Economic development or just another corporate “opportunity to operate on an almost tax-free basis?”

Amy Traub

Economic development or just another corporate “opportunity to operate on an almost tax-free basis?”

Appalachia doesn't have Empire Zones. Governor Pataki shared that enlightening piece of wisdom during his first Albany talk since his hospitalization for appendicitis. The topic, of course, was gubernatorial hopeful Eliot Spitzer's much ballyhooed remark comparing economically-depressed regions upstate to a part of the country renowned for its lack of economic development. But Governor Pataki's response is as revealing as Mr. Spitzer's metaphor.

"Appalachia doesn't have Empire Zones."

It's true, being the Empire State, that New York may just be the only place in the world that's chosen to call its geographic tax incentive program "Empire Zones" -- take that Appalachia! But the plan itself is not all that distinctive. Essentially, it's an ever-multiplying list of geographic areas where businesses can qualify to operate, as the state itself boasts, "almost tax-free."

In fact, there is a wide array of similar tax incentive programs for businesses throughout Appalachia, including West Virginia and Kentucky. The idea of giving generous tax breaks to businesses in return for promises to create or retain employment is not that new or unusual. But there are serious questions about how well it works.

A 2004 audit by the State Comptroller (pdf) found that in a statistical sample of Empire Zones, 70% of businesses that got tax incentives failed to meet job creation goals. 23% actually cut jobs in New York State while they were enjoying their publicly-subsidized tax holiday.

Then there's the actual record of economic stagnation and steady loss of population and jobs many upstate towns experienced throughout the era in which Empire Zones were the dominant model for economic development.

What's the governor's answer? "Many parts of New York State, particularly upstate, do need more incentives, more packages." More incentives.

New York, and the nation, desperately need a vision for economic development that goes beyond tax subsidies. (Folks in Kentucky recognize this too.)

Luckily, if we look beyond Attorney General Spitzer's Appalachia remark, we find a more sophisticated vision for how the public sector can interact with the private market to foster economic development. That's an agenda that might produce results worth replicating across the nation. Even in places that don't use "Empire" in the name.