy, ignored the employment needs
of most residents, and failed to develop a comprehensive workforce
development strategy. We need to
foster an economic development strategy that focuses on a more diverse
economy and a broader geographic base. As
such, New York City should reassess the commonplace usage of discretionary
funding and subsidies for corporate retention deals. Over the past six years, more than $2
billion of New York City and New York State funds have gone to some of the
world’s most profitable companies in the name of job retention. Time and time again, New York City has
given tax breaks and incentives to corporations, such as Merrill Lynch, Paine
Webber, Chase Manhattan Bank, Citicorp and Viacom, only to be thanked by
mergers and layoffs. In fact, this is
not the first time that BoA has received tax subsidies for a corporate
retention deal. In 1993, BoA asked
for $12 million in sales-tax abatements in exchange for a promise to retain
1,700 employees at the World Trade Center.
A few years later, the sales-tax deal was terminated when BoA merged
with Security Pacific National Bank and laid off 800 employees. This
brings us to the present matter at hand, which is the $42 million benefits
package that BoA has applied for. The
package is comprised of $6 million in
sales tax exemptions for job retention; $32.5 million in sales tax exemptions
that can be earned by adding jobs; and $3.5 million in energy discount
savings. BoA plans to retain 2,995
employees and projects that it can create 2,896 new jobs over the 25-year
term of the deal. This proposal comes
on the heels of a state-brokered deal that exempts the Durst
organization and BoA from paying state real property taxes, mortgage
recording tax and sales & use taxes from 2008 until 2028. While they will be required to disburse
payment in lieu of taxes (PILOT), New York City will ultimately lose out on
millions of dollars in potential tax money.
Many studies have highlighted that this model of corporate welfare and
job retention does not work.
Furthermore based on BoA’s past record of having once broken the terms
of an extremely lucrative job retention deal, they should not be eligible for
another parallel deal. With
these significant reservations in mind, I also believe the use of Liberty
Bonds to broker this type of deal is a misallocation of this funding. This bond issue would be the biggest yet
under the Liberty Bond program, which gave New York State and New York City
the right to sell $8 billion in tax-exempt securities to spur development
after the World Trade Center tragedy.
Durst and BoA have obtained preliminary approval for $650 million in
Liberty Bonds, which will cover 65% of the project costs. Considering that the purpose of Liberty
Bonds is to stimulate business throughout New York City, I believe that it is
inappropriate for such a large sum of money to go towards one project. New York State should not be functioning
like a real estate speculator on behalf of large corporations and developing
a midtown office building in spite of the current glut of office space in New
York City. An
interesting footnote is that BoA recently merged with FleetBoston. According to the Cost/Benefit Analysis,
all FleetBoston employees are excluded from the retention deal and BoA will
assume all obligations of the existing IDA transactions with regard to the
employment and operations of Quick & Reilly/Fleet Securities Inc. In 2000, FleetBoston was granted a 15 year
corporate retention deal in which they received $4.8 million in municipal tax
incentives and promised to retain 1,085 jobs and create 901 jobs. So far, they have only managed to create
65 jobs. Will this merger ultimately
result in layoffs to employees of FleetBoston? Will this influx of FleetBoston employees serve to inflate
BoA’s employee numbers through department transfers, while ultimately
decreasing the total number of employed New Yorkers? The
current system for corporate tax expenditure deals, so commonly used in our
city, has raised many questions and concerns by the public and elected
officials. Hence, I have introduced
the State Corporate Accountability for Tax Expenditures Act. The ultimate goal of the Act is to provide
a comprehensive record of all economic development incentives that are
entered into between state entities and businesses in order for the
Legislature and the Governor to make well informed decisions about tax
expenditures. The bill requires that
state economic assistance provided by any state agency, public authority or
public benefit corporation, as an incentive to a business organization must
be based on the terms of a written incentive agreement between the department
and the business organization. Most
importantly, the Act mandates that if a business organization either fails to
make the requisite level of capital investment in the project or fails to
create or retain the specified number of jobs within the specified time
frame, the business organization shall be deemed to no longer qualify for the
State economic assistance. I believe
that similar standards should be applied to the BoA project. Once
again, thank you for the opportunity to comment on this project.
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