Issue of the Week

Building A Stronger City Economy

By Erica Pearson and Gail Robinson

12 August 02

When Daniel Doctoroff, deputy mayor for economic development and rebuilding, suggested that the city swap the land it owns at Kennedy and LaGuardia airports for the land the Port Authority owns at Ground Zero, he seemed to be offering a simple solution to a complicated problem -- how to reconcile the public's demands with the Port Authority's needs. The plan won immediate support from many New Yorkers and skepticism from others.

It also focused attention on many issues surrounding the economic health of lower Manhattan and the city as a whole. The debate over what to do, and where, takes place at a difficult moment for New York. The city just struggled to close one $5 billion budget gap and almost immediately found itself facing another shortfall. The economy lost tens of thousands of jobs and millions in revenue because of the attacks on the World Trade Center.

To meet these challenges, the Bloomberg administration has:

  • distributed grants to keep businesses downtown
  • tried to attract a few splashy events such as the 2012 Olympics
  • resisted tax hikes
  • looked to develop the far West Side of Manhattan
  • and proposed various ideas, such as improved electricity plants and better schools, in the hopes that it would make the city more attractive to business.

Most of these ideas have critics as well as proponents. Some of the critics argue that the city's approach is too piecemeal and have put forth their own ideas that they say would improve the New York economy.

GROUND ZERO: THE BIGGEST DEVELOPMENT PROJECT

Legally, the mayor has little power over what is built at the World Trade Center site. The proposed land swap, though, would give his administration a role in planning for the World Trade Center site. Former investment banker Doctoroff has become the city's representative in the effort "by sheer force of personality," the New Yorker wrote in May.

The Port Authority has leased the land for the airports and operated them since 1947, but its role at Kennedy and LaGuardia has not always been secure. Former Mayor Rudolph Giuliani sought to break the Port Authority lease and turn their operation over to a private company.

If the Port Authority got the land, the city would lose its total control of the airports and no longer receive the $3 million the Port Authority pays each year for the land. This annual rent could rise to more than $60 million when the leases are renegotiated in 2015. Meanwhile, moving control of the Trade Center site from the Port Authority to the city would open the site up to city building restrictions and local ordinances, slowing down the rebuilding process.

Specifics of the proposed swap remain murky. Bloomberg announced that this would not be a simple land for land deal, but he and Doctoroff have yet to fill in all of the blanks.

"The proposal bears all the hallmarks of a Doctoroff idea: It's bold and simple on its face, but technically complicated and politically sensitive just beneath the skin." wrote the New York Observer.

A STRATEGY FOR THE WHOLE CITY?

In his capacity as deputy mayor, Doctoroff's job is to help New York City create jobs and attract businesses that will pay taxes and spend money. These efforts to attract money and investment are generally lumped together under the phrase economic development.

But luring businesses involves tradeoffs. To attract a new factory, a city may have to grant it a costly tax break. The factory could demand expensive infrastructure improvements. Residents might argue the new business pollutes or would otherwise disrupt their community. In New York City, for example, neighborhoods have tried to stop the development of large chain stores that might increase traffic or drive small local establishments out of business.

But recently, the most hotly debated tradeoff has involved how much emphasis the city should place on rebuilding lower Manhattan at the expense of the rest of the city.

Those urging a focus on lower Manhattan note that that was where the planes hit, and the jobs there have a powerful effect on the overall economic health of the city. But others say that the economic aftereffects of the attacks hit all five boroughs, and so recovery funds should be evenly distributed.

The question of where to concentrate effort became a major issue during last fall's Democratic mayoral primary. Experts weighed in on both sides. New York University Professor Dick Netzer argued in Gotham Gazette that the city must rebuild quickly and so should concentrate on putting new office space above 14th Street where construction could begin immediately.

But Carl Weisbrod, president of the Alliance for Downtown New York, countered that downtown must be rebuilt because of its role as "a critical engine of our economy, its history as the birthplace of the city and the nation, its architectural splendor and now, its unexpected and tragic role as a site for grief and prayer."

The city has lost 132,400 jobs as a result of the attacks and the economic downturn, and many of those are not in downtown Manhattan. "How about the garment workers in Chinatown, or the airline employees in Kew Gardens that are now out of work?" said Bettina Damiani, director of the watchdog group Good Jobs New York.

So far, the city has spent most of the federal aid downtown. According to a June Independent Budget Office report, a total of $292 million in federal aid to the city has been given to lower Manhattan businesses. While $224.8 million of that went to small businesses below 14th Street, public attention has focused on the millions that went to large downtown businesses and institutions, like American Express and Pace University.

All six designs for the trade center site released last month by the Lower Manhattan Development Corporation included rebuilding the 11 million square feet of office space that existed before the attack.

But critics say all these lures may not keep businesses downtown anyway. They point to a longtime exodus of businesses from lower Manhattan to midtown. The New York Times reported that one half to two thirds of large lower Manhattan businesses will not commit to staying downtown, despite the government grants and tax breaks.

Even one of the major anchors of downtown business-- the New York Stock Exchange--may not be as secure as city officials had hoped. Before September 11, the Giuliani administration secured a deal with the stock exchange to build a new, subsidized trading floor and office tower--estimated to cost the city over $1 billion--across the street from its current location.

When he took office, Bloomberg cut the city subsidy to a maximum of $400 million. This month, the exchange announced that it would not build a new facility across the street from its Wall Street location and instead may expand to Westchester.

"Bloomberg stood up to them in a way that Giuliani did not," said Stephanie Greenwood, an analyst at Good Jobs New York. But if the stock exchange moves jobs out of New York City, some might question the wisdom of standing up to the big board.

TAX BREAKS

New York City's strategy for keeping new businesses has consisted largely of not standing up to big businesses but offering them financial "carrots," such as reductions in property taxes and other taxes. Companies threaten and the city responds. Or companies dangle the possibility of coming here, and the city antes up.

During the Giuliani administration, the city spent $8 billion on tax breaks and other inducements to try to keep companies in the city, according to the Center for Excellence in New York City Government at New York University. But, the Center for an Urban Future found that 39 companies given tax breaks still cut a total of some 40,000 jobs. And the center's research director Jonathan Bowles told the City Council that most of the tax incentives went to large companies while most firms in the five boroughs are small businesses.

Bloomberg himself has questioned the efficacy of tax breaks. Before becoming mayor he said, "Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long." Last year, his own firm won a $14.4 million tax break from the city, but turned it down after Bloomberg was elected mayor. Despite this, he is using tax breaks in lower Manhattan.

THE PROMISE OF THE BIG EVENT

Much of the administration's economic development strategy seems to revolve around big events that it hopes will generate jobs, bring in money and create a positive image of New York. Doctoroff, who was president of the private Olympics lobbying group NYC2012 until Bloomberg appointed him deputy mayor, continues to court the Olympics and other high profile events, such as the 2004 national political conventions.

Doctoroff thinks these events send a message. "I personally believe that the 1992 [Democratic] convention helped turn the city's fortunes around and started the change in perception the city enjoyed over the coming decade," Doctoroff has said.

But critics say such expensive, splashy events waste money. "Why spend billions of dollars in public and private money to tie up huge areas of the city for an athletic event that lasts only 17 days?" wrote sports commentator Evan Weiner about the Olympics plan in Newsday.

NYC2012 has said it will cost about $3.3 billion in private funds for New York to host the Olympics. This includes expanding the Jacob Javits Convention Center to include a West Side stadium and building an Olympic Village in Queens. High-speed ferries would transport fans and athletes, and the number 7 subway line would reach from the Nassau Coliseum on Long Island to Giants Stadium in New Jersey. Some of these improvements would remain in place. The Olympic Village, for example, would become permanent housing.

(In November, New York will learn if it is the single U.S. candidate to host the games.)

DEVELOPING THE WEST SIDE

Key to the Olympics plan in particular and the city's development strategy in general is what Doctoroff has termed "Manhattan's final frontier." To encourage development of this area, west of Seventh Avenue and between 42nd and 24th Streets, the city hopes to extend the number 7 subway line and expand the Javits Center. Doctoroff envisions a stadium, which is vital to his plans for the 2012 Olympics. The area would also include high-density commercial and residential development and entertainment and cultural facilities.

In addition to uncertainties about funding, the development faces opposition from some community groups. The New York City Neighborhood and Civic Coalition says the proposal for the stadium and commercial skyscrapers, would displace residents and businesses, while creating a traffic "nightmare."

WHAT KIND OF JOBS?

If the past can serve as a guide, any eventual office buildings in the far West Side will provide workplaces for people in finance and related industries. Finance is the foundation of New York's economy and has been the target of its economic development strategies. But some critics say the city has become far too dependent on financial firms that are more likely to employ suburbanites than city residents. A recent study by the Fiscal Policy Institute found that 87 percent of the managers and 76 percent of the professionals in the security industry in New York are white, while only 35 percent of the city population is.

Some urge the city to try to develop a more diversified economy by courting new industries and manufacturing, which has declined in New York State. In the city, space for factories has been lost to big chain stores, such as Home Depot and Costco, and their parking lots. A study by the Pratt Institute for Community and Environmental Development found, "over the past three decades, public policy has all but ignored New York City's manufacturing sector." Despite this, a quarter of a million people still work in manufacturing in the city.

To attract a variety of jobs, New York, some experts say, must not simply respond to threats but, like New Jersey, institute a consistent integrated policy, which goes beyond tax breaks and includes low rents and convenient transportation. New York City, the Center for Excellence in New York City Governance said in a paper issued last summer, needs to move away "from unfocused retention grants and tax abatement and toward marshaling the city's budget, tax policies, economic development programs and capital investment to spur that new vision of future development."

The center and others argue the city should concentrate on specific areas or sectors with the greatest potential for growth. They call this a sector approach. "A sector strategy is a strategy of attraction rather than retention," Kathryn Wylde, president of the New York City Partnership told City Council in June.

And, others note, the effort should not be limited to new industries. At a forum last winter, Joan Bartolomeo, president of the Brooklyn Economic Development Corporation, said that in addition to looking for businesses on the cutting edge, the city should nurture those areas that already employ New Yorkers. Noting that restaurants and bars provide the third biggest source of jobs for Brooklyn residents, she said, "How can you avoid trying to support industries like that, which. . . are obviously a huge employment category for New York."

The Labor Community Action Network, which includes members of union, community groups and advocacy organizations, takes a more traditional liberal approach. It urges the city to use some of its federal aid for downtown redevelopment to create 75,000 new jobs by subsidizing work in the private sector and creating short-term jobs in the public sector.

IMPROVING THE QUALITY OF LIFE

Big business and the politicians who loved it used to say "What's good for General Motors is good for America." In a twist on this old saw, some now argue that what's good for New York City is good for General Motors, or biotechnology, financial services, small-scale manufacturing--take your pick.

Although he may never have expressly said it, this was the basis of former Mayor Rudolph Giuliani's economic development strategy, Steven Malanga of the Manhattan Institute wrote in a spring 2001 article in City Journal. Looking back at the Giuliani administration, Malanga wrote, "Perhaps the key factor in sparking economic growth has been the city's success in bringing its crime problem under control." The reduction in crime sparked a surge in tourism and in development of previously crime ridden neighborhoods such as Downtown Brooklyn.

In looking to continue the job growth, Bloomberg last fall cited things he hoped to do to make the city a better place. For example, he called for upgrading power plants and increasing the city's supply of housing, perhaps by getting the unions to invest pension funds in new construction. And he stressed the importance of providing potential employers with a well-trained workforce by improving education.

The budget crisis has focused attention on another part of the mayor's economic development scheme: his refusal to increase taxes. "Raising taxes is not an option," he wrote last fall. "Higher taxes are a disincentive to those considering moving into the city--and encourage those already here to leave. The net effect of almost any tax increase would probably be a reduction in total tax revenues received."

The question remains how he can keep taxes down and make New York an attractive place to live and do business. Or as the Labor Community Advocacy Network, which supports tax hikes, put it, "A good business climate requires sustaining the places employees live. That means good public schools, affordable housing and livable communities."

While workers would surely appreciate such improvements, the question is whether businesses will bite.

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