“Your dad and I are for the jobs the comet will provide” — Mother of astronomer who discovered the comet that destroys mankind in the movie “Don’t Look Up.”

December 29, 2021

Kingston, NY – Anyone who watched Dopesick knows the Sackler kingpins and drugmaker Purdue Pharma manipulated data so they could rake in obscene profits while they unleashed today’s opioid epidemic.

But how many people know that right here in New York State and Ulster County, economic consultants manipulate data to justify obscene subsidies to their cronies?

Background: The Kingstonian is proposed $55 million high-end housing consisting of 143 apartments, boutique hotel, garage and retail space to be built almost if not entirely at taxpayer expense. To be developed by property owner Brad Jordan and his unidentified investors, who are rumored to include elected officials, the project is funded on the public dime to the tune of 60.15% through New York State grants and a property tax break that will deprive Kingston, Ulster County, and the Kingston School District of $28 million. Upon sale, the investors will pay no capital gains tax because the project lies within an Opportunity Zone and they will pocket around $100 million if they hold for ten years — not bad, considering their cash investment is $6 million.

The developers and their co-conspirators in government have paid three “expert” economic consultancies to issue impossibly rosy projections about the KIngstonian’s supposed “benefits.” In this lopsided battle, absent a countervailing force to tip the scales toward truth, economic jabberwocky carries the day.

THE JOBS AND TAX HOAX

Leave aside the risibles floated by the developer – public bathrooms near mountain views, moveable kiosks with pamphlets about Kingston’s historical heritage – and what remains might, at first blush, justify subsidies:

• Supply/demand; the Kingstonian will lower housing prices
• Job creation
• Increased tax base leading to more tax revenue

Under scrutiny, these arguments fail.

SUPPLY/DEMAND: A THEORY MISUNDERSTOOD

Theory They Don’t Talk About: This premise holds that if you increase supply, prices will fall. What tax break supporters fail to mention is that economists attach a condition called “ceteris paribus,” which is Latin for “all things being equal.” In real life, that means you can flood the market with Wagu filet mignon, but it won’t do a thing for the price of hot dogs. In other words, housing for the wealthy will become available, but that won’t lower rent for the rest of us.

More Theory They Don’t Talk About: Housing prices are determined in large part by central banks and numbers like the soon-to-be-defunct LIBOR and “L’Effet Cantillon,” which is French for “Central bank money goes to cronies first, and if there’s any left it will trickle down to you, but don’t hold your breath.”

Reality: Globally, corporatized private interests such as private equity have sunk their claws into moderate and low-end housing, wrenching it from the hands of individual or public ownership, wringing out every cent of profit and then raising prices so they can wring out more. In the active high end construction sector, the uber-wealthy scarf up condos as safe havens to park money sometimes gained through illegal means. Swaths of London and Manhattan are dark, because no one lives there. There’s plenty of construction, alright, just not for the likes of you and me.

The supply/demand argument is flat-out wrong. Make sure your neighbors know this and that your alderman does too.

JOBS AND TAX HOAX: DEVELOPER’S OWN DOCUMENTS BELIE THE BIG LIES

Won’t the project create jobs?

Pay no attention to phony reports predicting hundreds of new jobs. The developers’ IDA application says the project will create 40 permanent jobs, of which 80% will pay a “livable” wage, which they peg at $15 an hour. But in September 2020 they told the IDA they would create only 14 jobs, of which 13 would pay “livable” wages. It was unclear if the missing 26 jobs were in the garage, retail, or hotel components, or if they even exist at all.

If the project does create 40 jobs, $28 million in local tax breaks means a subsidy of $700,000 for each of 40 workers, most of whom won’t earn enough to rent an apartment in Kingston, much less in the Kingstonian. And if it only creates 14 jobs, that’s $2 million a job that should be going into public coffers instead of being pickpocketed from you. It’s time Kingston’s government thought of ways to help people earning $15 an hour, rather than how to help rich grifters rake in millions that should go toward the public good.

But what about the new tax base?

Retrospective studies show tax revenue projections fail to materialize, in part because manufacturing and supply chains have changed, and money spent simply does not circulate locally. For example, today people buy goods online, and that money doesn’t stay local. Listen to The Vindicator’s podcast with an economist from George Mason’s Mercatus Institute for a clear explanation. Or, you can read Bruce McLean’s excellent analysis showing the project would need to generate almost $67 million in taxable sales to make up for revenue lost to the City alone, not to mention the Kingston School District or Ulster County, from the tax break.

BOGUS DATA, BOGUS STUDIES

Three economic consultancies produced glossy presentations with dodgy jobs and tax revenue projections to fool supporters into backing the tax break.

Camoin Associates.

Former Camoin Associates Vice President Michael N’dolo probably rues the day he admitted that PILOT tax breaks hurt school districts, because no matter how they try to scrub it, that 2013 article is still on the internet.

The Kingstonian’s preposterous “fact sheet” references Camoin projections, but the small print notes that projections are “for discussion purposes only,” proving the developers don’t want to be held to their word, or rather, their numbers. Then, there’s the question of retrospective studies. If you can find one that substantiates Camoin’s calculations, by all means, let me know. The only retrospective by a Camoin client that I could dig up online found the actual revenue creation was almost three times smaller than what Camoin predicted. That’s right, almost three times smaller.

In fact, projections by most economists have a dismal track record. Why? Small changes make predictions almost impossibly complex, say scientists in this article, showing that to predict the path of a ball, you’d need to take into account the gravitational pull of someone standing nearby. Economists may not even realize they’re failing to consider enough variables.

How about the errors economists know they’re making, but do so anyway to placate the person signing their paycheck?

National Development Corporation

It was never clear whether a truly impartial study could originate from a company headed by a long time colleague of Brad Jordan – they sat on the Kingston Local Development Corporation together for years. And yet, in October 2020, when the National Development Corporation was called in as an independent consultant, it produced a study that found the Kingstonian would cause a $3.4 million loss to the community. Results like that don’t sit well with developers, so County Executive Patrick Ryan facilitated a meeting among the developers, the IDA, and county executives. The result: a few days later NDC produced a second study finding a $256,000 benefit to the community. IDA Chair James Malcolm praised the study on grounds that it was something “everybody could live with.”

Ryan tried to bury the first study, but someone leaked it, and both are linked in this article, which provides more details on what happened. Here’s a look at trickery NDC used for the benefits bunk in the second study. Make sure your neighbors and your aldermen know this second study mollified the people who signed the check, and that accuracy had nothing to do with findings.

Center for Governmental Research

This Rochester-based economic development consultant sells software that supposedly analyzes public benefits. But it’s an exercise in rubbish. The biggest reason is the small print on Page 6 of their report: The company doesn’t verify the information the developers provide, meaning they can input any numbers they want in order to output the results they want. “Garbage in, garbage out,” Cornell economist David Kay told me last year, noting that not only can the input numbers be ginned but that the programs can contain “systemic biases.”

There are other reasons, too. The program projects 25 years out. But a source who manufactures the basis for this sort of software, known as IMPLAN, said the software is only valid for five years. Another trick: the report features bar charts with no numbers attached, with one bar so large that it becomes impossible to visually guesstimate the smaller bars.

The only piece of information that seems remotely likely is on Page 11 of the report, which finds that almost $74 million of regional benefits will flow to private individuals, vs. less than $2 million to the public. While the numbers themselves may be fictitious, the ratio seems right — a big profit for private pockets, and virtually nothing for the public.

It’s not the only time CGR played fast and loose with Kingston. This same consultancy was hired to perform the vacancy study in early 2020 when rent stabilization, a policy opposed by landlords, became an option if the vacancy rate fell under 5%. Just in time for a private group to buy four apartment complexes for $80 million, the study found a vacancy rate of 6.7%, meaning that rent stabilization was out of the question. The company, called Aker, then put out a video announcing their exit strategy of selling the properties a few years down the road “with meat on the bone” — in other words, potential for further rent hikes. Yet only a few months after the CGR study, during an August dog-and-pony show at the Chamber of Commerce to push the Kingstonian, former partner Joseph Bonura Jr. said Kingston’s vacancy rate was 2.17%, “so low that’s it’s unhealthy.”

That spot has been empty so long. Isn’t something better than nothing?

No. Nothing is better than something, when that “something” is built on a foundation of wishful thinking at best, and at worst, false data deliberately manipulated to fool lawmakers and the people. Make sure you alderman isn’t among them.

REAL EXPERTS KNOW THESE ARE BOONDOGGLES

No matter where they sit on the political spectrum, honest legal and economic thinkers recognize most of these tax giveaways are good for the recipient and bad for everyone else. Here is a selection of articles from conservative, libertarian, liberal, progressive and non-partisan groups. The Vindicator also recorded five podcasts about tax breaks with experts of all political stripes.

The Brookings Institution: Most business incentives don’t work. Here’s how to fix them.

The New York Times: When All Else Fails, Tax Incentives Probably Will, Too

Upjohn Institute: Presentation by expert Tim Bartik.

GMU’s Mercatus: Subsidies Don’t Work: Negligible Community Benefits and Economic Development

American Progress: The Realities of Economic Development Subsidies

American Bar Association: Why Firm-Specific Business Subsidies Don’t Work

Good Jobs First: A Beginner’s Guide to Economic Development

The Wall Street Journal: Economists Question the Benefits of Target Tax Breaks

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