Corporate Welfare

The EDC operates all revenue-generating land owned by the city — 66 million square feet of real estate generating $150 million annually. Its portfolio includes the city’s airports, cruise terminals, and a dozen public properties in Times Square, which the state declared “blighted” and acquired through urban-renewal powers in the 1980s. The rent from these properties provides most of the EDC’s operating budget, which it frames as “self-sustaining.” 

In reality, the arrangement allows the EDC to avoid democratic control over what should be public money. 

In the past year, it has garnered criticism for using those revenues to heavily subsidize the city’s expensive ferry system. For an agency that prides itself on data-driven policies and technical expertise, ferries have proven a surprising excess — the EDC closed out 2019 with an operating loss of $1.8 million due to ferry expenditures. 

The EDC owns the land under its properties, some of which it leases to luxury hotels and large firms like Disney. Rather than assessing conventional property taxes on these properties, it collects payments in lieu of taxes (PILOTs). These arrangements allow increases in value past a certain threshold to be captured solely by the lessee; they not only allow the EDC to capture public funds before they can be democratically managed but also allow already wealthy lessees to underpay the city for valuable property. The lessees enjoy rapidly rising values, but the city only sees a flat annual payment, while locals are left with higher costs of living. 

The EDC uses its immense powers and subsidies in the name of job creation — but it’s unclear how many jobs it actually creates. At a 2019 city council hearing, then council member Ritchie Torres skewered then EDC CEO James Patchett for the corporation’s anemic progress on the de Blasio administration’s marquee jobs program.

“Anyone who heard the mayor’s [2017] State of the City would believe there are actual jobs . . . but anyone who believes that is operating under a false assumption,” Torres said. 

While promising one hundred thousand good-paying jobs, EDC could only claim credit for three thousand — which took $300 million in public spending to create. 

The vast subsidies the EDC doles out to private firms leave the city hostage to those very subsidized firms: they can always threaten to leave when their contract or lease is up, leaving the city no better off. Meanwhile, firms can always slash jobs, with only nominal fines. 

Pfizer, for instance, took in $46 million from the EDC in 2003 as encouragement to stay in the city. In 2010, it returned $24.7 million after slashing its workforce. This left the company with over $21 million in city benefits, even though it had eliminated more than a thousand jobs and, according to an executive, never planned to leave the city in the first place. 

The EDC’s theory of job creation is intentionally vague and unscientific. Peruse the cost-benefit analyses that justify the public expenditures of subsidies and tax breaks, and you will find benefit estimates padded by “induced” and “indirect” benefits — namely, the general positive economic consequences of more people having jobs. But there is no effort to compare those numbers to realistic alternative uses of the foregone revenue. 

For example, in 2012, the EDC contributed $81 million to move a Fresh Direct warehouse from one borough of New York City to another — then claimed credit for the benefits generated by those warehouse jobs.

“Often, when it comes to these subsidies, we’re told that we’re not spending a dime. It’s always the subtext of ‘manna from heaven, we should be grateful!’” said Greg LeRoy, executive director of Good Jobs First, a group that tracks economic subsidies. “But that’s nonsense.” 

The EDC’s theory of development is a version of the Keynesian multiplier effect, which suggests that the more the government invests in the economy, the more the effects will multiply across the economy. But in classic Keynesianism, the multiplier effect starts with the government actually providing jobs. The government hires workers to, say, build a dam, and then the workers spend their wages, supporting businesses and strengthening the economy. 

In the EDC’s theory, the multiplier effect starts with the government giving money or cheap land to businesses. These businesses then make vague and unenforceable promises to do some hiring. But many of the greatest beneficiaries of city economic subsidies, such as the New York Yankees or Fresh Direct, are far from major providers of living wage jobs. Other beneficiaries, like Pfizer, can simply drop their workers when they no longer serve the bottom line. 

If the goal of the EDC were indeed to stimulate the economy, why not simply directly employ workers and leave unreliable private businesses out of the equation? 

Beyond jobs, the EDC justifies itself as an investment in the city’s future, spurring growth and thus expanding future tax revenue. According to the NYC Department of Finance, real estate tax abatements cost the city $440 million in lost property taxes in 2020 alone. Mayors and city council members have historically defended tax abatements like these, arguing that they enable the city to capture property taxes on inflated real estate values later on. The tax abatements resemble a snake eating its own tail — revenue is forfeited today for a tomorrow that never comes. 

In addition to subsidizing wealthy corporations and inflating property values, the EDC functions as a major contributor to gentrification and inequality in one more way: by facilitating rezonings, which have exacerbated rising land values and the inequality fueling gentrification over the past two decades. Technically, rezonings are handled by the Department of City Planning (DCP). But over the last two decades, the EDC has played a major role in coordinating them with developers, who have overwhelmingly benefitted from this arrangement. 

“A lot of what the EDC does is basically be a cheerleader for land-use proposals that are bad,” Salazar said. One of the most contentious proposals was the rezoning for the Bedford Union Armory, in which EDC gave away public land to a private developer in the rapidly gentrifying neighborhood of Crown Heights against vocal community opposition. 

A Path Forward

After the recent primary elections and in the wake of the coronavirus-induced recession, the future of the city’s economy is up for grabs. The Left should seize the moment and offer a vision that prioritizes economic development through more democratic forms of public investment, creating social return on investment for the most vulnerable in our city. At a minimum, this means restructuring economic development energy away from real estate firms and toward community institutions.

“I don’t see any reason why we can’t have a radically different approach to economic development to the state so that corporations are not receiving any public funds,” Salazar said. 

As the Left begins to amass power in New York City, it must reckon with how to engage with the EDC and its immense powers. To start, we could redirect funds from corporate welfare to deliver relief to the New York City Housing Authority residents who need it most. We shouldn’t have to rely on rezonings and gentrification to raise funds for public housing. But in the long term, we should seek to abolish the EDC and establish more democratic forms of deciding what gets developed and how the public pays for it. 

This moment is ripe for investing in the people and city of New York. In its social-democratic heyday, the city strengthened its economy by providing good housing and high-quality education. Instead of funneling money to unreliable employers or developers who make our cities unaffordable, we could return to those priorities and create a city affordable and livable for working people. 

That would be real economic development.