Jesse Hoelscher – Worker Equity – IDA Living Wage Policy Final
Background: Worker Equity and Income Inequality
Wealth inequality is an indisputable problem in the United States, and is only getting
worse. In 2012, the top 1% of earners in the
U.S. had more of the country’s wealth than most
Americans believe the top 20% of the country
should have had.i At that time, 1% of America
has 40% of the nation’s wealth, while the bottom
80% only has 7%.ii
This, in terms of worker equity, would mean the CEO is earning 380 times that of his
average—not bottom of the barrel—worker.iii Employees want to keep equity between their
inputs to the workplace, what they receive back, and what they perceive others’ outcomes to be.iv
The average employee would have to work over a month to match the earnings of his or her CEO
in one hour.v It makes little, if any, sense, but is the evident in Buffalo, especially because of
fragmented tax incentive and living wage policies.
Poverty in Buffalo
About 41% of workers in Erie County, or 159,800 of the 393,600, earn a low wage—less
than $15 per hour or $31,200 per year.vi To combat this, even raising the minimum wage is not
enough; a household in Erie County of two working adults supporting two children would need
each parent to earn $13.31 in full-time jobs to meet the family’s basic needs.vii
One way to go about combatting this problem of severely unequal wealth distribution is
by implementing a living wage policy. Buffalo has done so legally, but can do a better job
practically enforcing its legislation and applying it to local subsidies.
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Many studies have found living wage laws have do not have a negative effect on
employment growth.viii Numerous employers feel the employees they should want to attract are
those who want equity: start-up businesses often thrive on hiring people who are willing to take
risks to be rewarded, and new workers are often more productive when working to reach
incentives such as stock options.ix
Buffalo’s Living Wage Ordinance: Falling Short
For years, the Coalition for Economic Justice has been a driving force behind the push to
implement a living wage policy in Buffalo. They have stressed that, without a livable wage,
workers are forced to rely on public programs and social
services, like food stamps, public health care assistance,
and fuel assistance.x According to John Malone of the
Coalition for Economic Justice, “Paying good wages for
valued work helps alleviate the consistent strain and
anxiety that poverty produces. The adoption of a Living Wage Policy means the restoration of
dignity for workers.”xi
Buffalo passed its Living Wage Ordinance (“Ordinance”) in 1999.xii As of 2006, only six
employers had come into compliance with and 170 workers received a living wage because of
the Ordinance.xiii The City of Buffalo Living Wage Commission suggested expanding the
Ordinance to cover economic development subsidies, like others nationwide already did. Still, in
2006 the Ordinance was hindered by its narrow scope, lacking applicability to Industrial
Development Authorities (“IDAs”), development subsidies offered by the City or independent
agencies.xiv
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Despite progress, two adults making a living wage in the City of Buffalo in 2011 would
make a combined $23.74 per hour, which amounts to $2.74 less than what they should have been
earning, according to a Living Wage Calculator developed by Penn State University.xv To
effectively fight against poverty in Buffalo, the Ordinance must be expanded to cover our IDAs
and make sure the jobs they create pay living wages and stay local. If a company receives tax
incentives, such should be reflected in the form of fair worker wages.
Local IDAs
The state’s largest job creation program is its IDAs, formed to foster local economic
growth by providing states and local tax exemptions and issuing tax exempt bonds to private
businesses in return for job creation and retention.xvi There are fourteen IDAs in Western New
York: Alleghany, Amherst, Cattaraugus, Chautauqua, Clarence, Concord, Dunkirk, Erie County,
Hamburg, Lancaster, Niagara County, Niagara Town, Salamanca, and the Town of Lockport.xvii
One of the biggest criticisms of local IDAs is
that, while they do exist to create jobs, they are not
creating jobs or are creating jobs in such a way that is
wasting our tax money.xviii The subsidization of the
creation of a job or its movement from one
municipality to another does not necessitate sustainable economic growth. New York State
spends over $7 billion per year in public subsidies for private development projects, but in so
doing often creates zero jobs or more poverty-wage jobs, encourages urban sprawl, and does not
create concrete community benefits.xix
The fourteen local IDAs financed 702 projects, dolling out $48.5 million in net tax
exemptions in 2009 alone.xx This amount of money, according to the Coalition for Economic
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Justice, could fund the education for over 2,600 students for a year, or even retrofit 3,700 small
businesses for energy efficiency, saving millions of dollars otherwise spent in energy costs and
employing about 800 workers in the construction industry.xxi Instead of spending tax money on
moving and making unprofitable businesses, why not ensure it gets back to those who get the
least return on the hours they have worked?
xxii
The Erie County IDA
The Erie County Industrial Development Agency (“ECIDA”) is a public benefit
corporation created in 1970 by the New York State Legislature to promote and assist sector
industrial/business development so to advance job
opportunities and economic well-being for Erie County
citizens.xxiii ECIDA’s mission statement is “to provide
the resources that encourage investment, innovation,
and international trade – creating a successful business climate that improves the quality of life
for the residents of the region.”xxiv
The Coalition for Economic Justice stated ECIDA should develop its economic programs
to “provide workers with family sustaining wages that don’t force workers to rely on government
assistance programs.”xxv Setting the ECIDA wage at $15 per hour would keep workers with a
family of four off of government assistance and allow them to sustain a family in Erie County. xxvi
There is a nationwide growing consensus that a $15 per hour wage is the baseline standard for
fair minimum and living wages.xxvii
Benefits of such a policy include: worker self-sufficiency, relief to taxpayers as fewer
local workers rely on public assistance programs, increased number of family sustaining jobs in
Erie County, improved employee retention rates, a uniform policy giving all stakeholders,
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developers, and businesses a clear understanding of policy regarding public wage, and a boost to
regional economy as a result of workers being able to spend extra income locally.xxviii
Unfortunately, a 1999 audit by the OSC of IDAs in Erie County found many
discrepancies regarding project eligibility, and reporting and tax exemption requirements. xxix In
2004 ECIDA was projected to create 14,699 jobs,xxx create $13,178,000 in revenue,xxxi and have
a $13,217,000 expenditurexxxii, but a 2006 audit of IDAs in Western New York found none had a
process in place for the verification of their reported data.xxxiii
ECIDA Case Studies
VWR Education, LLC
ECIDA gave VWR Education, LLC, an international distributor of scientific and
laboratory equipment owned by a Chicago-based private equity firm, tax-exempt industrial
bonds in 1971, 1977, and 1994 for Science Kit, LLC, its Tonawanda-based subsidiary.xxxiv The
1994 bond was supposed to create twenty-seven jobs.xxxv
ECIDA gave VWR a tax abatement in 1996.xxxvi This tax abatement expired at the end of
2011, and in January 2012 VWR laid off forty-one warehouse workers.xxxvii VWR has shifted
jobs at taxpayer expense before: it planned to close its Brisbane, California warehouse, putting
sixty long-time employees out of work, to build a new warehouse in Visalia, California, where it
would be eligible to receive multiple incentives and tax credits.xxxviii
Dollar Stores
In August 2010, ECIDA gave Ellicott Development almost $300,000 of sales and
property tax breaks to develop a Family Dollar—expected to
create just ten to fifteen low-wage jobs—in the west side of
Buffalo.xxxix In January 2011, ECIDA gave Creative
Structures Services, Inc. $60,000 of sales and mortgage
recording tax breaks to build a Dollar General store—expected to create only ten full-time and
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five part-time jobs—in the east side of Buffalo.xl In September 2011, ECIDA gave Creative
Structures Services, Inc. another $49,000 of tax breaks to build a Family Dollar store in the south
side of Buffalo.xli These total over $400,000 given by ECIDA for three Buffalo Dollar Stores to
create a small number of undesirable-wage jobs.
HSBC
ECIDA, in conjunction with the Amherst IDA, gave HSBC $167 million of property and
sales tax breaks through deals in 2000, 2001, and 2006.xlii By March 2009, when HSBC had
collected $3.8 million of tax breaks and $4.5 million of bond financing, the company announced
it was moving its operations and jobs out of state.xliii HSBC took millions of taxpayer dollars,
broke its commitment to create local jobs, and fled.xliv
Objections
These subsidies merely re-slice the economic pie without real growth, come at the
xlv
expense of other local businesses, and create more poverty-level
jobs that leave employees dependent on public assistance.xlvi Maybe
IDAs and living wage policies just do not work. Some believe a
living wage policy “sneaks socialism” into the city, posing a big
threat to economic health because costs and restrictions imposed on
the private sector will destroy jobs and drive businesses away.xlvii
The movement for a living wage represents forcing private employers to increase wages,
opposing privatization schemes, strong-arming companies into unionizing, and other economic
policies harmful to urban health.xlviii A free market is ultimately far more moral and provides
greater opportunity than one with some control.xlix “Sustainable economics,” wrote the City
Journal’s Steven Malanga, “covers a whole agenda of government social and fiscal policies to
redistribute income and regulate business[,] that add up to socialism by another name.”l
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Opponents argue living wage laws inhibit businesses from creating jobs, helping some workers
at the expense of possibly employing others.li Indeed, they claim the addition of labor standards
to economic development will send an “antibusiness” signal, scaring away potential investors.lii
liii
Debunking the Myth: NYC’s Successful IDA Living Wage Policy
The reality is, however, economic development wage standards have no negative
impact on city employment levels,liv raising the standard of jobs does not reduce the number of
jobs in the city, and job growth does not
necessitate coming at the expense of job
quality.lv A 2010 Center for American
Progress Action Fund study found, “Local
government leaders can… ensure that taxpayer
dollars do not subsidize poverty wages by supporting economic development wage standards and
feel confident that their local business climate will not be affected.”lvi
Labeled “the most impactful living-wage law in the nation,” the legislation enacted in
NYC in 2013 saw eighteen different projects it covered moved through the NYCIDA in its first
nine months.lvii Despite critics’ warnings this law would stifle economic development, the new
law has in fact not dampened the appetite for tax exemptions.lviii The NYCIDA reported more
than 12,000 jobs were to be created on a range of new economic development projects covered
by the living wage requirement, operated in full capacity, and saw no chance in the number of
applications for subsidies.lix
This success had New York City Mayor Bill de Blasio pledging to “keep fighting to
expand living wage protections so more New Yorkers are able to support their families with
dignity and security.”lx Mayor de Blasio signed Executive Order No. 7 on September 30, 2014,
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significantly expanding the city’s living wage law to apply to economic development
transactions.lxi Why not in Buffalo?
Conclusion
It is clear the Erie County Industrial Development Authority and other Western New
York IDAs should enact a living wage policy in which recipients of tax incentives must pay their
employees at least $15 per hour. Such a policy has been effective in New York City, just across
the state and in a much larger scale, so there is no reason it would not be a success here, for
workers, employers, and developers alike.
Though the current local IDA system is broken, our existing living wage legislation is
waiting to be expanded to our region’s biggest job creation source. If ECIDA truly wishes to
follow its mission statement—“to advance job opportunities and economic well-being for Erie
County citizens”lxii—then it should be required to ensure every job it creates pays a living wage.
Local low-wage workers and IDA living wage policies need the same thing:
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“Wealth Inequality in America: Seeing Reality” Common Dreams. March 6, 2013. Accessed at:
www.commondraeams.org/news/2013/03/06/wealth-inequality-america-seeing-reality.
ii
Id.
iii
Id.
iv
“Inequality in Social Exchange.” John Stacey Adams. Advances in Experimental Psychology. Academic Press.
(267). 1965.
v
“Wealth Inequality in America: Seeing Reality” Common Dreams. March 6, 2013. Accessed at:
www.commondraeams.org/news/2013/03/06/wealth-inequality-america-seeing-reality.
vi
“Raising the Minimum Wage: Key Facts and Figures.” Partnership for the Public Good. Pg. 1. October 28, 2014.
Accessed at: http://www.ppgbuffalo.org/wp-content/uploads/2013/03/Raising-the-Minimum-Wage.pdf.
vii
Id.
viii
“Economic Development and Livable Wages.” Coalition for Economic Justice. Accessed at:
http://cejbuffalo.org/wp-content/uploads/2015/01/Economic-Development-and-Livable-Wages-Presentation.pdf.
ix
““Understanding Employee Equity: Every Startup’s Secret Weapon.” Meghan Casserly. Forbes. March 8, 2013.
Accessed at: http://www.forbes.com/sites/meghancasserly/2013/03/08/understanding-employee-equity-bill-harrissxsw/.
x
“Passing Living Wage Policy is the Right Thing for the Board of Education.” Coalition for Economic Justice.
July 8, 2006. Accessed at: http://cejbuffalo.org/posts/press/2006/07/passing-living-wage-policy-is-the-right-thingfor-the-board-of-education/.
xi
“School Board Passes Living Wage Policy.” Coalition for Economic Justice. April 3, 2009. Accessed at:
http://cejbuffalo.org/posts/campaign/2009/04/school-board-passes-living-wage-policy/.
xii
“The State of the Living Wage in Buffalo, New York.” City of Buffalo Living Wage Commission. Pg. 2.
December 6, 2006. Accessed at:
http://citybuffalo.com/files/1_2_1/Living%20Wage%20Commission/State_of_Living_Wage_Report.pdf.
xiii
Id. at 1.
xiv
Id. at 8-9.
xv
“The Buffalo Living Wage Ordinance.” Joseph L. Guza of SUNY Buffalo Law. Partenership for the Public
Good. Pg. 8. April 2012. Accessed at: http://www.ppgbuffalo.org/wp-content/uploads/2012/02/City-of-BuffaloLiving-Wage-Ordinance.pdf.
xvi
“WNY Subsidy Reform.” Andy Reynolds. The Coalition for Economic Justice. Accessed at:
http://cejbuffalo.org/our-work/wny/.
xvii
Id.
xviii
Lecture from Andy Reynolds of the Coalition for Economic Justice on April 3, 2015.
xix
“Getting Our Money’s Worth.” Coalition for Economic Justice. Accessed at: http://cejbuffalo.org/ourwork/getting-our-moneys-worth/.
xx
“WNY Subsidy Reform.” Andy Reynolds. The Coalition for Economic Justice. Accessed at:
http://cejbuffalo.org/our-work/wny/.
xxi
Id.
xxii
Accessed at: www.thepartnership.org.
xxiii
“Our Mission.” ECIDA website. Accessed at: www.ecidany.com/our-mission.
xxiv
Id.
xxv
“Economic Development and Livable Wages.” Coalition for Economic Justice. Accessed at:
http://cejbuffalo.org/wp-content/uploads/2015/01/Economic-Development-and-Livable-Wages-Presentation.pdf.
xxvi
Id.
xxvii
Id.
xxviii
Id.
xxix
“Industrial Development Agencies in New York State: Background, Issues, and Recommendations.” Office of
the New York State Comptroller: Division of Local Government Services and Economic Development. Pg. 4. May
2006. Accessed at: https://www.osc.state.ny.us/localgov/pubs/research/idabackground.pdf.
xxx
Id. at 28.
xxxi
Id. at 31.
xxxii
Id. at 34.
xxxiii
Id at 19.
xxxiv
“Erie County, Amherst, and Niagara County IDA Case Studies.” The Coalition for Economic Justice. Accessed
at: http://cejbuffalo.org/wp-content/uploads/2013/09/WNY-IDA-Case-Studies.pdf.
i
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xxxv
Id.
Id.
xxxvii
Id.
xxxviii
Id.
xxxix
Id.
xl
Id.
xli
Id.
xlii
Id.
xliii
Id.
xliv
Id.
xlv
Accessed at: socialistorganizer.org.
xlvi
Id.
xlvii
“How the ‘Living Wage’ Sneaks Socialism into Cities.” Steven Malanga. City Journal. 2003. Accessed at:
http://www.city-journal.org/html/13_1_how_the_living_wage.html.
xlviii
Id.
xlix
Id.
l
Id.
li
“Creating Good Jobs in Our Communities: How Higher Wage Standards Affect Economic Development and
Employment.” T. Williams Lester and Ken Jacobs. Center for American Progress Action Fund. Pg.1. November
2010. Accessed at: https://cdn.americanprogressaction.org/wpcontent/uploads/issues/2010/11/pdf/living_wage.pdf.
lii
Id.
liii
Accessed at: cejbuffalo.com.
liv
Id.
lv
Id. at 3.
lvi
Id.
lvii
“Living wage law beats expectations, backers say.” Chris Bragg. Crain’s New York Business. July 18, 2013.
Accessed at: http://www.crainsnewyork.com/article/20130718/BLOGS04/130719893/living-wage-law-beatsexpectations-backers-say.
lviii
Id.
lix
“NYC Living Wage Legislation Covers More than 12,000 Jobs in Under a Year, Raising Standards for Job
Creation, Economic Development.” Bronx Borough President Ruben Diaz Jr. Press Release. Accessed at:
http://bronxboropres.nyc.gov/press/releases/2013-07-18.html.
lx
“Living wage law beats expectations, backers say.” Chris Bragg. Crain’s New York Business. July 18, 2013.
Accessed at: http://www.crainsnewyork.com/article/20130718/BLOGS04/130719893/living-wage-law-beatsexpectations-backers-say.
lxi
“Executive Order Broadens Reach of New York City’s Living Wage Act.” Cleary Gottlieb. Alert Memorandum.
October 7, 2014. Accessed at: http://www.cgsh.com/files/News/4bc71629-9f56-465f-85ead9938427b291/Presentation/NewsAttachment/7926a8f9-a812-4c76-a810dac4d36009e2/Executive%20Order%20Broadens%20Reach%20of%20New%20York%20City%E2%80%99s%20Li
ving%20Wage%20Act.pdf.
lxii
“Our Mission.” ECIDA website. Accessed at: www.ecidany.com/our-mission.
xxxvi
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