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Editorial Archives — The Altamont Enterprise, June 18, 2009

Empire Zone loopholes strangle hard-hit communities while profiting big business

Creating jobs for parts of New York State in extreme economic hardship — what a great idea. Twenty-three years ago, that’s what the New York State Legislature had in mind when it set up the Economic Development Zone program.  Businesses were to get public subsidies — tax benefits — for locating in or expanding in these hard-hit areas.

In 2000, the zones were renamed Empire Zones as the program was expanded and changed so that more businesses could qualify for benefits. Now, in 2009, after a series of investigations and audits has shown the program is a dismal failure, more changes are being made.

One of the beneficiaries is in our own backyard — the Northeastern IP Holdings, located in Guilderland Center. The company has been listed as a shirt-changer by Empire State Development, which oversees the zones. A shirt-changer is a business that transfers workers form one property or business to another, treating them under tax laws as if they were new employees — thereby reaping benefits without actually helping workers.

This is the worst kind of scam. It not only hurts taxpayers but, more importantly, it hurts the very people the program was designed to help — workers in hard-hit areas without jobs.

The chief operating officer of the Northeastern Industrial Park, David Buicko, did not return repeated calls for comment this week. But records from the Syracuse Post-Standard, which has covered the story thoroughly for years and sued the state in 2006 for release of information on how public money is being spent, show that, based on forms Empire Zone companies filed with the state on their expected 2007 taxes, Northeastern IP Holdings expected $658,402 in tax credits — 141st in the state — for two full-time jobs.

We hope Mr. Buicko will call us next week to explain how that can be.

Public funds are being spent on Northeastern — that’s more than half-a million dollars that has to be made up by citizens in taxes — and the public is entitled to answers.

New rules are in place to make Empire Zone businesses more accountable. Companies that have been in the program for at least three years must have generated a dollar in wages, benefits, and investments for every dollar they received in tax credits. And the ESD now has the regulatory authority to audit companies.

We believe such attempts at enforcement are not enough. A convincing report was issued in December by the Citizens Budget Commission, a not-for-profit, nonpartisan civic organization, that concludes of the Empire Zones program, “The program’s political appeal is such that repeated efforts to ‘reform’ it have only created more loopholes; what was once intended as a small, targeted program to assist economically distressed areas is now a vehicle for giving tax breaks to a variety of corporations, with no clear, consistent, verifiable justification for the public investment.”

The report traces the growth of the program and its ballooning costs from $30 million in 2000 to $582 million last year — a 20-fold increase in just eight years. (Empire State Development, which manages the zones, reports there are over 9,800 certified businesses employing more than 380,000 people in 82 Empire Zones.)

A 2007 report by the management-consulting firm, A.T. Kearney, called it “the best example of good economic development intentions gone wrong.” The report goes on, “Its original mission has been morphed by political patronage, legislative revision and commercial manipulation, effectively repositioning it from a program primarily helping distressed communities to one routinely offering tax relief for ongoing businesses.”

A.T. Kearney also reported, “The program has spawned a cottage industry of lawyers and consultants specializing in helping businesses optimize benefits.”

At the same time, there’s no transparency. The Guilderland assessor told us this week he simply doesn’t know the number of buildings and businesses in the Northeastern Industrial Park, nor is he notified about which properties get the Empire Zone exemption.

After an audit last year, the state’s comptroller, Thomas DiNapoli, concluded, “New York should take another look at the Empire Zones program. We need to know if we’re getting a bang for the taxpayer’s buck. If officials can’t demonstrate that the program is working, and if local governments and taxpayers are not benefiting from a program that’s supposed to generate economic development and create jobs, it calls into question the value of the program.”

The Citizens Budget Commission identified three serious problems that compromise the efficacy of the Empire Zones program:

—      The zones have proliferated to such an extent that the mission of the program has been lost. The zones no longer correspond to distressed areas but are built around businesses that seek tax credits;

—       The program’s objectives are not measured consistently and local agencies do not hold firms accountable;

—      The program is failing to meet the targets that the firms themselves set when they were approved for participation.

“New York’s Empire zone program is not worth the tremendous loss of revenue it requires…,” concludes the commission. “New York’s economy, especially in the distressed areas that the Empire Zone program was meant to address, is struggling and deserves effective economic development initiatives — not a catalogue of lucrative tax breaks for firms sophisticated enough to take advantage of them.”

Why should we all pay more in taxes so big businesses can benefit?

— Melissa Hale-Spencer, editor

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