Terms such as “moving goal posts,” “confusion” and “disincentives” are being used by economic development officials around the Hudson Valley after the state Economic Development Corp. last month quietly issued new regulations modifying Empire Zones, the state”™s primary economic development program.
The Empire Zone (EZ) program regulations changed effective April 1, according to a chart memorandum provided by Empire State Development agency. But the changes have led local economic development officials to predict it will be harder to attract companies to relocate to New York state.
“The EZ program was our biggest economic development tool, but now with the dissecting of it we are on a very uneven playing field with other states,” said Theresa Kelly, Empire Zone coordinator for the Dutchess County Economic Development Corp.
“We all know it needed to be tweaked,” she said but suggested the changes were counterproductive and said companies elsewhere have reacted negatively. “They are saying they are not coming to New York state,” Kelly said.   Â
“My quick impression is of a very hastily concocted program,” said Lance Matteson, president and CEO of the Ulster County Development Corp. “I think the changes are very, very tough for people who are trying to administer a state incentives program.”
He said a particularly egregious problem is the tax changes under the new regulations, even for companies already in the EZ program. Under notices received after April 15 of this year, companies in the EZ program learned they must be recertified to prove they deserved the tax breaks they claimed in 2008 under the program.
Once their old data is provided to state Economic Development Corp. officials, the companies must await a cost benefit analysis that will be done under new rules and then must do amended returns, Kelly said. “They have to go back and amend 2008 taxes,” she said. “The program itself is confusing enough to begin with and now it is even more confusing.”
The EZ program offers a variety of tax breaks to businesses based on the number of new jobs and capital investments that occur in the various regions of the state. 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.
The state has 82 Empire Zones, involving 9,200 businesses employing some 380,000 people. There is an EZ in Ulster, Dutchess, Orange, Rockland and Westchester counties in the Hudson Valley.
The program has been controversial for some time but came under renewed fire in December 2008 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.
In the wake of that report, Gov. David Paterson proposed a series of reforms, some of which received harsh criticism, including a provision that would have changed the qualifications required for certification in the EZ zone, even for companies that were already in the program. For example, companies would have had to show a cost benefit ratio of $20 in economic activity generated for every dollar of tax assistance received. The old ratio was 15 to 1. Critics said to change that provision retroactively would have damaged the state”™s ability to attract businesses because companies would have feared to move here if new regulations could alter agreements. That provision was not included in the regulations released April 1.
There are changes in the cost-benefit ratio formula, but they are not retroactive. Under the new regulations, businesses certified on or after April 1, 2009 the 20-1 ratio will be used for any non-manufacturing business whereas a 10-1 ratio will be used for manufacturers, who are generally able to provide higher paying jobs.
State ESD officials did not return repeated phone calls seeking clarification about the recommendations and would only comment by e-mail. “The purpose of these changes is to provide a more strategic focus to the Empire Zone program, improving both cost-effectiveness and accountability,” wrote Katie Krawczyk, upstate director, Public Affairs for Empire State Development.?Among the key changes is that now, the commissioner of the state Department of Economic Development “is the sole authority to certify and decertify Empire Zone firms.” Under the old rules that responsibility was shared by the state Department of Economic Development, as well as the Department of Labor and zone coordinators.  Â
That change worries some zone coordinators who say they doubt that EZ certified companies can get the same level of scrutiny and attention by an overburdened bureaucracy in Albany.
“We have found the EZ to be a great tool for economic development, but we have said all along it needs reform,” said Steven Porath, EZ coordinator and director of economic development for Rockland County. “It”™s a program that we need but I don”™t think moving the administration of the local EZ up to Albany will serve the program well. We (local administrators) are watching it closely.”
Another concern expressed by zone coordinators is the new “sunset” date for the program. Originally scheduled to end June 30, 2011, the new end date for the program is one year earlier, the end of June 2010. While existing agreements will extend beyond that time, no new companies can be certified, but there is as yet no indication what program might be put in place to help attract new business to New York.
“We will be working with key stakeholders between now and then to develop an economic development strategy and replacement to the Empire Zone,” said Krawczyk, in an e-mail. ?“I know all this stuff was done in a big hurry, but it seems pretty weird,” Matteson said. “It was all driven by fiscal desperation I suppose, but it seems a strange way to make a policy that is supposed to attract new business.”
