Thursday, July 19, 2007

Revamping Empire State Development: stop playing politics, says report

A consultant's study was issued Tuesday calling for reform of Empire State Development (ESD), the state's chief economic development agency, which encompasses the Empire State Development Corporation (ESDC), the agency that has shepherded and approved the Atlantic Yards plan and oversees other large development projects.

The focus, in press coverage, was on technical fixes and a failed job-creation program. Only a close look at the report shows that, in key places, the analysts blame certain ESD/ESDC failures on "political patronage," "political convenience," and the "practice of favoring political over economic criteria."

In other words, a report commissioned by the administration of new Gov. Eliot Spitzer , a Democrat, takes strong issue with the practices of ESD/ESDC under longtime Gov. George Pataki, a Republican.

The report doesn't mention Atlantic Yards, but there's certainly evidence that the ESDC's board, which I described as "team players and big donors," didn't closely scrutinize the project when it was approved last November.

Press coverage

The lead from a widely-distributed Reuters article yesterday: New York state's economic development agency needs a top-to-bottom overhaul starting with a name change, to refocus it on creating higher-paying jobs instead of fighting poverty...

The New York Sun, the only city daily to cover it, in an article headlined Study Calls for Big Changes At Empire State Development, began:
A new state-commissioned study is recommending a major administrative overhaul for New York's primary economic development agency, Empire State Development, calling it far too decentralized and lacking in strategic vision to promote a thriving statewide business climate.

The Sun also pointed out that the Spitzer administration is preparing to send letters to more than 3,000 companies pointing out that they have not met their job creation targets...

The official press release:
New York State could double its rate of job growth by focusing statewide and regional economic development investments on emerging sectors of the “Innovation Economy” such as nanotechnology, bioscience and cleantech, according to a report prepared by global management consulting firm A.T. Kearney for the state’s Empire State Development organization.

Report basis

The consultants conducted interviews with 74 New York State-based executives from 65 companies and met with leaders of regional economic development organizations, legislators, professors and other subject matter experts.

The report is diplomatic. Unmentioned is the name Charles Gargano, former chairman of the ESDC, who served as the chief fundraiser for Pataki. As I reported 2/16/06:
An 11/7/99 review by the Daily News showed that 40 of 201 companies that received ESDC loans or grants had given political contributions to Gov. Pataki or other Republican causes. In a 9/26/96 article in Newsday, state Sen. Franz Leichter, a Democrat from Manhattan, called the ESDC a "political slush fund" for Pataki, citing 11 procurement contracts to firms politically linked to Republicans.

Changing the name

The report says the agency's name is confusing:
That said, almost everything about the historical ESD needs to change, beginning with its name, which fails to leverage the state’s most recognizable asset, the words “New York.”

Empire Zones

The report severely criticizes a supposed job-creation strategy:
Of all the programs examined here New York’s Empire Zones program provides perhaps the best example of good economic development intentions gone wrong. Its original mission has been morphed by political patronage, legislative revision and commercial manipulation, effectively repositioning it from a program primarily helping distressed communities to one routinely offering tax relief for ongoing businesses.

Moving forward

The report calls for more institutional integrity:
History is not ESD’s friend. The agency lost the full confidence of the legislature years ago, largely for good reason…

The first step on the journey requires ESD to reject its legacy of regional patronage, a pattern of funding one-off solutions, and a perceived preference for practicing the economics of political convenience.


ESDC and more

One section of the report looks closely at subsidiaries, notably ESDC:
One of ESD’s products that is most visible to New Yorkers is its network of subsidiaries. This portfolio of large deals targets development in urban areas and economically challenged communities.

Subsidiaries [of ESDC] include such projects such as Lower Manhattan Development Corporation, the Queens West Development Corporation, and Moynihan Station Development Corporation. New York can scarcely afford to squander any opportunity to improve its infrastructure. To date, delay and design flaws have characterized much of the work done under these subsidiary organizations. In most cases the problems have stemmed from ESD’s practice of favoring political over economic criteria in making major project decisions…

(Emphasis added)

A solution:
In order to correct this, ESD will need to tighten its management control over the subsidiaries and ensure that each entity’s operations are publicly transparent and financially responsible.

Interestingly enough, Atlantic Yards is not yet managed by a subsidiary; critics like BrooklynSpeaks have called such a subsidiary crucial to public input and transparency if the project moves forward.

Parent vs. subsidiary?

So, what's the difference between parent and subsidiary? Empire State Development (ESD) is New York State's lead economic development agency. It is the parent of the Empire State Development Corporation (formerly known as the Urban Development Corporation) and the Job Development Authority, among other subsidiaries.

Often, however, the names Empire State Development Corporation and Empire State Development have been used interchangeably. For example, in this official press release, Patrick Foye is described as "Empire State Development Chairman/Downstate." In this official press release, he's described as "Empire State Development Corporation Chairman/Downstate."

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