Some 9/11 Subsidy Recipients Fail to Meet Job Goals; New York State Recaptures Funds

Thursday, September 1, 2011

As the 10th anniversary of September 11th attack on the World Trade Center approaches, it is a good time to review what happened with the subsidies that were allocated to large firms to help them deal with the effects of that tragedy. It turns out that some companies that received those subsidies, including Goldman Sachs, failed to meet their job retention or creation goals, and some have had to repay funds to New York State.pie chart of largest JCRP recipients
Good Jobs New York has just completed an analysis of the Job Creation and Retention Program (JCRP), which was created in the wake of 9/11 to encourage major employers in Lower Manhattan to remain there and to encourage others to relocate to the area. JCRP, which is administered by the Empire State Development Corporation (ESDC) and its subsidiary the Lower Manhattan Development (LMDC) Corporation, has awarded about $304 million in Community Development Block Grants to 91 companies. These funds come from a special $2.7 billion allocation for various rebuilding efforts in Lower Manhattan after 9/11. (See also: highlights of news coverage)

Here are some of the highlights of our analysis:

  • Goldman Sachs which received $22.9 million of a $25 million JCRP grant, has not complied with its commitment to retain 8,100 jobs.  The state has not clawed back funds, but it will most likely not allocate the remaining $2.1 million the firm is due.
  • Approximately $13.4 million was recaptured from firms for not being in compliance with their agreements with the Empire State Development Corporation, (see Table 1).
  • Nine firms that were especially hard hit by the attack received a special allocation of $33 million in CDBG funds under the "New York Firms Suffering Disproportionate Loss of Workforce Program” (see table 2).

 

Table 1: Firms that had JCRP funds recapturedAs part of our analysis we obtained copies of 19 JCRP agreements between firms and ESDC. JCRP grants were allocated by the (ESDC) and/or its subsidiary, the (LMDC) but compliance falls under the ESDC. We have posted these documents here and have summarized their content in our Database of Deals along with summary information about the other recipients.

We also requested copies of the applications firms submitted for the JCRP funds, but some of them were unavailable because they had been destroyed, we were told, in a flood at ESDC offices. Missing applications included those of Goldman Sachs and American Express.

It is interesting that the applications submitted by HIP and Deloitte Consulting said the firms were under no immediate pressure to move but they received the grants anyway. Nearly all the applications we reviewed warned that the firms were considering moving their facilities to neighboring states; many said they might remain elsewhere in the city.

Goldman’s Subsidy Reach: Goldman Sachs, one of the largest beneficiaries of post 9/11 resources, has received $22.9 million of a promised $25 million grant. Goldman benefited tremendously from government incentives after 9/11, including Liberty Bonds and a special lease agreement with the Battery Park City Authority for its new office tower.  Details on Goldman’s subsidies are here. However, as of December 2010 Goldman was not in compliance with it job commitments. Employment was 8,100 in 2005 when its agreement was made but in 2010 the firm’s employment was 7,472. As of the end of 2010, ESDC had yet to recapture funds from Goldman Sachs but the firm will most likely not receive the remaining $2.1 million it was promised.

Whether Goldman Sachs needed subsidies to finance its move from one side of Lower Manhattan to the other no longer remains a mystery. Goldman’s agreement with the ESDC notes: “Goldman was not significantly impacted by the attacks of September 11th” and “The remainder of its facilities were not severely damaged or destroyed and no lives were lost.” However, the firm notes that it had to temporarily relocate employees and “experienced significant losses directly related to the overall economic impact of the attack…”

Banking on the Bank of New York: The largest JCRP grant of $40 million went to the Bank of New York. The Bank also benefited from a $90.8 million allocation of Liberty Bonds to FC Hanson for its building above Atlantic Terminal in Brooklyn. Details are available in our Database of Deals.

Deal with Deutsche: On 9/11 Deutsche Bank occupied two buildings impacted by the attack: 130 Liberty Street, directly across the street from the WTC and 4 World Trade Center. In return for keeping employees in Lower Manhattan, it received a $34.5 million JCRP grant. The redevelopment of the 130 Liberty Street site has hit several bumps, including the need for the negotiation skills of former US Senator George Mitchell to forge an agreement with the various interests (Deutsche Bank, New York State via the Lower Manhattan Development Corporation and insurers). In the end, the Lower Manhattan Development Corporation bought the building in 2004 and has spent approximately $277 million for acquisition, demolition and developing 130 Liberty Street with the expectation of turning the property over to the Port Authority of New York and New Jersey.

Demolition of 130 Liberty Street raised the ire of residents and local elected officials who were concerned that if it is not done properly, the contaminated building could be an environmentally hazardous project. In 2007 a fire killed two firefighters at the site.

Recaptures and Clawbacks

Chart 2: Percentages of JCRP allocations recapturedEach JCRP agreement includes a clawback provision that requires firms to return part of the grant if it does not create the jobs promised or if it moves jobs and/or operations out of New York City. Penalties are generally strongest in the first and second years of the deal. GJNY has long pushed for strong clawback provisions in economic development deals and is pleased to see this first public evidence of recaptures by ESDC. However, as chart 2 indicates, the actual percentage of money clawed back is low in many cases.

 

Grants for Employees’ Loss of Life: Ten firms received $33 million from a special allocation of CDBG funds from the New York Firms Suffering Disproportionate Loss of Workforce program. The lion’s share has gone to Cantor Fitzgerald; after merging with another JCRP program recipient, the firm is eligible to receive approximately $6.8 million more in JCRP funds. To be eligible for the program, firms have to have had “suffered a loss of life equal to at least six permanent employees AND at least 20% of its permanent workforce OR at least 50 permanent employees located in New York City.” Learn more about the program on the Lower Manhattan Development Corporation’s website.

Table 2: Recipients of the Disproportionate Loss of Workforce program. *Note: Recipients of this program were required to provide jobs data only for 2004 and 2005. Information for those that provided jobs data beyond these years can be found in our Database of Deals.Jobs Reporting

GJNY has long advocated for an accountable and equitable use of economic development funds and believes, like many fiscal watchdogs and CEOs alike, that subsidies do not persuade location decisions of large firms in the finance and real estate industries. For companies to move or expand operations and create jobs, access to workforce, transportation and infrastructure, and a cluster of like-minded businesses guide location decisions more than taxes.

With that caveat and due to weak transparency on the state level, GJNY finds that a concise figure of job impacts remains elusive. A December 2010 report to the U.S.  Department of Housing and Urban Development claims 30,000 jobs were created or retained by 40 JCRP recipients that benefited from the LMDC allocation. This job count corroborates data we received from ESDC that tallies job totals for both agencies, approximately doubling the jobs cited in the HUD report. (Prior to the creation of LMDC, the ESDC allocated JCRP grants.) We encourage New York State to emulate recent transparency efforts like those at the New York City Industrial Development Agency.

Grants continue: In early August of this year, ESDC announced a $3 million JCRP grant for Oppenheimer & Co. Because this grant was announced so recently it is not in our database. More information about the proposal is available here.

See more: Information on other CDBG-funded economic development programs created after 9/11 - including several thousand recipients of the Business Recovery Grant (BRG), Small Firm Attraction and Retention Grants (SFRAG) and the special $8 Billion allocation of Private Activity Bonds (aka “Liberty Bonds”) -  are available in the Database of Deals and our Reconstruction Watch section of our website. There you will also find descriptions of various incentives being offered in Lower Manhattan from the City and State commercial subsidy program known as “the Marshall Plan.” In addition, in August 2011 the New York City Independent Budget Office released a summary of Federal Aid to New York City after 9/11.

 

Highlights of related news coverage:

New York Daily News: State recoups $13 million after downtown firms break 9/11 job creation deal

Newsday: 10 years after 9/11, downtown transformed

WNYC: Report Examines How 9/11 Money Was Spent