The median income in New York is $60,850 and the median income in New York City is $50,771. Assume the government of New York state decided to spend 53 million dollars to give as many people as they can an income of $50,000 for 3 years. If this were the case, New York would be able to guarantee 353 people 3 years of income with 53 million.
Why 53 Million?
53 Million is the amount of taxpayer money spent just to promote New York’s job program, StartUP NY, across the country to court new businesses and employment in struggling parts of New York. This figure does not consider the tax money foregone by the tax benefits of the program that after several years only generated over 400 jobs. The 53 million was just for marketing TV ads like this, some of which featured Governor Andrew Cuomo, essentially becoming taxpayer funded branding for his presidential ambitions and re-election efforts.
Why it didn’t work?
Give a dog a treat and you can train it to do what you want, but the more complex the task the better the treat needs to be. While 10 years of no taxes is a sweet treat, the complex requirements and rules to be eligible left very few businesses able to participate and the ones that could weren’t the largest job makers.
So what’s the plan now?
So after spending 53 million to promote the original name the big idea is to change the name to the boring and less clear Excelsior Business Program (which I assume will require a new marketing budget to promote it just in time for Cuomo’s re-election). This program will loosen some of the requirements but also reduce some of the benefits.
How it could be done better?
There are couple of issues when it comes to subsidizing business. At the end of the day if you want business you need a lightly taxed and lightly regulated environment so potential entrepreneurs are not discouraged by tax and regulatory burdens.
Is it a solid business idea?
What happens if it fails?
Will the subsidies effect the businesses’ governance and make it less likely to succeed?
That is why I would prefer if they had just taken the 53 million and invested it into a tax credit for new businesses making payments on loans of $50,000 or less. These are the kind of loans very small micro startups may take but it may just be enough to identify some good business models that can later find more traditional channels for capital.
Why a tax credit instead of a grant?
When you give a grant there is less pressure on the business owner since there is no requirement to pay the money back so they are more likely to be sloppy with how they spend it. Also, if the entrepreneur first has to get a loan from a bank then they are subject to the bank’s underwriting process in which the bank will assess their business model. If the business model is not fully thought out the bank will turn them down, and if it is they will get the loan.
Why should the credit be against payments?
The idea is if the business does well the entrepreneur is rewarded with getting the loan money back via the tax credit against successful payments on the loan. This way, if the business does not do well tax payers are not on the hook, the entrepreneur and the bank still take risk encouraging them to make sure things are done well. Essentially the full 53 million dollars would only be spent over several years and only if startups successfully pay off the loan in which case the credit gives them an extra 50k to continue to grow their business. (this could also be used as a way to swap the debt out for equity investors, which would make the company less encumbered by debt.)
Where are the jobs?
No jobs program is going to be transformational overnight, it takes several years for a business to grow and you are never sure which business will be the big winners which is why a program encouraging more micro start-ups is more likely to have more return in the long run (more bets, the more likely some will pay off instead of making a few bigger bets). 53 million dollars could subsidize 1060 micro-business loans to 1060 entrepreneurs, which in essence out of the gate creates a job for the entrepreneur (1060 is more than the 400+ for StartUp NY).
How do we get smarter policies?
By electing the right people. This is why I ask in 2018 when you consider who to vote for the Governor of New York to consider former marine and entrepreneur, Larry Sharpe, a man of integrity, warmth, and strength whom I’m glad to call a friend.