Has START-UP NY peaked?

by Kenneth Girardin |  | NY Torch

START-UP NY, New York’s signature economic development program, made headlines for creating just 408 jobs in its first two years of operations. However, bigger disappointments may lie ahead.

According to its July 1 report, START-UP, which allows companies to operate for 10 years effectively tax-free, ended 2015 with commitments for 4,140 jobs within five years—by the end of 2020. That’s slightly less than double the 2,085 jobs that were promised by the end of 2019 in START-UP’s 2014 report. Doubling the job-creation commitments may sound like a good thing, but these targets are a year apart, and follow an additional year of marketing and enrollments—meaning the program secured commitments in 2015 at close to (in fact, slightly less than) the same rate that it did in 2014.

This repeat performance calls into question the now-perennial claims by Empire State Development (ESD), which oversees START-UP, about the program’s “momentum.”

It specifically indicates that by the end of the decade, START-UP expects its participants to be adding about 2,100 jobs to the state economy each year.

To put that figure in context, the greater Rochester region alone lost 2,400 private-sector jobs between March 2015 and March 2016.

While START-UP’s 2015 report states that 159 businesses are participating in the program—and includes their job commitments in its totals—data were made available for only 107. An ESD spokesman told the Associated Press that the data were missing “because they have not submitted the information to the state,” though the report itself noted that only 109 programs are currently operating in START-UP’s signature Tax-Free Areas, and that an additional 50 have been admitted but have yet to take up occupancy.

Understanding this dropoff is important, because the START-UP’s 4,140-job claim is predicated on every company remaining involved with the program. History shows this hasn’t been the case: fifteen of the 54 companies named in the 2014 START-UP report (some at earlier stages of involvement) were no longer part of the program by the end of 2015. And two companies that have publicly stated their intention to withdraw from START-UP, Adirondack Operations and Royal Meadery, were counted in Friday’s report among the 107—and toward the program’s job commitments. 

This means the program’s actual five-year job growth could still be even lower. Inconsistencies in the data make further determinations about the program difficult: for example, only six of the 15 businesses that were announced in a December 16, 2015 press release from Governor Andrew Cuomo are included in the 2015 report—even though the statement noted that all of the businesses “have joined START-UP NY.” It’s not clear why only some of the businesses would be included in the 2015 data, though “saving” some for the 2016 report, due in nine months, would increase the perceived difference between the 2015 and 2016 performance.

What now? 

Despite the hype, START-UP was never poised to be transformative: as E.J. McMahon foretold last year in City Journal, “the program will lack the scale to become a real game-changer.” 

It’s not clear where opportunities exist to further boost START-UP: the program’s performance follows at least $30 million in television ad spending to promote it, which occurred alongside continuous efforts by SUNY, Empire State Development and the governor’s office to boost its profile through their media relations operations.

START-UP also required notably small investments last year from businesses looking to enter the program, with 14 of the 107 companies planning to make less than $50,000 within five years, and two committing just $5,000 each. 

Space doesn’t seem to be much of a problem, either: START-UP began 2015 with 62 colleges sponsoring Tax-Free Areas, but only 28 colleges had START-UP businesses operating on them by the end of the year. According to the 2015 report, there are now 441 Tax-Free Areas—more than three times the number of actual companies that are participating following two complete years of program operations.

After meeting three times in 2015, the START-UP NY Approval Board, a committee tasked with expanding the number of Tax-Free zones under START-UP, cancelled a planned March 1 meeting, saying it was “currently being rescheduled for the near future.”

The committee hasn’t met since.

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- Kenneth Girardin is the Policy Analyst at the Empire Center for Public Policy.