Last month, Joseph Percoco, former aide to New York Governor Andrew Cuomo, was found guilty of conspiracy to commit fraud and soliciting bribes for nearly $300,000 in connection to several multimillion-dollar economic development contracts in upstate New York. Next month, Alain Kaloyeros, the former President of the State University of New York Polytechnic Institute, will similarly go to trial on federal bid rigging, fraud, and bribery charges related to the upstate economic development project the “Buffalo Billion.” As I previously wrote, these are two of six high-profile corruption trials in New York this year—cases that have already generated calls for ethics reform (see here, here, and here). While similar calls for reform after the high-profile convictions of former New York state legislators Sheldon Silver and Dean Skelos were largely ignored, one modest proposal seems particularly promising: creating a public database of businesses and organizations that are awarded state economic development contracts and grants.
New York state and local governments spend over $8 billion on economic development programs each year, the most of any state in the country. However, little clarity exists about which companies receive subsidies, the value or amount of these subsidies, the employment and investment commitments tied to these subsidies, and whether these commitments are being met. This opacity not only makes it difficult to assess the successes and failures of development programs, but also creates opportunities for the type of corruption that ensnarled Mr. Percoco and Mr. Kaloyeros. Creating a database of all public economic development benefits (including grants, loans, or tax abatements) would increase transparency and accountability. Such a “Database of Deals” would provide a central source for authorities to monitor and flag irregularities, increasing public confidence in the procurement process, and deterring corruption by individuals who know that the public can assess the return on investment for each economic development project.
The recently passed 2019 New York State Budget included billions of dollars in new appropriations for economic development, yet bi-partisan legislation creating a “Database of Deals” was dropped from the budget the day before it passed. However, the New York state legislature still has several months to pass similar legislation. Moreover, six other states—including Florida, Maryland, Indiana, Illinois, and Wisconsin—have created and implemented similar searchable databases after calls for greater transparency and accountability. If and when New York, and other states, create similar databases, there are certain “best practices” that they ought to follow, to maximize the effectiveness of these databases in deterring corruption.
- First, states should collect information from every state and local entity distributing economic development incentives. In New York, this means collecting data from local industrial development agencies (IDAs) and local development corporations (LDCs), which make up more than a quarter of economic development spending statewide. Although these local authorities are required to disclose some information under the Governmental Accounting Standards Board standards, uniform collection would standardize the format, depth, and location of such data; would make it easier to analyze; and would “provide a necessary overview of the state’s tangle of economic development programs, many of which have their own reporting requirements, which are often ignored.”
- Second, states should collect comprehensive indicators on each project, including direct subsidies, tax expenditures, spending by authorities, and power association discounts (which, surprisingly, can be worth millions). This should include “the name and location of the participant, the time span of received economic development benefits, the type of benefit received, the total number of employees at all sites of a project, the number of jobs a participant is obligated to retain and create during the project, the amount of economic development benefits received for the current reporting year, and a statement of compliance indicating if any other State agency has reduced, cancelled or recaptured economic development benefits from a participant.” The Illinois database is an example of an existing database that similarly includes comprehensive information and data.
- First, the database should be updated frequently and reporting requirements should be enforced. Enforcement is important because unfortunately many existing reporting requirements for local authorities are ignored. In fact, a May 2017 audit found that New York’s Empire State Development Corporation itself failed to meet more than half of the reporting requirements for tax credits and job creation programs. Similarly, in 2007 New Jersey mandated a Unified Economic Development Budget (UEDB) (which would include jobs created, how much they pay, and whether those jobs were occupied) for all corporations receiving more than $100,000 in state subsidies. As of 2014 the New Jersey Treasury Department had not published the UEDB. Thus, states must ensure that a database is published and updated regularly (perhaps requiring quarterly updates), and enforce reporting requirements for businesses and organizations.
- Second, data should be disseminated in a user-friendly way. Specifically, it should be easily searchable, sortable, and downloadable. Examples of existing databases that do this well include the Wisconsin database and the Maryland database (which features one-click exportability). Databases should be “searchable by individual fields, downloadable in whole or parts, include contract and award agreements, summarize available economic development benefits and provide a data dictionary for field terms.” States could also emulate the innovate practices of local authorities, such as the Economic Development Corporation (EDC) in New York City, which publishes a map showing major projects and data across the five boroughs.
Using Data Effectively:
- First, since “[g]ood data and specialized research units in state government are important building blocks for any economic development effort,” resources should be dedicated to research and analysis of the information in the database, including through collaboration with research facilities and universities on regular reviews of the collected data. Such research should focus not only on producing and promoting efficient programs, but also on eliminating opportunities and potential for corruption brought to light through information in the database.
- Second, states should adopt, in conjunction with the Database of Deals, an independent investigative and enforcement authority. For example, New York’s Governor Cuomo has proposed creating a new inspector general (answerable to the Governor) to “look into future economic development contracts forged with private companies.” On the other hand, advocacy groups have proposed reinstating the power of the State Comptroller General to review and approve all state contracts over $250,000, or all contracts for the State University of New York, City University of New York, and Office of General Services. The Comptroller had such authority until 2011, when it was taken away by an agreement between the State legislature and Governor Cuomo.
Transparency about who is receiving state economic incentives, and their success and compliance with job creation and other state mandates, is an important first step to combating corruption in the world of economic development incentives. Such transparency—along with other systemic change, including limits on who can serve on local development corporations—would make it more difficult for people like Joseph Percoco and Alain Kaloyeros to game the billions of dollars in economic development incentives provided in New York and states across the country.
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Very interesting post Harmann, thanks for sharing. Do you have any insight as to why the “Database of Deals” was dropped from the recent budget in NY? Was it because of monetary reasons (assuming this is the likely answer), or was there some pushback to the idea from legislators?