NEW YORK STATE BUSINESS TAX CREDITS:
ANALYSIS AND EVALUATION
A Report Prepared for the New York State Tax Reform and Fairness Commission
H. Carl McCall and Peter J. Solomon, Co-Chairpersons
Marilyn M. Rubin
and
Donald J. Boyd
Made possible by support from Peter G. Peterson and the Peter J. Solomon Family Foundation
November 2013
About the Authors
Marilyn Marks Rubin is a professor at John Jay College of the City University of New York where she teaches courses in Fiscal Policy and Research methods and is director of the College’s MPA Program. She has served as a consultant on fiscal policy; revenue forecasting; economic development; and strategic planning for municipal, state, and federal entities. She has authored several publications on fiscal policy and budget-related issues and has served as an advisor to the Korean Woman’s Development Institute on gender budgeting and to the government of Thailand on performance evaluation. Rubin is a fellow in the National Academy of Public Administration (NAPA) and winner of a Distinguished Research Award from the American Society for Public Administration. She holds a Ph.D. in Public Administration from New York University.
Donald J. Boyd is a senior fellow at the Rockefeller Institute of Government and the former director of the Institute’s State and Local Government Finance research group. Boyd has over three decades of experience analyzing state and local fiscal issues, and has written or coauthored many of the program’s reports on the fiscal climate in the 50 states. His previous positions include executive director of the State Budget Crisis Task Force created by former Federal Reserve Board Chairman Paul Volcker and former New York Lieutenant Governor Richard Ravitch, director of the economic and revenue staff for the New York State Division of the Budget, and director of the tax staff for the New York State Assembly Ways and Means Committee. Boyd holds a Ph.D. in managerial economics from Rensselaer Polytechnic Institute.
The authors gratefully acknowledge analysis, data, and information provided by staff of the New York State Department of Taxation and Finance; by Catherine Collins, research associate at the George Washington Institute of Public Policy; and by Lucy Dadayan, senior policy analyst at the Rockefeller Institute of Government. Any errors remain the responsibility of the authors.
Contents
I. Executive Summary 1 I.1 Business Tax Incentives in NYS 4 I.2 Fiscal Impact of NYS Business Tax Credits 4 I.3 Cost Trends of Business Tax Credits 5 I.4 A Snapshot of NYS Business Tax Credits in 2013 7 I.5 Concentration of Tax Credit Claimants 9 I.6 Pros and Cons of Business Tax Incentives: What the Research Tells Us 11 I.7 Concerns About Business Tax Credits 12 I.8 The Brownfield and Film Credits 13 I.9 Options for Restructuring New York State Business Tax Credits 16 I.10 Transition Issues 21 I.11 Recommendations for Monitoring, Review, and Evaluation 21
II. Introduction 25
III. Pros and Cons of Tax Incentives: What the Research Tells Us 26
IV. NYS Business Tax Credits: An Overview 30 IV.1 NYS Business Tax Credits to Promote Economic Development 31 IV.2 Geographically Targeted Business Tax Credits 39 IV.3 Business Tax Credits to Support NYS Social, Housing, and Environment Policies 45
V. Fiscal Impact of NYS Business Tax Credits 51 V.1 Trends in NYS Business Tax Credits Costs 51 V.2 A Snapshot of New York State Business Tax Credits in 2013 56 V.3 Concentration of Tax Credit Claimants 56 V.4 Tax Credit Users 57 V.5 Concentration of Credit Users 59
VI. An Analysis of the Brownfield Credits and the Film Credits 62 VI.1 The Brownfield Tax Credit Program 62 VI.2 The Film Tax Credit Program 71
VII. Evaluating Business Tax Credits 83 VII.1 Tax Evaluation Principles 83 VII.2 Evaluating Business Tax Credits: the GAO Framework 85 VII.3 Managing Tax Incentives 86 VII.4 Best Practices in Evaluating Tax Credits: Experiences from the States 88
VIII. Options for Business Tax Credit Reform 91 VIII.1 Modifying Credits 91 VIII.2 Recommendations for Monitoring, Review, and Evaluation 95