A Start-Up New York State of Mind

Last week, we saw a flurry of news stories marking the first anniversary of New York’s Start-Up New York incentive program.   The program has received loads of local, regional and national publicity—including an aggressive TV ad campaign running in many regions across the country.  Overall, costs for the program’s marketing have exceeded $46 million.  But, the advertising buzz isn’t the only reason for the public attention.  Start-Up New York is also one of the more extensive and aggressive incentive programs now available in the US—it offers up to ten years of tax abatements to companies that opt to start up or expand operations near New York’s many colleges and universities.

The latest news flurry was sparked by a release of the program’s first annual report.   And, as the headlines note, the news isn’t really that good.  In Year One, Start-Up New York helped 54 businesses.  Of this group, 30 actually started operations, collectively creating 76 jobs and generating $1.7 million in investment.  For a program often touted as a potential supporter of thousands of jobs each year, this performance has to be sobering and powerful fodder for critics of NY Governor Andrew Cuomo.

While I have long held reservations about the generosity of this program, I would also caution that it’s too soon to pass final judgment on Start-Up New York, even with this first report.   Most start-ups and expansions take several years to gain traction, so counting jobs in Year One is always a risky proposition.   This experience suggests that smart program managers need to do a good job from the start in terms of highlighting other program impacts beyond job creation—this is the only way to paint a full picture of the program’s impact and potential to create new prosperity over the long term.   One program benefit clearly jumps out:  the initiative has sparked conversations about NY State as place for start-ups.  This is an important (albeit costly) benefit considering that New York is traditionally ranked among the least friendly states for business.  Finding ways to change that narrative has to be a top priority for any governor of New York.

Nonetheless, I’ll continue to reserve judgment on whether this expensive program generates a good return on investment.  As much research shows, entrepreneurs are not traditionally driven to make location decisions based on tax incentives.   Access to talent, customers, peers, and suppliers clearly matter more.   Thus, even very generous tax incentives may do little to motivate firms to locate or expand in New York.   The interesting Start-Up New York experiment has had a challenging first year.  Its future performance may improve, but it’s likely to face further challenges ahead.

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