Friday, September 18, 2009

From "economic impact analysis" to "economic benefit analysis;" behind the ESDC's funny numbers and methodology

There are multiple layers of deception, obfuscation, and inconsistency attached to the "Economic Benefit Analysis" included in the memorandum distributed yesterday to the board of the Empire State Development Corporation (ESDC) before it voted to approve the 2009 Modified General Project Plan (MGPP) yesterday.

First, it was once called, somewhat more accurately, an "economic impact analysis," given that the ESDC was willing to consider some public contributions and thus not simply tote up new revenues. Second, the ESDC once mentioned the value of public improvements and infrastructure.

More importantly, the "economic impact analysis" was never a full cost-benefit analysis, given that it looked at public costs and subsidies quite narrowly.

And most importantly, the new numbers--even if you accept the ESDC's methodology--are almost surely a fantasy, since they're based on a full buildout of the project in ten years and the first 30 years of operations. Not only is that schedule highly unlikely--as evidenced even in informal admissions from the ESDC and developer Forest City Ratner--new tax revenues are based crucially on operations of the one office tower, which faces a forbidding market in the short term.

(I asked the ESDC yesterday for backing data for the new projections.)

Comparing the documents

As noted in the graphic above right, from the 2006 Modified General Project Plan, the ESDC was once willing to calculate certain numbers. For example, the "direct personal income related to construction activities" no longer appears in the 2009 document (at left); only the "total personal income."

More importantly, in the 2006 document, the ESDC calculated not only total tax revenues (nearly $1.4 billion) over 30 years, in present value, but net tax revenues of $944.2 million "in excess of the public contribution to the project." No net tax revenue figure is now calculated.

Given that the city of New York in 2007 agreed to direct $105 million in additional subsidies to the project, the net tax revenues, even by the ESDC's conservative methodology (which excludes certain tax breaks and increased public costs, not to mention housing subsidies), the projected net tax revenue figure would now be almost certainly less than $944.2 million.

The impact of reduced office space

Between July and December 2006, the ESDC revised its net tax revenue down by nearly half a billion dollars to the $944 million figure, a discovery that made the dailies. The main explanation was reduced office space, though the numbers were murky.

Now the office space is in severe doubt. Indeed, in an Appendix to the Technical Memorandum issued in June, the ESDC addressed a "Delay of Building 1 Scenario," which noted impacts on the Urban Room (replaced by an urban plaza), impacts on arena operation, and impacts on urban design, traffic, air quality, and noise. The conclusion was that no Supplemental Enviornmental Impact Statement (SEIS) is needed.

How does that affect the "Economic Benefit Analysis"? The ESDC ignored that issue.

Shouldn't the ESDC provide a range of estimates, based on a full buildout of the project and multiple scenarios for delays? In that June memo, the ESDC acknowledged that “the delay of the full build out of the project would result in a delay in the realization of the full economic benefits of the project as disclosed in the FEIS.”

There was no follow-up.

Infrastructure issues

In the new document, the ESDC does not, at least in the section regarding economic impact, mention the "public improvements and infrastructure." In the 2006 MGPP, the sum was $554 million. Elsewhere in the 2009 board document, the sum is $717 million.

Why was it omitted? Perhaps because one component of such improvements, the planned replacement railyard, would be smaller than once projected and, despite inflation, likely worth less.

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