Parrot NYSE Testimonoy

Testimony

Testimony by James A. Parrott DEPUTY DIRECTOR and CHIEF ECONOMIST, FISCAL POLICY INSTITUTE, PUBLIC HEARING HELD PURSANT TO SECTIONS 201-204 OF THE EMINENT DOMAIN PROCEDURE LAW IN CONNECTION WITH THE PROPOSED NEW YORK STOCK EXCHANGE PROJECT, JANUARY 8, 2001.
My name is James Parrott and I am the Deputy Director and Chief Economist of the Fiscal Policy Institute (FPI). FPI was established in 1991 and is a nonpartisan, non-profit research and education organization that focuses on New York state and local fiscal and economic issues.

FPI tries to ensure that New York's tax system is fair and that public expenditures are adequate to serve the needs of all New Yorkers. As part of our effort to promote fiscal responsibility, FPI seeks greater accountability to taxpayers from government in providing economic development subsidies to businesses. We believe that government plays an important role in facilitating a productive private economy capable of generating a shared prosperity.

In the case of the proposed subsidy of the New York Stock Exchange (NYSE), government has not established that it is absolutely necessary to subsidize the NYSE to such a tremendous extent. It appears that the City and State governments are prepared to provide the largest subsidy ever in New York State to a private entity, a subsidy of at least $940 million and possibly more ($480 for the construction of the trading floor, $160 million in tax and energy cost breaks, and $300 million to purchase the land, although it is reported that the land costs may reach $450 million). In fact, neither the City nor the State government has established that a public subsidy
of any amount is warranted because it has not been established that the NYSE was at serious risk of leaving New York City.

Without having established that the NYSE was likely to leave, a public purpose is not clearly served by a subsidy to a private organization, and there is not a public purpose served by the Empire State Development Corporation acquiring the properties at issue in this hearing by exercise of its statutory power of eminent domain. If this project is effectively a private purpose, then the resort to eminent domain goes well beyond the original purpose of New York’s Eminent Domain Procedure Law.

It is undeniable that in recent decades shortsighted corporate decision-makers and public officials have fueled an unhealthy and counter-productive competition between government jurisdictions over the relocation of businesses and jobs. Officials at the Federal Reserve Bank of Minneapolis have argued that this "economic war among the states" is wasteful local public policy and results in the overall economy ending up "with less of both private and public goods than if such competition was prohibited." To curb this "economic war among the states", the Minneapolis Federal Reserve officials argue that Congress should impose sanctions such as taxing the full value of the subsidy or impounding federal funds payable to states engaging in such competition.

In the absence of Federal sanctions, states and localities cannot unilaterally disarm in this "economic war among the states". Regional cooperation to stem costly business raiding has so far eluded us as evidenced by the failure of bi- and tri-state "no-poaching" pacts in the early and mid-1990s. (Although I think our public officials, and prominent private sector leaders, have failed us in not trying to be more creative in developing serious cooperative efforts to address regional transportation, environmental and other economic issues. The Port Authority of New York and
New Jersey has a bi-state governance structure that should be used for exactly this purpose.)

However, even if this "economic war among the states" is intractable, government has an obligation to fight it as effectively, efficiently and as strategically as possible. With few exceptions, it does not appear that New York City and New York State have been waging this war with tremendous success. Success should be measured in terms of less costly subsidies, not more costly subsidies. Success should mean the need for fewer and fewer subsidies to corporations in a given industry, not subsidies to each and every major industry participant. New York's approach should not be to try to "equalize" real estate-based costs with other jurisdictions; to do so is to stack the deck against itself from the start.

There is no doubt that the NYSE is an important, and probably essential, part of the City's financial industry. The City and the State should be responsive to the legitimate infrastructure and economic development needs of the NYSE, as they should be in the case of all businesses small and large. But from the circumstances that are publicly known about the NYSE's potential relocation outside of New York City, including the information made public by the City and the State, it is not evident that the NYSE would have left New York. Given the magnitude of taxpayer resources that have been committed to retaining the NYSE, this appears to be fiscally irresponsible and a highly questionable public policy.


One of the most puzzling aspects of the NYSE retention deal is that there would be a need for it at all after the City, and the State, have over the last 10 years or so, provided subsidy packages to most of the major securities firms that are members of the NYSE. If the NYSE is really so critical to the operation of New York's financial markets, would the major NYSE member firms, who themselves are now committed to staying in New York City, allow the Exchange to leave New York?

This example is illustrative of the fact that the City and the State either are not acting very strategically, or just do not bargain very hard, when they deal with private companies that raise the specter of moving out. The result is that the City and the State end up subsidizing private companies for something they were going to do anyway at the expense of pressing public needs such as restoring library hours, improving our parks or school facilities, investing in our infrastructure, or promoting the construction of affordable housing.

The pending public subsidy to the NYSE highlights the need for a comprehensive
re-examination of the process followed by the City and the State in considering and granting retention subsidies. To date, there has been relatively little public oversight of this process. Audits by the City and State Comptrollers have tended to focus on narrow aspects of retention deals involving compliance with job creation goals, and while these audits are important they have not taken up the core issue of substantiating the need for massive public subsidies. It is
also surprising, considering the magnitudes of public resources involved, that the City’s budget oversight apparatus has not yet focused a spotlight on dealings in this area.

Taxpayers deserve some credible assurance that such subsidies are necessary, and need to know that public officials entering into such agreements are pursuing a strategy to minimize public costs as long as the "economic war among the states" drags on. And importantly, there should be more opportunities for members of the public to ask some hard questions and get more answers.

 

 

Thank you.
 

 


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