Urban Econ Final

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CUNY Brooklyn College Gianni Boera Addressing heightened crime rates in Bed-Stuy, Brooklyn: A critical analysis on the preservation of Human Life and Economic Stability Econ 3232-Urban Economics Professor William Thorne May 2, 2023

1. Introduction Bedford Stuyvesant, Brooklyn, has a 23% poverty rate and a 2.1% incarceration rate, putting them in the 79 th and 78 th percentiles, respectively. 1 Relative to the rest of Brooklyn, these numbers are quite high, with the city-wide crime rate being 16% 2 and an incarceration rate of .37%. 3 Statistics show that the serious crime rate is 16.1 per 1000 people, compared to 12.2 serious crimes per 1000 people city wide. 4 Within Bed-Stuy, we see that, relative to the average citywide, there is increased crime, a lower median household income, a higher rent burden, and lower economic productivity. 5 In cities, the rate of crime and increased density are positively correlated, giving us a unique insight into the behavior and motives behind crime. 6 To decrease crime in Bed-Stuy and increase economic activity, I believe it is necessary for the government to use a mixture of preventative and punitive measures, including business 1 Opportunity Atlas. "Opportunity Atlas." Opportunity Insights, Harvard University, 2018, https://www.opportunityatlas.org. 2 Furman Center for Real Estate and Urban Policy, New York University. "Bedford-Stuyvesant Neighborhood Profile." NYU Furman Center. 2021. Accessed May 2, 2023. 3 "Institute for Criminal Policy Research. States of Incarceration: The Global Context 2021." World Prison Brief. 2021, https://www.prisonstudies.org/sites/default/files/resources/downloads/wppl_2021.pdf. Accessed 3 May 2023. 4 Furman Center for Real Estate and Urban Policy, New York University. "Bedford-Stuyvesant Neighborhood Profile." NYU Furman Center. 2021. Accessed May 2, 2023. 5 Furman Center for Real Estate and Urban Policy, New York University. "Bedford-Stuyvesant Neighborhood Profile." NYU Furman Center. 2021. Accessed April 19, 2023. 6 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005.

empowerment zones (BEZ), increased police presence, and increased maximum sentencing. 7 Figure 1: Map of Bed- Stuy, Brooklyn 2. Re-envisioning penal and preventative crime measures To combat high crime in Bed-Stuy, Brooklyn I propose a two-pronged approach: first, increased police presence and maximum sentencing; and second, re-envisioning the current BEZ. Over the years, Bed-Stuy has implemented many policies to curb crime, including increased police presence, community policing, neighborhood watch programs, and public awareness campaigns. In 2009, the Bed-Stuy BID, or Business Improvement District, was created with the intent of investing a total of $134 million in Bed-Stuy. 8 As I will explain later, I propose to increase this investment. The result of the BEZ on crime in Bed-Stuy has been mixed; however, employment and the rate of job growth have increased. 9 My first policy recommendation would be to re-envision the business empowerment zone. Currently, NYC has various business 7 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005. 8 "About Us," The Bed-Stuy Gateway Business Improvement District, accessed May 21, 2023, https://thebedstuybid.org/about-us/ . 9 New York City Department of Health and Mental Hygiene, "Community Health Profiles 2018: Bedford- Stuyvesant," last modified 2018, https://www.nyc.gov/assets/doh/downloads/pdf/data/2018chp-bk3.pdf .

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empowerment zones, each with a unique purpose. The purpose of the BEZ I propose is to encourage business growth and economic development in low- income communities. 10 The current implementation of the BEZ offers job training, community projects, and affordable housing preservation. 11 To incentivize entrepreneurship and development, the law states, “Employers can claim a federal tax credit of up to $3,000 for each full- or part-time employee who is an Empowerment Zone resident. The credit is based on 20% of the first $15,000 in wages earned by the qualifying employee.” 12 Along with this, there are two qualifications an employee must meet to be hired: first, they must perform a substantial amount of their services within the BEZ, and second, while performing those services, the employee’s main home must be within that BEZ. 13 The revised BEZ will maintain the current rule for qualifying employees; however, the tax cuts will change. Once implemented in Bed-Stuy, tax cuts will increase, providing incentives for development and businesses. The tax cuts will vary given the prevailing rate of borrowing for each business. Businesses will pay a proportional tax relative to their cost of borrowing; this means that if a business has a higher borrowing cost, they will incur lower taxes, and vice versa. In this way, businesses will be able to pay a competitive wage while overall investment in the neighborhood increases. With investment and wages increasing, individuals are less likely to commit crimes. This sentiment is supported within Lectures on Urban Economics by Jan K. Brueckner, where he states, “Disadvantaged individuals, who earn low incomes in legitimate 10 "Empowerment Zone Wage Tax Credit." NYC Business, New York City Department of Small Business Services, https://nyc-business.nyc.gov/nycbusiness/description/empowerment-zone-wage-tax-credit . Accessed April 19, 2023. 11 New York State Comptroller's Office. "Economic and Fiscal Impact of the New York State Film Tax Credit." New York State Comptroller's Office, May 2018, https://www.osc.state.ny.us/files/reports/osdc/pdf/report-5-2018.pdf. 12 "Empowerment Zone Wage Tax Credit." NYC Business, New York City Department of Small Business Services, https://nyc-business.nyc.gov/nycbusiness/description/empowerment-zone-wage-tax-credit . Accessed April 19, 2023. 13 "Empowerment Zone Wage Tax Credit." NYC Business, New York City Department of Small Business Services, https://nyc-business.nyc.gov/nycbusiness/description/empowerment-zone-wage-tax-credit. Accessed April 19, 2023.

employment, thus become criminals.” 14 The study “Identifying the Effect of Unemployment on Crime” by Steven Raphael and Rudolf Winter‐Ebmer provides data supporting this theory. In this study, the authors find that a 1% drop in unemployment led to a decrease in property crime between 1% and 5%. 15 However, the effects of decreased unemployment on violent crime are mixed. The evidence shows that if businesses pay a competitive wage relative to crime, it will decrease overall crime. Increased police presence as money flows into the neighborhood is a secondary effect of increased investment in the BEZ, which will reduce the threat of crime even further. 16 Over the years, there has been an increase in police presence and, with it, a slight decrease in crime. However, I believe more needs to be done than just increasing police presence; one approach is to increase maximum sentencing. 17 Although incarceration is costly, 18 so too is crime, with an estimated financial loss of $2.6 trillion for the US in 2017. 19 In Brendan O’Flaherty’s “Urban Economics”, he supports this sentiment when he states, “almost all studies conclude that more prisoners mean less crime. Typically, the better studies find that a 10 percent increase in the number of prisoners in state or federal prison causes a decrease of between 1 percent and 4 percent in the number of violent crimes or property crimes” 20 . From this, we can see that, despite doing so, incarceration does decrease crime. However, increasing police presence will not be enough. Along with it, I propose to increase the rate of maximum sentencing, as with lighter sentences, not only are criminals back on the street sooner, but potential criminals are less likely to do right when the punishment is relatively minimal. As a result, increased 14 Brueckner, Jan K. Lectures on Urban Economics . Cambridge, MA: MIT Press, 2011. 15 Raphael, Steven, and Rudolf Winter-Ebmer. "Identifying the Effect of Unemployment on Crime." The Journal of Law & Economics, vol. 44, no. 1, 2001, pp. 259-283. JSTOR, doi: 10.1086/320275. 16 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005. 17 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005. 18 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005. 19 McQueen, Shelby. "New Research Examines the Cost of Crime in the U.S. Estimated to be $2.6 Trillion in a Single Year." Vanderbilt University, 5 Feb. 2021, https://news.vanderbilt.edu/2021/02/05/new-research-examines-the- cost-of-crime-in-the-u-s-estimated-to-be-2-6-trillion-in-a-single-year/. 20 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005.

sentencing results in fewer people willing to commit crimes and longer prison sentences for those who do. 21 3. Data The Furman Center at NYU defines serious crime as murder, rape, robbery, aggravated assault, burglary, grand larceny, auto theft, and arson. 22 The data show that the serious crime rate for property per 1,000 residents was 8.7 in 2021, and violent crime was 7.4 per 1,000 people. 23 . We also see that from 2006 to 2021, violent and property crimes were down. 24 This gives us a total crime rate of 16.1 per 1,000 people in 2021, which is down from the previous year’s 17.2 in 2020. However, from 2020 to 2021, property crime is down 1.6 per thousand people, while violent crime is up .5 per 1,000 people. 21 O'Flaherty, Brendan. City Economics. Cambridge, MA: Harvard University Press, 2005. 22 Furman Center for Real Estate and Urban Policy, New York University. "Core Data Dictionary: User Guide." NYU Furman Center. Accessed April 19, 2023. 23 The Furman Center at NYU defines serious crime as murder, rape, robbery, aggravated assault, burglary, grand larceny, auto theft, and arson. The data show that the serious crime rate for property per 1,000 residents was 8.7 in 2021, and violent crime was 7.4 per. From 2020 to 2021, property crime is down 1.6 per thousand people while violent crime is up .5. However, we also see that from 2006 to 2021, violent and property crimes are down. This gives us a total crime rate of 16.1 in 2021, which is down from the previous year’s 17.2 in 2020. 24 Furman Center for Real Estate and Urban Policy, New York University. "Bedford-Stuyvesant Neighborhood Profile." NYU Furman Center. 2021. Accessed May 2, 2023.

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FIGURE 2: A comparison of Bed-Stuy, Brooklyn, and citywide crime rates. 25 Figure 1 shows a comparison between Bed-Stuy, Brooklyn, and citywide crime rates, broken down into property and violent crime. It is clear from the graph that Bed-Stuy has higher rates of violent and property crime compared to Brooklyn and the rest of the city, which includes the other four boroughs. 4. Funding To fund the BEZ, there are multiple routes that can be used, such as taxpayer dollars, public and private partnerships, federal grants, and budget constraints. If we look at a similar policy implementation, the Baltimore BEZ, we see that those investments total $100 million paid out over a ten-year period. 26 However, adjusting for an increased cost of living in Bed-Stuy and inflation, the investment will need to be significantly higher and over a shorter period. From the $100 million spent, there has been an estimated $445 million generated in salaries and wages. 27 Further, the Baltimore BEZ created or supported 10,615 jobs and contributed to more than $1.2 25 Furman Center for Real Estate and Urban Policy, New York University. "Bedford-Stuyvesant Neighborhood Profile." NYU Furman Center. 2021. Accessed May 2, 2023. 26 Kromer, John, and Lucy Kerman. 2005. "Economic Benefits of the Empowerment Zone and Enterprise Communities Program: An Evaluation of Job Creation in Baltimore City and Philadelphia." Jacob France Institute, University of Baltimore. https://www.ubalt.edu/jfi/jfi/reports/EBMCJobCreation0905.pdf 27 Feldmann, David, Robert F. Hahn, and Virginia McConnell. "Empower Baltimore Management Corporation: Analysis of Job Creation." University of Baltimore, Jacob France Institute, September 2005. https://www.ubalt.edu/jfi/jfi/reports/EBMCJobCreation0905.pdf .

billion in economic activity. It also generated nearly $42.3 million in income and property taxes. 28 From 2003 to 2014, crime decreased year over year, going from 1.73% to 1.33% in that time. 29 However, since 2014, crime of all types has been on the rise. This increase is not due to the failure of the BEZ, rather it can be attributed to policy failures and the marginal decrease in benefits from the BEZ over time. Accounting for the increased cost of living in Bed Stuy and inflation, to yield similar results, the investment must be roughly double that of the Baltimore BEZ. This investment would cost around $200 million over a 5-year period. In turn, generating roughly $901 million in wages and over $2 billion in economic activity. The overall return on investment in wages went from 21.9% to 22.1%. From the Baltimore BEZ, we can clearly see that it generated a significant increase in wages and economic activity, proving that the investments did work. We also see from the data that crime did decrease year over year for over a decade. This further supports the implementation of a BEZ in Bed Stuy, as it is proven to generate significant economic activity and reduce crime. Although the BEZ’s impact on crime was mixed in Baltimore, its failures can be attributed to the sprawl that crime causes, the decrease in marginal benefits over time from the BEZ, and policy failure. However, in a more concentrated area such as Bed-Stuy, there is likely to be a more concentrated effect on crime as well as economic activity. Along with the implementation of the BEZ, there will also be revisions to sentencing. This will increase the frequency with which the maximum penalty is given for serious crimes. To fund this, the city will rely on the taxes generated from the BEZ and the balancing of the budget. One way for budget constraints to be addressed is by cutting funding for non-priority projects and reprioritizing them towards the aforementioned initiatives. 4.1 Federal Grants and Taxes The main sources of funding will be federal grants and taxes, with them making up 40% and 10%, respectively. These taxes will not come in the form of tax increases or developmental fees, as this would have an 28 Kromer, John, and Lucy Kerman. 2005. "Economic Benefits of the Empowerment Zone and Enterprise Communities Program: An Evaluation of Job Creation in Baltimore City and Philadelphia." Jacob France Institute, University of Baltimore. https://www.ubalt.edu/jfi/jfi/reports/EBMCJobCreation0905.pdf 29 "Crime Rate Statistics for Baltimore, MD." Macrotrends, Macrotrends LLC, 2021, www.macrotrends.net/cities/us/md/baltimore/crime-rate-statistics. Accessed 3 May 2023.

inverse effect on Bed-Stuy. Rather, taxes will be generated by leasing city- owned assets to private partners and increasing fees associated with parking. The increased price of parking encourages the use of public transport, in turn decreasing the number of cars in Bed-Stuy. This will bring more foot traffic to the area, further generating taxes and decreasing crime within the BEZ. Federal grants will be used as an alternative to raising taxes to sponsor both policies. By doing this, the program can collect from a larger tax base and borrow at a lower cost than municipal bonds. 4.2 Public-Private Partnerships and Bonds As noted above, one way for the city to generate the capital needed for these policies would be to lease city assets to private partners. Another way this partnership can form is if the government issues municipal bonds. Issuing general obligation bonds or revenue bonds can further raise money without increasing taxes. Each of these funding methods will make up 30% and 20%, respectively. Bonds will make up roughly $40 of the $200 million needed for this project, and the city will issue 10-year AAA-rated municipal bonds at a rate of 2.95% a year. 30 Over a 10-year period, this will cost the government $34,233,197.53. This is meager in comparison to the estimated economic activity and wages generated within the BEZ. Finally, a public- private partnership can increase efficiency, enabling the government to reinvest money saved from private efficiency. 4.3 Balance the Budget Finally, balancing the budget will make up the last 10% needed to cover the cost of funding the BEZ and sentencing revisions. As noted above, the initiatives are going to generate significant revenue, along with the efficiency that comes with a private partnership. With that, it is also 30 Goldman Sachs Asset Management. "Municipal Fixed Income Outlook 2023." GSAM Insights, Goldman Sachs, 2023, https://www.gsam.com/content/gsam/us/en/advisors/market-insights/gsam-insights/muni-market-views/ 2023/municipal-fixed-income-outlook-2023.html.

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important to look at projects to review and reprioritize towards the BEZ and punitive measures. An increase in the price of parking will further help balance the budget, along with public asset monetization. Currently, the city charges anywhere from $1.25 to $7.50 and from $5.00 to $8.00 for commercial vehicles, depending on the location and duration. 31 I plan on raising this by 10% to a new rate of $1.37 to $8.25 and $5.25 to $8.40 for commercial vehicles. The current plan generates revenue of upwards of $974 million in fees; with a price increase of 10%, it will generate over $1 billion in taxes, not including fines. Anyone who stops driving because of this price increase will then use public transport consistently, further generating consistent income for the city. Overall, a mixture of issuing bonds, monetizing public space, increasing parking fees, and a proportional tax rate for businesses would be able to sustainably support both initiatives and still profit in the end. 31 "NYC DOT - Motorists & Parking - Parking Rates." NYC.gov, New York City Department of Transportation, www.nyc.gov/html/dot/html/motorist/parking-rates.shtml. Accessed 4, May 2023.

Figure 3: A breakdown of funding sources. 5. Potential Doubts Implementing the proposed changes of increased police presence, maximum sentencing, and the introduction of a BEZ in Bed Stuy will likely face several drawbacks. The first drawback is that the increased police presence might raise community members concerns about over policing and racial profiling. The mitigation to such a problem is to promote collaboration between law enforcement and the community and train police in de-escalation techniques. This will help to improve public safety by increasing trust and reputation on both sides. The second problem that policy would incur is gentrification and displacement. The establishment of the BEZ will lead to increased investments, driving up property values. While this may benefit the local economy, it can hurt residents who can no longer afford the

area, thus beginning gentrification. The solution to this problem would be to promote rent- controlled housing and mixed-income housing to protect vulnerable residents from displacement. The final problem my policy may incur is the potential misuse of BEZ incentives. Businesses within the BEZ may exploit the tax incentives and other benefits without significantly contributing to the local economy. This will undermine the goal of the BEZ and misuse its appropriated resources. A solution to this problem is to carefully monitor businesses in the BEZ to ensure they are meeting the objectives of the program. This includes hiring locals to strengthen the link between economic growth and crime reduction. 6. Conclusion In conclusion, addressing crime in Bedford Stuyvesant is a multifaceted problem that requires a comprehensive approach, combining increased policing, enforcement of maximum sentencing, and the implementation of a Business Empowerment Zone (BEZ). In doing so, we can create an environment that is conducive to economic growth, create opportunities for residence, and reduce incentives for criminals. We see that an investment of $200 million will generate over $900 million in wages, $2 billion in economic activity, and a decrease in crime of roughly .5% over a 10-year period. This plan will also generate significant property taxes, estimated to be about $100 million. However, drawbacks must be addressed, such as gentrification, misuse of the BEZ incentives, and mistrust between law enforcement and the community. Mitigations to these problems include rent-controlled and mixed-income housing, promoting the building of trust between police and their community, as and strictly monitoring businesses within the BEZ to ensure they are complying with the program.

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Reference: 1. About Us," The Bed-Stuy Gateway Business Improvement District, accessed May 21, 2023, https://thebedstuybid.org/about-us/ . 2. New York City Department of Health and Mental Hygiene, "Community Health Profiles 2018: Bedford-Stuyvesant," last modified 2018, https://www.nyc.gov/assets/doh/downloads/pdf/data/2018chp-bk3.pdf .

3. Opportunity Atlas. "Opportunity Atlas." Opportunity Insights, Harvard University, 2018, https://www.opportunityatlas.org . 4. "Institute for Criminal Policy Research. States of Incarceration: The Global Context 2021." World Prison Brief. 2021, https://www.prisonstudies.org/sites/default/files/resources/downloads/wppl_2021.pdf. Accessed 3 May 2023. 5. New York State Comptroller's Office. "Economic and Fiscal Impact of the New York State Film Tax Credit." New York State Comptroller's Office, May 2018, https://www.osc.state.ny.us/files/reports/osdc/pdf/report-5-2018.pdf. 6. "Empowerment Zone Wage Tax Credit." NYC Business, New York City Department of Small Business Services, https://nyc-business.nyc.gov/nycbusiness/description/empowerment-zone-wage-tax- credit. Accessed April 19, 2023. 7. Brueckner, Jan K. Lectures on Urban Economics . Cambridge, MA: MIT Press, 2011. 8. Raphael, Steven, and Rudolf Winter-Ebmer. "Identifying the Effect of Unemployment on Crime." The Journal of Law & Economics, vol. 44, no. 1, 2001, pp. 259-283. JSTOR, doi: 10.1086/320275. 9. McQueen, Shelby. "New Research Examines the Cost of Crime in the U.S. Estimated to be $2.6 Trillion in a Single Year." Vanderbilt University, 5 Feb. 2021, https://news.vanderbilt.edu/2021/02/05/new-research-examines-the-cost-of-crime-in-the- u-s-estimated-to-be-2-6-trillion-in-a-single-year/. 10. Furman Center for Real Estate and Urban Policy, New York University. "Core Data Dictionary: User Guide." NYU Furman Center. Accessed April 19, 2023. 11. Goldman Sachs Asset Management. "Municipal Fixed Income Outlook 2023." GSAM Insights, Goldman Sachs, 2023, https://www.gsam.com/content/gsam/us/en/advisors/market-insights/gsam-insights/muni- market-views/2023/municipal-fixed-income-outlook-2023.html.

12. "NYC DOT - Motorists & Parking - Parking Rates." NYC.gov, New York City Department of Transportation, www.nyc.gov/html/dot/html/motorist/parking-rates.shtml. Accessed 4 May 2023. 13. "Crime Rate Statistics for Baltimore, MD." Macrotrends, Macrotrends LLC, 2021, www.macrotrends.net/cities/us/md/baltimore/crime-rate-statistics. Accessed 3 May 2023. 14. Kromer, John, and Lucy Kerman. 2005. "Economic Benefits of the Empowerment Zone and Enterprise Communities Program: An Evaluation of Job Creation in Baltimore City and Philadelphia." Jacob France Institute, University of Baltimore. https://www.ubalt.edu/jfi/jfi/reports/EBMCJobCreation0905.pdf 15. Feldmann, David, Robert F. Hahn, and Virginia McConnell. "Empower Baltimore Management Corporation: Analysis of Job Creation." University of Baltimore, Jacob France Institute, September 2005. https://www.ubalt.edu/jfi/jfi/reports/EBMCJobCreation0905.pdf . 16. About Us," The Bed-Stuy Gateway Business Improvement District, accessed May 21, 2023, https://thebedstuybid.org/about-us/ . 17. New York City Department of Health and Mental Hygiene, "Community Health Profiles 2018: Bedford-Stuyvesant," last modified 2018, https://www.nyc.gov/assets/doh/downloads/pdf/data/2018chp-bk3.pdf .

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