The Mismanagement of Industrial Development Agencies in NY

There are over 100 Industrial Development Agencies (IDA) in New York state. Their main purpose is to promote and assist with constructing or maintaining certain business facilities. Because of that assistance, IDAs supposedly help advance job opportunities throughout the state. They aim to make it easier for businesses to prosper and intend to create an economic boost and job growth by acting out their main functions: purchasing and leasing property, issuing debt to new and growing businesses, and allowing businesses to be exempt from certain forms of taxation.

The goal of IDAs is admirable. We can all agree that a strong economy and job growth is a positive thing. But there are many problems with their implementation and execution. The idea that businesses will be drawn to certain areas based on incentive packages and tax breaks holds some merit, but programs like these are no more than crony capitalism, or corporatism.

Crony capitalism is what happens when businesses profit from having money given to them (or having less taken from them in taxes) through a deal between the business and the government. Instead of taking a certain amount of risk, they are insulated from risk by your tax dollars. This is how an IDA works. For example, an agency may lease tax exempt property or issue bonds to a company that is planning on moving to or expanding in that area. Giving these benefits to big corporations while taxing local businesses makes an unequal playing field, giving advantages to special interest over small businesses. Not only that, but it shifts the property tax burden from big businesses to working families.

But IDAs have more problems than simply the underlying corruption. The criteria that decide which types of businesses get these benefits are often inconsistent. There is also a history of inaccurate reporting and billing. For businesses which are exempt from certain taxation, they make PILOT agreements with the IDA for payments overtime. The PILOT (payments-in-lieu-of-taxes) agreements in 2005 underbilled more than $51,000 from some businesses and overbilled more than $38,000 from others. These mistakes were due to vague term agreements and inadequate communication and monitoring.

This mismanagement is concerning, but not surprising. Government agencies are notorious for their inefficiencies. But worse, the main goal of IDAs, to create additional jobs than would be created without them, isn’t even achieved. Many of the jobs claimed to have been generated by IDAs would have been created without agency involvement.

The problems with government claiming it creates jobs are that 1) government does NOT create jobs. Entrepreneurs do. And 2) if the main goal is to create jobs (not to finish a project, or to sell a product/service), it will be at a loss of money and time. For instance, it would create a lot of jobs to require everyone to use spoons instead of shovels—thousands of digging jobs would be “created.” But that would be a drag on the economy as all of those people could instead be pursuing something more productive. Thus, IDAs have no incentive when doling out tax breaks to reach any goal efficiently, if the goal of “job creation” appears to be accomplished. The use of IDAs for this task is unnecessary and, at the least, must be scaled back.

So what can government do to make it easier for job growth to happen? Making the market as free and open as possible by making it easy for local businesses to open will increase job growth. After all, businesses are simply people who believe they have an idea, product, or service that will help others so much that people are willing to pay them for it. How will job growth happen? By getting government out of the way of people who want to offer a product or service to others at better price or quality than what is currently available.

As one example, New York should stop raising the state minimum wage. Every time the wage is raised, it makes it more difficult for people to hire employees to help them offer better products and services to the public. With a high minimum wage, businesses can’t afford to keep as many employees, automation takes over, and it makes it difficult for people to start at entry-level positions. It makes it nearly impossible for low-skilled workers to find work. And it also makes it hard for start-up companies to compete with large corporations who can afford to pay the higher wages.

Another way to keep government out of the economy is to eliminate occupational licensing. Under the current rules, if people want to start a business braiding hair, for example, they must go through thousands of hours and dollars to get a cosmetology license. This is unnecessary and no doubt stifles business development. Protecting consumers from accidents or other hazards is important and market regulations would still be in place to do that.

But current state regulations are too burdensome on business owners like a hair braider. And the thousands of dollars that need to be spent to obtain a cosmetology license will get passed down to the consumer to balance out that cost. So if the hair braider didn’t have to spend the money to obtain the license, the service would most likely be less expensive. Also, according to the Obama administration, these burdensome regulations keep employment down for licensed professions.

Don’t listen to a politician when they tell you they created X amount of jobs whether because of IDAs or some other incentives. As John Stossel writes, “jobs come from government getting out of the way and letting employers produce goods”. Government leaders need to empower business owners to run their businesses the way that works best for them.