May 11, 2015, Contact: Press Office (518) 474-4015
Audit of ESDC Finds Few Measurable Results for $211 Million State Advertising Contract
The Empire State Development Corporation (ESDC) spent $211 million on an advertising contract to promote economic development and tourism in New York state with no tangible results, according to an audit released today by State Comptroller Thomas P. DiNapoli.
“When government spends hundreds of millions of taxpayer dollars to send a message that New York is a place to visit and open for business, it should have clear objectives and show the public actual results,” DiNapoli said. “ESDC’s attempts to measure the results of this advertising campaign were weak at best, leaving real questions about whether the results justify the cost.”
In December 2011, ESDC awarded a contract to BBDO USA LLC, an advertising and marketing agency, for up to $50 million. ESDC amended and increased the contract four times, bringing the total of the contract to $211.5 million. Of this, $36.5 million was targeted to promote tourism and business in the wake of Hurricane Sandy. The remaining $175 million could be spent at the authority’s discretion, which ESDC allocated to promoting Start-Up NY, tourism, Taste NY and Masterbrand.
As required by law, the State Attorney General’s office and the State Comptroller’s office reviewed the contract and amendments and found the state’s procurement and legal process was followed.
The purpose of DiNapoli’s audit, which covered December 2011 to November 2014, was to determine if ESDC received the services it paid for and whether its advertising effort achieved sufficient outcomes. Although auditors found that ESDC got the advertising services it paid for, at a fair price, they found ESDC was not able to effectively quantify and assess tangible outcomes from the initiatives.
ESDC officials told auditors they do not believe that the advertising program should be formally measured against outcome targets established for the various programs, and that the advertising was not intended to directly produce positive economic benefits. Instead officials stressed that the primary expectation for the contract was to improve perception of the state as a good place to visit and to do business.
Auditors repeatedly met with ESDC officials about the objectives of the specific programs supported by the advertising contract. ESDC only provided details about Start-Up NY, a tax free incentive program for businesses affiliated with college campuses that began in October 2013. Between October 2013 and October 2014, auditors found that ESDC spent $45.1 million to advertise the Start-Up NY program to encourage businesses to apply for the program, or 40 percent of the $111.6 million available for advertising during that period.
During this time, ESDC received 18,203 applications, but only about 10 percent of the businesses that applied were eligible for the program and only 41 enrolled in the program during the time period examined by auditors. The 41 businesses plan to create 1,750 jobs over the next five years. Auditors calculated that ESDC spent more than $25,000 on advertising for each of the promised jobs.
Auditors also questioned why ESDC continued to allocate more and more money to advertise Start-Up NY – even as applications fell from a peak of 5,300 in January 2014 to about 500 in June 2014 – without any analysis of specific goals or modification of outreach efforts. Auditors also noted that spending on advertising did not produce the outcome of increasing the number of applications (see charts on page 10 and 11).
Even though ESDC did not set specific quantitative targets or benchmarks, auditors found it did make some effort to evaluate the effectiveness of the actual ads created. The efforts, however, only looked at whether a few focus groups had their perceptions changed after viewing the ads about doing business or visiting New York. When auditors pressed again for goals and results, ESDC noted that attendance increased at the five tourist destinations featured in its marketing campaign, including a 17 percent increase in attendance at the Baseball Hall of Fame in 2014. Auditors noted that the inductees for 2013 had all died prior to 1940 in contrast to the attention generated by well-known induction class of 2014, which included former New York Yankees Manager Joe Torre.
DiNapoli’s office recommended:
- Future strategic and marketing plans include performance measures for monitoring outcomes to determine if the cost generated a return for the investment;
- Set specific targets, goals and benchmarks for evaluating performance outcomes and use these measure to monitor performance; and
- Regularly evaluate the program outcomes associated with the marketing efforts and use this information to periodically review, and if needed, adjust program goals, strategies and resource allocations.
In ESDC’s response to the audit, the authority generally maintained that it does monitor performance and reasserted that the advertising campaign was intended to build a brand and change perceptions, not create jobs or generate economic development. The authority agreed to have its marketing agency report on performance measurements and metrics in future contracts. The authority’s response, along with documents not previously provided to auditors, are included in the audit.
DiNapoli’s office is also currently auditing the Excelsior Jobs program, which replaced the Empire Zone program in 2010.