Empire Zone reforms spell trouble

By Dan Hust
MONTICELLO — State and local observers have been urging reforms to the Empire Zone program for years.
They may soon be getting more than they asked for, however.
Governor David Paterson’s plans for the tax-breaks-for-business-development program are so far-reaching that some fear they may extinguish benefits for all but five of the 130 Zone-certified businesses operating in the county.
Empire Zone Coordinator Susan Jaffe and Sullivan County Partnership for Economic Development President Tim McCausland are especially concerned that the loss of those benefits could lead to the loss of the affected businesses entirely.
“It would be a real blow to economic development here in Sullivan County,” he told members of the county’s Industrial Development Agency on Tuesday.
Jaffe said the governor’s actions stem from both public outrage over a lack of accountability in the program and the state’s desperate need to rein in expenses.
“They were concerned about the bad reputation the program had gotten because of loopholes that had existed prior to 2005,” she explained.
Before 2005, businesses certified to get Zone benefits didn’t have to submit to a cost-benefit analysis. In fact, especially in Sullivan County’s then-poorly managed Empire Zone, businesses weren’t even being required to demonstrate that they had created a minimum number of jobs or invested a certain amount of funds.
In 2005, finding such problems rampant statewide, the state instituted a 15:1 cost-benefit ratio, meaning for every dollar in state tax incentives, the participating business would have to definitively show it was creating at least $15 in local investment. (The ruling applied only to businesses joining the Zone from that point on.)
Last year, that ratio jumped to 20:1 (though, again, applicable only for businesses joining the Zone after that point).
Paterson and company are now proposing, as part of a complicated and controversial state budget, to make that 20:1 ratio applicable to every Zone-certified business, no matter when they joined.
The program would also be limited to just manufacturing and financial services companies, and the boundaries – which have been changeable by the County Legislature – would be frozen in place until the program is set to expire in 2011.
The governor’s office estimates a $310 million savings, more than half of the expected $610 million in expenses anticipated this coming fiscal year.
“This budget fundamentally reforms an Empire Zone program that is simply not getting the job done,” Governor Paterson said in a recent press release. “We will force each company that receives these benefits to pass rigorous standards and prove that they are keeping up their end of the bargain.
“And if they fail to do so, they will be removed from the program. In a time of unprecedented fiscal difficulty, we cannot waste money on tax breaks for companies that fail to produce results.”
The proposal also would do away with local Zone Administrative Boards (ZABs), comprised of area citizens and businesspeople. The state would take over virtually all the duties, which currently include reviewing and recommending actions regarding Zone participants.
“We’d have no say but some maintenance responsibilities,” Jaffe said.
She polled the ZAB the week before and found that while there’s support for cracking down on underperforming Zone businesses and reforming the system further, the majority of the board opposes eliminating ZABs and is more favorable to a sliding-scale ratio rather than an all-encompassing 20:1 figure.
The topic is expected to be the prime subject at the next ZAB meeting, scheduled for January 29 at 4 p.m. in the Legislature’s Hearing Room at the Government Center in Monticello. Local Zone businesses are being urged to attend and voice their concerns.
Likely to be in attendance will be Dave Jaffe (not related to Susan Jaffe), a certified public accountant in Liberty who does business with close to half a dozen Zone-certified companies.
“If the Empire Zone is completely revoked or if they change it [according to Paterson’s proposal] ... none of these businesses will qualify,” he remarked, “and it is questionable if they’ll even survive.”
The loss of jobs and companies would further devastate a state already full of abandoned factories, he said.
“I don’t think the people who are advising the governor have really thought it out,” Jaffe observed. “What we need in the United States is jobs. ... Industry needs a break ... [but] I don’t see the governor doing that at all.”
“There’s a groundswell of opposition to this proposal,” added McCausland.
“There is some idea the state will make reforms,” he acknowledged, “... but it has to make sense and be fair.”
The area’s state representatives say they’re working on that.
“The governor is looking for more accountability because many of the corporations in the past have not performed according to their representations,” said NYS Senator John Bonacic. “Accountability is good. It’s a question of whether he went too far. I’ve asked all the Zone managers ... to see if they can come up with an alternative and something we can discuss during the budget process.”
Assemblywoman Aileen Gunther doesn’t believe the proposed changes should be applied to older businesses, but noted, “I think [the program] is way overdue for reform. We’re using taxpayers’ money.”
Jaffe, who’s overseen a time-consuming and often frustrating reconstruction of lost or incomplete Empire Zone data, appreciates the need for reform. She just doesn’t want to see the area’s legitimate businesses harmed by it.
“I want to see accountability and transparency in the program,” she agreed. “These are our tax dollars.”