News

Kill Empire Zones?

Johnson News Service

ALBANY — A fiscal watchdog group says it is time to end the state’s Empire Zones program. The Citizens Budget Commission, in a report released Tuesday, blasted Empire Zones as unfixable and “not worth the tremendous loss of revenue” needed to sustain them.

The program’s “problems are so extensive and longstanding, its past reform attempts so ineffective, and its impact so dubious, that it should be abolished. 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,” the report said.

A spokesman for Empire State Development, the state agency overseeing the program, said ESD is “committed to overhauling” it. Local economic developers urge caution and seek input.

“The governor has repeatedly called for reform of this flawed program,” said Warner Johnston in a prepared statement. “Especially in these times of fiscal restraint, it is important that the state’s economic development incentives be targeted to key sectors of our economy. We anticipate making an announcement regarding the future of the program later this year.”

CBC identified three major problems with Empire Zones:

n Rapid proliferation: The program has grown largely for the benefit of developers, resulting in “convoluted” zones that “look more like politically gerry-mandered legislative districts than focused economic development targets.”

n Accountability and administration: Local oversight boards vary in “sophistication, financial acumen, and managerial capacity, and this leads to substantial variation in results.” Different boards measure job creation and business start-ups in different ways making analysis of progress difficult if not impossible.

n Failure to meet investment and employment goals: In 2007, 58 percent of participating companies failed to reach job-creation or investment targets by at least 60 percent.

While acknowledging the program’s problems, several experts agree that some form of the program is vital to New York’s economy.

Steven C. Lockwood is vice president of client financial services for the Genesee County Economic Development Center in Batavia. He said the program has become unfocused.

“The program has had a lot of successes though it’s unwieldy and hard to deal with,” he said. “But this program or something similar to it is vital to the economic success of New York state.

Lockwood said his agency’s focus is on manufacturing and agribusiness, two traditionally strong sectors in western New York, and named Liberty Pumps, a water pump manufacturer in the town of Bergen, as an example of success. In recent years, the company has used program benefits to add several dozen employees and expand its plant.

“It’s not mind-boggling growth, but steady and sustainable growth,” he said. “They have the incentive of the investment tax credit that helps them recover some of the investment cost in that expansion.”

James A. Murphy, economic developer for the Potsdam Planning and Development Office in St. Lawrence County, noted that most of the criticisms of the program are not prevalent in rural areas. He said “shirt-changing” — the practice of reincorporating an existing company under a new name to draw benefits — is rare in his experience. Potsdam’s Empire Zone, he said, remains true to its original purpose, listing Potsdam Paper Mill, North Lawrence Dairy and the Newton Falls Paper Mill as its main beneficiaries.

“In Potsdam the program has spurred job growth and investment in the business community — just as it was supposed to,” Murphy said. “We’re using it to sustain regionally significant projects.”

But he questioned the direction the program has taken over the years.

“Instead of a community building program it's become slanted toward large businesses — things that aren’t in the north country and won’t come here because of the lack of transportation infrastructure,” Murphy said. “As the program becomes more focused on large manufacturers, it doesn’t bode well for areas like Potsdam.”

He said one of his best high-tech companies, Zero Point Clean Technology — an energy company using biomass technology developed in conjunction with Clarkson University — wouldn’t qualify under the Empire Zone’s now-higher threshold for job creation.

“It isn’t so much jobs, it’s the wages,” Murphy said. “The higher wage jobs are what support our retail — the people who make enough to go out and spend money in stores and restaurants.”

Another expert says Empire Zones should be strictly for economic development. Michael N’dolo is an associate principal with Camoin Associates Inc., a consulting firm that administers Empire Zones in the cities of Watertown and Plattsburgh, as well as in Franklin, Lewis and Greene counties. He advocates a return to the program’s original focus — to attract businesses with a non-captive clientele, meaning those that can export goods and services outside the state.

“The Empire Zone program should do economic development and deal only with businesses like manufacturing, financial services and high technology,” N’dolo said. “We want to give them a reason to locate here. Eliminate construction companies, law firms, personal and professional service companies and especially retailers.”

Such employers should be eliminated from Empire Zone incentives, he said, because they have a captive clientele and shouldn’t need the incentive to come to New York: “The best outcome of this whole thing is to make Empire Zones about economic development — focus on the exporting industries and get rid of everything else.”

Lockwood, of Genesee County, said the program's focus — job creation or retention — must be determined before moving forward.

“We need to look long-term and not take the legs out from under our economic development efforts in New York state,” he said. “Now we have the chance to define what the program is for — then it can be crafted to achieve that goal.”

N’dolo went a step further, seeking a public process for reform. He noted that the “incomplete and ineffective” 2005 reforms were made by the Legislature after five days behind closed doors with “almost no” public input.

“If we had input the reforms would nave been much more effective,” he said.

Reader Comments

Submit a Comment