Corporate Welfare or Education?

Credit: Wiki Commons.

“Who needs the Cayman Islands?” That’s how a May 22 New York Times article began as it described “Tax-Free NY,” a plan zealously promoted by New York State’s Democratic Governor, Andrew Cuomo.

Under the provisions of his Tax-Free NY scheme, most of the 64 campuses of the State University of New York (SUNY), some private colleges, and zones adjacent to SUNY campuses would be thrown open to private businesses -- businesses that would be exempted from state taxes on sales, property, the income of their owners, and the income of their employees for a period of ten years. According to the governor, this creation of tax havens for private, profit-making companies is designed to create economic development and jobs, especially in upstate New York.

Accompanied by businessmen, politicians, and top SUNY administrators on a tour of the state, Cuomo has embarked on a full court press for his plan. “There are winners and there are losers,” he declared. “And the point of this is to be a winner.” Tax-Free NY, he announced, was “a game-changing initiative that will transform SUNY campuses and university communities across the state.” Conceding that these tax-free zones wouldn’t work without a dramatic “culture shift” in the SUNY system, Cuomo argued that faculty would have to “get interested and participate in entrepreneurial activities.” As he declared in mid-May, the situation was “delicate, because academics are academics. ... But you can be a great academic and you can be entrepreneurial, and I would argue you’d be a better academic if you were actually entrepreneurial.”

Despite the obvious problems this commercial approach raises for intellectual and academic integrity, SUNY Chancellor Nancy Zimpher is a strong supporter of the governor’s plan. Only a few years ago, New York State law prohibited businesses from operating on SUNY campuses, but Zimpher arranged for that barrier to be swept away. Also, even if she didn’t approve of a commercial invasion of the university, she -- like individual campus administrators -- would be unlikely to keep her job if she opposed the governor.

SUNY’s faculty and staff, on the other hand, have a greater stake in preserving the university’s traditional role of education and the advancement of knowledge. United University Professions (UUP), the union that represents 35,000 faculty and other professional staff on SUNY campuses, has been disturbed for years by the state government’s abandonment of its legal commitment to fund public higher education. Over a four-year period, SUNY lost nearly $700 million in state support through budget cuts, and state funding has remained flat over the past year. Today, nearly 75 percent of the university’s operating budget comes from ever-rising tuition and fees. A decade ago, the state covered 75 percent of SUNY’s budget.

Naturally, then, UUP has promised to fight against this latest assault on the university. Rejecting Tax-Free NY, it argues that nothing in the governor’s plan benefits SUNY, that any available space on SUNY’s campuses should be dedicated to improving education through smaller class size and improved student services, that there are no assurances that business entities would support the academic mission of campuses, and that the tax-cutting plan would diminish tax revenues that could be used for public education.

Also, there is considerable doubt that Tax-Free NY will spur economic growth. The Citizens Budget Commission, a business-backed group, has reported that New York State already spends about $7 billion annually to foster economic development and that there is no evidence that this funding has produced anything. The Alliance for a Greater New York, a group with a liberal orientation, has noted that, in the past year, the state gave away $490 million to businesses for projects through its Industrial Development Agencies. Of these projects, half failed to create any jobs and another quarter lost a total of 17,000 jobs. Criticizing Tax-Free NY, Crain’s New York Business, a leading commercial publication, stated that “history tells us these kinds of strategies don’t work.” During the administration of Republican George Pataki, “the state created Empire Zones in supposedly depressed areas, with special tax breaks and incentives. ... No area ever showed any real economic gains. They were eventually phased out when it became clear they had achieved virtually nothing.” In addition, past economic development programs were riddled with abuse and fraud by unscrupulous companies.

As a result, significant criticism of the governor’s plan has begun to emerge. The small Conservative Party -- a key ally of the Republican Party -- formally denounced Tax-Free NY, arguing that “government should not be deciding what businesses receive government handouts that give them advantages over other businesses.” Journalists asked the governor what would stop the favored businesses from simply packing up and leaving after their decade of tax breaks. And the Civil Service Employees Association has begun running ads against the program. According to CSEA President Danny Donahue: “The governor doesn’t get the fact that more corporate welfare is no answer to New York’s economic challenges.”

Why, then, despite the obvious limitations of Tax-Free NY, is the governor promoting it so vigorously? One reason, some observers contend, is that Cuomo is a very ambitious man, with his eyes on a run for the White House. Determined to win reelection by a huge margin, he needs to strengthen his sagging appeal in upstate New York to do so. In addition, Cuomo has been closely allied with the state’s corporate leaders, who have poured millions of dollars into promoting his pro-business agenda, which includes bludgeoning the state’s public sector unions. Championing tax cuts to business helps cement this alliance.

Ironically, it’s quite possible that the governor could spur economic growth and job creation if he just reversed his proposal. Instead of throwing more tax dollars at profit-making businesses while starving public education, he could channel that same money into the SUNY system. In this fashion, he would help build the kind of university that, through its intellectual excellence, would foster advanced scientific experimentation, economic innovation, and a highly-educated workforce. But that’s not at all his plan.