Comments by Dan Steinberg
Research Analyst, Good Jobs New York
Public hearing of the New York City Industrial Development Agency
on the proposed Diamond Tower project
November 9, 2006
My name is Dan Steinberg, Research Analyst for Good Jobs New York, a joint project of the Fiscal Policy Institute with offices in Albany and New York City and Good Jobs First, based in Washington, DC. Good Jobs New York promotes accountability to taxpayers in the use of economic development subsidies.
The Industrial Development Agency (IDA) is proposing to subsidize a commercial tower in Midtown Manhattan—one of the most desirable office locations in the world. Clearly, the burden is on the IDA to demonstrate that the various incentives being proposed are necessary and truly vital to the health of New York’s diamond industry.
To be sure, the city’s diamond industry--encompassing design, manufacturing, wholesale and retail operations--is a leader in the world jewelry market and a significant employer in New York, and the diamond district functions as its epicenter. However, Good Jobs New York is concerned that this project is not a wise use of subsidies and will simply pit diamond district landowners against one another without effectively addressing the entire industry’s competitiveness. After all, the project represents a real estate-oriented strategy for an industry that is characterized as needing relatively little production space.
The stated justification for the project is that subsidies are needed to reinforce the position of New York City as an international diamond and jewelry trade center. However, the IDA does not substantiate the implicit argument that New York’s position as a global diamond exchange is in jeopardy. Industry experts maintain that the loss of diamond jobs are concentrated in the manufacturing sectors, reflecting dramatically lower labor costs in countries such as India and China. These factors are far beyond the scope of a subsidized tower, which would most likely house companies that make location decisions based on historic businesses relationships and the tremendous consumer market for diamonds in New York.
There is a legitimate concern that Extell would fill the diamond tower by poaching existing businesses from buildings along 47th Street. The project’s proposed benefits structure therefore provides hefty tax exemptions based on the percentage of businesses that are either new to New York or expanding. However, contrary to what has been reported, these benefits are not tied to job creation, but to the physical expansion of the businesses’ space. As it stands now, this subsidy package may have little to do with creating new jobs. Considering that so many of the prominent players in the diamond trade are already located in New York, and that businesses do not seem to be suffering from a space crunch, the current benefits package does not appear to advance a policy objective or constitute a wise taxpayer investment.
GJNY is also concerned that this proposal is not part of a plan that is sensitive to the delicate infrastructure of the diamond district itself. To be sure, the clustering of businesses in the diamond district allows firms to quickly replenish their inventories, communicate market trends, and respond quickly to changing market demands. While the diamond tower is intended to enhance this synergistic market, it may in fact have the opposite effect. For instance, many of the low-rent ancillary diamond businesses may not be able to afford space in the new tower. Indeed, many of these businesses (especially smaller or more marginal firms) could lose their current space if the buildings they currently occupy become obsolete as diamond exchanges because high-end tenants have moved into the diamond tower.
To conclude, GJNY has accountability concerns in that enforcing the terms of this deal will be a tricky endeavor for the IDA. Who will be in charge of reporting whether existing businesses are actually increasing the amount of space they occupy and how will this information be verified?