Flawed but essential is how economic development professionals from the Hudson Valley describe Empire Zone benefits. They say that while the program needs reform, to discard it without having a replacement program in place would cripple efforts to attract business to New York state because it is so costly to operate here.
“If we could make major reforms in income tax and property taxes we could attract business to New York State,” said Anthony S. Campagiorni, president and CEO of the Hudson Valley Economic Development Corp. “But as it is now, the first question from potential businesses always is, ”˜Where are your Empire Zones?”™”
The EZ programs offers a variety of tax breaks to businesses based on the number of new jobs and/or capital investments that occur in the various regions of the state. There can also be reductions in utility bills. Originated in 1986 as Economic Development Zones, the program was modified and its name changed to Empire Zones in 2000; it has remained a potent source of economic activity and controversy ever since.
New York state has 82 Empire Zones, involving some 9,200 businesses employing about 380,000 people. There are zones in Ulster, Dutchess, Orange, Rockland and Westchester counties. Â
The program came under fire in December when the nonpartisan Citizen”™s Budget Commission issued a 16 page report saying the program was so flawed it could not be reformed and should be abolished. A primary criticism was the lack of oversight ensuring that companies live up to their end of the tax bargains. The CBC said there is no uniform mechanism to ensure compliance with the terms of the EZ agreements.
And it is expensive to taxpayers. In 2000, according to the CBC report, the cost of the program was $30 million; by 2008 the figure had grown to $582 million. The program also expanded in another way, its beneficiaries no longer even have to be located within the zones. Moreover, CBC says the benefits are not aiding the smaller companies that locate in economically distressed areas that were originally cited as justification for the program. According to CBC, roughly 76 percent of the benefits claimed in 2006 went to just 500 companies, out of (then) 5,000 program participants. One-fifth of the credits went to just 10 companies, a list that includes IBM, Geico General Insurance and NRG Energy.
The report struck home with Gov. David Paterson, who on December 14 announced major reforms to the program and signaled his intention to let the Empire Zone program expire when its current legislative mandate runs out in 2011.Â
But in a meeting with HV Biz staffers, Hudson Valley economic development officials stated their case for a vital business program. “Do not throw the baby out with the bathwater,” said Theresa Kelly, Empire Zone coordinator for the Dutchess County Development Corporation. “While the program needs some tweaking, it doesn”™t need to be ended. No company will come here without EZ benefits.”
The group also included: Ron Hicks, president and CEO of the Rockland County Development Corporation; Lance Matteson, CEO of the Ulster County Development Corporation, Stephen M. Finkle, economic development director for Kingston; Susan Jaffe, vice president of the Sullivan County Partnership for Economic Development; Josh Sommers of Focus Media in Sullivan County; Mary Alice Brady, the Empire Zone and Federal Empowerment zone coordinator for the city of Yonkers; Ed Arace, advisory board member for Westfair Communications; and Maureen Halahan.
Halahan, president of Orange County Partnership, said, “We are known as one of the highest taxed and regulated states in the nation. Now we have the MTA payroll tax: $1.5 billion projected income, but just one more tax on the business community. As far as the outcry from residential areas that don”™t want to see business coming into their communities, commercial development is our friend and reduces their property taxes. You can”™t keep property taxes down without commercial development to fill state and local tax coffers.”
Perhaps the county most impacted by the development crunch is Sullivan, where its tourism industry shriveled up during the 1970s. It is slowly coming back, thanks to incentives like the Empire Zone, said Jaffe. Bethel Center for the Performing Arts and the revitalization of downtown streets in a seasonal county are vital to building business, said Jaffe. The prospect of Louis Cappelli”™s Entertainment City coming to generate jobs and jumpstart tourism is an important factor for the county, which has the highest unemployment rate of all the attendees. “Our major obstacles are lack of water, sewer and cable. We need the infrastructure. When we talk about shovel-ready sites, that is part of the equation, but we can”™t offer that without some assistance from the state, which is giving us mixed signals.”
The coordinators from several counties said that EZ benefits are particularly important because they are competing for jobs and economic development with other counties in New York and with other states, since they are border counties to New Jersey, Pennsylvania or Connecticut. And they noted that the governors of New Jersey and Pennsylvania have announced new programs to attract jobs and economic development even as New York is wrestling with ways to improve or discontinue the Empire Zone program.
Finkle of Kingston said the so-called QEZE (Qualified Empire Zone Enterprise) benefits added to the program by the state Legislature in 2000 without input from development professionals was mainly responsible for the perceived abuses, and that those loopholes were closed in 2005. “We are still hearing about those abuses, but those abuses don”™t occur anymore,” said Finkle.
Other coordinators agreed that QEZE was a lowlight in state economic development. “What the state did was put a bunch of teenagers in a room with liquor and went on vacation,” said Ron Hicks of Rockland County.
There was general agreement that the program is far too complex for easy use, let alone easy explanation to politicians and to the general public. Several EZ coordinators also said there is a misperception about how benefits are disbursed saying, for example, that companies only receive benefits for jobs actually created, whatever the projections might be made in the formative stages of their EZ agreements.
They said another misperception on the part of the CBC and other critics arises because of the cloudy purpose of the EZ program. Originally, Finkle and others pointed out, the Economic Development Zone program was targeted using census data on economically troubled neighborhoods. But over time and with actions by the Legislature that purpose was obscured under the rubric of generalized economic development and thus little clarity remains about what the program has actually accomplished or is even supposed to accomplish, leaving the perception of “something between a business development tool and an urban renewal tool.”
The coordinators disagreed whether there may be too many purposes under the single term Empire Zone. While Campagiorni agreed that it may be too all-encompassing, others said that each county and city has its own particular concerns and potential economic opportunities and needs flexibility to utilize EZ benefits as they see fit.
Jaffe of Sullivan County pointed out for example, that in addition to the normal water, sewer and power supplies sought by most counties in creating business parks, in rural Sullivan County there is a need for access to broadband Internet service.
For the upcoming state budget cycle, Gov. Paterson proposes requiring even businesses currently in the EZ program to meet a new threshold for remaining in the program, demonstrating that benefits generated to the economy outweigh tax breaks by a 20-1 ratio. The current regulations require a 15-1 ratio. The coordinators all agreed that such a change would damage the state”™s future credibility in attracting businesses by raising fears that signed deals could be reneged in mid-term.  Â
The time and money required to get a project from idea stage to approval, absent even any building activity, is a major deterrent to development that must be addressed even outside of EZ concerns, said all the economic development professionals at the meeting. “Years and millions,” is what they said companies could expect to spend just in the early stages of completing a project.
Lance Matteson, recruited from Vermont to head Ulster County”™s EDC said he”™s amazed at the length of time companies must spend getting through the environmental review process. Even in the green hills of Vermont, “It does not take two to three years for a company to get an approval,” said Matteson.Â
Hicks, who took over the Rockland Economic Development Corporation in 2007, gave an example of the unfriendliness in local municipalities, as well: a 100th anniversary sign that ran into a buzz-saw of bureaucracy: “It took six months for them to get the go-ahead for a sign that was already in existence.”
Overall, the coordinators said that what they seek is a seat at the table when economic development decisions are made. They again agreed that the EZ program needs improving, perhaps even needs to be abolished and replaced by another program performing similar attraction activities. But they said facts and logic should rule the decision-making process.
“This is a rational discussion,” said Matteson of Ulster County, contrasting the meeting with what he called the “caricatures” of the EZ program offered by media outlets and many politicians. “If we could just have a rational discussion about economic development, that would be wonderful. That”™s all economic development professionals are looking for.”
(Kathy Kahn contributed to this story.)Â
