Sunday, February 13, 2011

Keeping Twitter in San Franscisco and GE in Schenectady

Today's New York Times reports on the dilemma facing San Francisco as it considers the use of tax incentives to keep Twitter in a troubled neighborhood in their fair city.

San Francisco did something last week that most economists say cities should never do, but that most do all the time, anyway: it offered a special tax deal to keep an important local business, in this case Twitter, from leaving town.

The effectiveness of such tax breaks has always been in doubt. And new scrutiny of development subsidies statewide, spurred by Gov. Jerry Brown’s attempt to eliminate redevelopment agencies and enterprise zones, suggests they are largely ineffective — and costly. In many cases, subsidies don’t ultimately affect a company’s location or investment decisions. Moreover, local incentives are by nature beggar-thy-neighbor games that funnel public funds to private companies.

Yet it may make good sense to bring Twitter to the forever-down-on-its-heels Mid-Market district of San Francisco. Frankly, I suspect the company wants to stay in the city anyway, for the obvious cultural reasons. But if it can be persuaded to go to Ninth and Market, it might be a catalyst for the revival of a desperate neighborhood. And such catalysts don’t come along very often.

Today's Daily Gazette reports that departing Schenectady Mayor Brian Stratton has successfully faced the same issue with GE:

Financial turnaround

When he won office in 2003, he learned, to his shock, that the city was nearly out of money. Minutes after being sworn in on Jan. 2, 2004, he delivered a sobering speech in which he warned that the city would run out of cash by May unless he took drastic steps.

Residents questioned his figures, but an audit found the city had a $6.6 million deficit, which the state Comptroller’s Office predicted would grow to $10.2 million by the end of the 2004 if nothing was changed.

Stratton’s administration turned the city’s finances around in less than two years.

The deficit was wiped out in 2005 and replaced with a $4.9 million surplus.
It wasn’t easy. The biggest steps were the sale of the city’s money-losing parking garage, to the Metroplex Development Authority, and convincing the state to let Schenectady sell its unpaid tax liens to a private collections company.
Selling those liens — millions of dollars in unpaid taxes owed to the city — was the main solution.

Democrats said Stratton’s work put the city in the best possible position for the budgetary crisis it faces today, with reductions in state aid and rising pension and health costs.

“We were in trouble,” said Richard Naylor, the city Democratic committee chairman.

“Let the record show, look what we’ve done — it’s a miracle.”
Moody’s Investors Services agreed. In 2006, the highly-regarded risk analysis firm said Stratton had “restored fiscal stability to the city.”

In a four-page report about its decision to move the city back to an investment-grade credit rating, the agency wrote, “Schenectady’s financial condition is significantly stronger than it’s been since before 2000.”

Stratton also joined forces with county Legislature Chairwoman Susan Savage to rebuild the relationship with General Electric, trying to erase years of distrust and tax battles.

“It was a very intensive, round-the-clock effort,” Metroplex Chairman Ray Gillen said. “Brian worked very hard to improve the relationship.”

Relations were so strained in 2003 that General Electric managers vowed not to add anything to the campus and instead began demolishing buildings, slowly reducing its taxable value.

But the new atmosphere led GE to begin building its Renewable Energies Headquarters here in 2008 and to add its battery plant last year, which will more than double the amount of taxes it pays the city.

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