“Open ESD” Watchdog Report Recommends Major Governance and Transparency Reforms for Secretive State Authority

Watchdog group Reinvent Albany’s “Open ESD” report includes 35 specific actions to improve ESD’s transparency, governance, oversight, and ethics. Reinvent Albany wrote the report to encourage the public authority’s Board of Directors and staff, the Governor, Legislature, State Comptroller, and Authorities Budget Office to take many big and small steps to increase public confidence that ESD puts the public first, not the Governor or powerful special interests and business clients. This report follows last week’s publication from Citizens Budget Commission showing that New York state and local governments are spending $11b a year on economic development, many of which involve ESD subsidies and projects.

Reinvent Albany’s “Open ESD” report was written by Elizabeth Marcello, the group’s Senior Research Analyst, who interviewed current and former state officials and experts from academia, think tanks, and watchdog groups, and reviewed hundreds of ESD documents and webpages. 

Key Points

1. ESD is among the state authorities and agencies most vulnerable to corruption, pay-to-play, and political abuse. ESD has an amorphous mission that reduces its public accountability, and the Board and senior management are completely controlled by the Governor and show very few signs of acting independently. ESD by design engages in massive, secretive, sole-source deals totally at odds with basic principles of government spending and procurement that emphasize transparency and competitive bidding. 
    
2. ESD is secretive and does not publicly disclose basic information about many subsidy deals, including the size of the subsidy, subsidy cost per job, and the financial assumptions underlying the subsidy. ESD does publish a huge amount of information, but much of it is more akin to a press release than usable data or honest evaluations of ESD activities that make it clear to taxpayers what their money is actually buying. 
    
3. ESD officials must obey the New York State Public Authorities Law and Public Officers Law, which establish clear expectations for ethical and transparent behavior by the Board of Directors and staff. These laws are rooted in the principle that government is the public’s business, and the people’s right to know is basic to our society and democracy. Rather than embrace this responsibility, ESD officials and staff too often dodge reasonable questions from the public and journalists and game legal exceptions to delay and/or avoid disclosing records under the Freedom of Information Law. Their general secretiveness is so vexing that progressive and conservative watchdog groups and state legislators had to push for years to create a Database of Economic Incentives – something states like Florida, Wisconsin, and Washington have had for years – but which still does not reveal the total state subsidies an individual business has received over the last decade. 

This report makes 35 recommendations in four areas: Governance, Oversight, Transparency, and Ethics/Conflicts of Interest.

1. The Legislature should pass legislation that merges the Job Development Authority and the Urban Development Corporation into one public authority called Empire State Development. The current, convoluted structure has existed since 1995 and there is no reason it should continue.
2. The Legislature should create a Department of Subsidy Eligibility outside of ESD control that replaces the Department of Economic Development. This new agency should have the sole mission of determining eligibility for the billions of dollars of legislatively-created tax expenditure programs. (It’s possible this function could also be moved to Tax and Finance.) It is a conflict of interest for ESD – which helps businesses maximize their state subsidy packages – to also determine eligibility.
3. The Legislature should pass S989 (Mattera) / A1768 (Colton) of 2023 which requires legislative approval for the creation of any new public authority subsidiaries.
4. The Legislature should have to approve the creation of any new LLCs for real estate deals.
5. The Legislature should rewrite ESD’s mission statement to clearly establish the authority’s purpose and core functions.

6. The Legislature should amend the Urban Development Corporation (UDC) Act so that of the nine members of the board of directors, three members total are selected by the State Comptroller and majority leaders of the Assembly and Senate, who select one appointee each. The remaining members can be appointed by the Governor.
7. The Board should, in practice, be given independence to reject projects and programming; agenda items should be discussed and voted on individually.
8. ESD should amend its bylaws to state that the Board of Directors selects the Chair of the Board.

9. The State Comptroller should conduct more regular audits of ESD programs and projects. We suggest an audit of ESD compliance with Executive Order 95 of 2013 requiring the publishing of all public data on the New York State Open Data portal, as well as an audit of ESD transparency practices when it comes to megaprojects.
10. The Authorities Budget Office (ABO) should conduct a governance and operational report/review of ESD.
11. The Legislature should pass S6746 (Ryan) of 2023 to expand the powers of the ABO. The ABO should have the power to remove board members who neglect to complete required state training, and to dissolve authorities who act outside of their legal authority.
12. Relevant committees of the State Legislature, such as Corporations, Finance, and Government Operations, should hold regular oversight hearings regarding ESD’s activities, including business subsidy programs and megaprojects, outside of the regular budget hearings.

13. The Legislature should pass legislation that adds a sunset date for all tax abatement programs unless there is an evaluation showing clear evidence of a positive return on investment (ROI) provided by an independent evaluator hired by the Comptroller (and not the agency itself).
14. The Legislature should assess whether ESD’s current definition of “job” (defined as FTE, or full-time equivalent) is adequate and consistent with best practices.
15. ESD should eliminate the concept of a “retained” job. It is impossible to demonstrate whether a job is retained because of a government subsidy or market conditions.

16. ESD should have a fully functional database of deals that allows the public and the Legislature to see and evaluate the effectiveness of ESD programs and projects.
17. ESD should publish a schedule of reporting requirements that includes links to relevant reports. In the long term, the Governor and the Legislature should streamline the reporting process so reports are less onerous to ESD staff.
18. ESD should fully comply with Executive Order 95 of 2013, requiring the publishing of all public data on the New York State Open Data portal. Legislation should be considered in this area if compliance cannot be achieved administratively.
19. The Legislature should pass S1883 (Skoufis) of 2023 which requires economic development entities (like Regional Economic Development Councils) to be subject to Open Meetings and Freedom of Information Laws, and requires members to file financial disclosures.
20. ESD should create and publish on its website an organizational chart like other agencies and authorities, as recommended by the Comptroller’s Standards for Internal Control and the Authorities Budget Office’s Guidance on Public Authority Websites. See, for example, the Office of the State Comptroller’s organizational chart.
21. When ESD releases large volumes of data regarding any project or initiative, they should release relevant datasets (like those included with an environmental impact assessment or General Project Plan, which can total hundreds of pages in PDF format) in an open data format. If this data is produced by an outside consultant, the contract for the analysis should require provision of open data. Legislation should be considered in this area if compliance cannot be achieved administratively.
22. The Legislature should pass legislation requiring ESD to release all financial documents and analyses related to any project that seizes land (and tax payments) from any locality.

23. ESD should adopt an Open FOIL “release to one release to all” policy facilitated by enterprise software like New York State’s GovQA. The Port Authority of NY/NJ has been doing this since 2012. Additionally, FOIL requests should be used to prioritize proactive release of information via a “Reading Room,” where documents are publicly available online.
24. The Legislature should pass S3257 (Hoylman-Sigal) of 2023, which ends companies’ ability to indefinitely block public access to records submitted to the state.
25. The Legislature should pass S3502-A (Skoufis) of 2023, which ends the FOIL exemption for consultant reports paid for by the state.

26. ESD should proactively release detailed financial data for all projects undertaken, including revenue and cost projections. ESD should be explicit about standard financial assumptions embedded in its models and make clear degrees of uncertainty, especially for out-years.
27. ESD should allow live public comment at its Board meetings so the public can fully and meaningfully participate in Board actions and decisions.
28. The Legislature should stop using broad and vague appropriation language when it creates new programs within ESD, and stop using lump sum appropriations for economic development spending. Any money set aside for a program should have specific language governing how and when that money should be used.

29. ESD should fix dead links and link misdirects on its website.
30. ESD should redo their reports page. Reports and other materials should be accessible in list/table form and filterable by topic and/or subsidiary releasing the report. See the Authorities Budget Office website for an example. This would be much easier to navigate than the current system, which involves a lot of clicking through pages and skimming to find specific reports and tabular data.
31. ESD should list all subsidiaries on its website and publish all available subsidiary reports.
32. ESD Board meetings should be made more transparent. ESD should create a database on the New York State Open Data portal that includes Board materials, actions, votes, and recusals.
33. ESD should provide all materials for Board meetings at least three days in advance of Board meetings so the public can meaningfully comment on agenda items. Any budget or tabular data should be provided in an open, machine-readable format.

34. ESD should post on its website the financial disclosure forms of the CEO/President, ESD Board members, and senior management of ESD, including for its subsidiaries.
35. ESD Board members should fully comply with ABO policy on recusal and abstention. Members should be required to provide detailed disclosures of conflicts when members recuse, which should be included in minutes that record specific reasons for recusal.

    
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