Testimony by James A

Testimony by James A. Parrott, Ph.D. Deputy Director and Chief Economist Fiscal Policy Institute

Hearing before the New York City Council Finance and Transportation Committees

Financing of the Hudson Yards Project and the Rail Yards Agreement with the Metropolitan Transportation Authority

New York City October 10, 2006

Good morning, my name is James Parrott and I am the Deputy Director and Chief Economist of the Fiscal Policy Institute. The Fiscal Policy Institute (FPI) is a nonpartisan research and education organization that focuses on the broad range of tax, budget, economic and related public policy issues that affect the quality of life and the economic well-being of New York City and State residents. Thank you for the opportunity to present FPI's views on these topics.

First of all, let me stress that we agree with the need for the redevelopment of the Hudson Yards district in order to expand the productive capacity of New York City. We also agree with the proposition that the City should make appropriate public investments in infrastructure to support economic development and job creation that benefit city residents.

The Rail Yards Agreement (the "Agreement") between the City and the Metropolitan Transit Authority (MTA) represents an important step forward in the Hudson Yards redevelopment. The Agreement and the MOU on the No. 7 Extension represent the formal commitment on the part of the City to finance the subway extension, and the formal commitment of the MTA to design and build the No. 7 extension. The Agreement also sets in motion a process under which the Mayor and the City Council will play a critical role in determining what will be built on the West Rail Yards. It would be preferable, in our view, if all of the large development projects around the city involved some variation of such a joint planning role.

The Agreement also provides a reasonable mechanism for the MTA to sell the Rail Yards development rights and generate significant resources to fund the MTA's critical capital needs. The one major concern we have regarding the funding and construction of the No. 2

7 is what will happen if construction costs significantly exceed the $2.1 billion limit of the City's funding commitment under the Agreement. It would indeed be unfortunate if the MTA ends up shouldering such costs at the expense of other transit capital priorities, or in some way compromises the operating budget of New York City Transit.

The Agreement between the City and the MTA also modifies the Hudson Yards financing as previously approved by the Council and the New York City Industrial Development Agency (IDA). Our testimony before the IDA regarding the far-reaching tax breaks authorized under the Uniform Tax Exemption Policy for Hudson Yards Commercial Construction Projects is attached.

Today, I would like to return to a suggestion we and others made to the IDA to link the Hudson Yards tax breaks to strategies and programs to establish wage standards and workforce investment commitments. The City's number one economic development goal should be to provide quality jobs and economic opportunities for New York City residents. The City needs to start using its considerable economic development leverage to focus on the human capital investments and inducements needed to raise wages and provide better career opportunities for all New Yorkers.

There are several ways the Council could proceed. As a first step, the Council could work with the Mayor and the IDA to modify the Hudson Yards tax exemption policy to require, in exchange for tax breaks, that developers commit to paying living wages and decent benefits to all service workers in Hudson Yards office buildings. The bedrock principle here is that taxpayer subsidies should support the creation of good jobs and career opportunities for all New Yorkers. The Hudson Yards will be a showcase for New York as a 21st century office environment. However, it is likely that jobs in this office district of the future will be concentrated at the two ends of the income spectrum. The Council should ensure that Hudson Yards becomes an example of a City-created micro- economy where high-end jobs go hand in hand with decent living standards for workers at the other end of the income spectrum.

Linking real estate development to decent labor standards is hardly new, whether around the country or in New York. The Washington, D.C.-based Good Jobs First organization regularly updates examples of cities and states that have established job quality standards as a condition for receiving economic development subsidies.1 Within New York State, the City of Rochester and Westchester and Suffolk Counties require companies receiving subsidies to pay their workers wages in the $9 to $10 range, and higher if they do not provide health insurance. New York State requires Empire Zone companies to pay a wage 35% above the minimum wage as a condition of receiving the full wage tax credit.

And in New York City, the City required prevailing wage for building service workers in a 2005 agreement with several residential developers in Greenpoint-Williamsburg. The recently announced Request for Proposals for the Kingsbridge Armory development in 1 See, for example, Good Jobs First, The Policy Shift to Good Jobs. Cities, State and Counties Attaching Job Quality Standards to Development Subsidies, November 2003. http://www.goodjobsfirst.org/pdf/jobquality.pdf. 3 the Bronx included provisions supporting the creation of living wage jobs defined by the City's living wage ordinance as paying at least $10 an hour and providing health benefits.

The Council could also consider using workforce development resource commitments from Hudson Yards office developers to fund workforce development investments within and beyond Hudson Yards. Some of the Hudson Yards PILOT revenues could be used to build on some promising initial steps taken to construct career ladders and pathways for workers to acquire better skills and achieve better wages. Since Hudson Yards PILOT revenues will not start flowing for a few years, the Mayor and the Council should also consider dedicating to worker investments existing economic development PILOT revenues and future PILOT revenues from other projects.

As noted in our IDA testimony, the City now spends nearly $2 billion annually on economic development-related tax expenditures, but probably well under $100 million on workforce development. The Hudson Yards tax breaks will make this even more lop- sided.

The recent report of the Mayor's Commission on Economic Opportunity highlights the problem of the working poor and the importance of raising wages and building skills as a path out of poverty for low-wage New Yorkers. The report cites the substantial growth in the ranks of the working poor in New York in recent years and notes the widening gap between the growth in productivity of New York's workers and lagging real wages for most workers. The report makes a compelling case for efforts to boost the wages of those at the bottom and to expand skills training and career ladder development. Given the scope and the visibility of the Hudson Yards redevelopment, linking City subsidies to wage standards and workforce investment commitments in Hudson Yards would be an important action step in the City's quest to tackle poverty head-on.

Thank you for the opportunity to testify this morning.

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