It is, to quote journalist David Cay Johnston’s book, all
“perfectly legal.” MonroeCounty
is offering lucrative tax breaks — originally designed to create jobs in
distressed, high-poverty areas — to businesses in upscale suburban office
parks. Some of them won’t create a single job and haven’t said they ever will.
State Assemblymember Richard Brodsky, a Democrat from WestchesterCounty, brought the practice into
the light late last month, in a scathing attack on MonroeCounty’s administration of the
state’s Empire Zone program.
More than
half of the properties named in the Brodsky report are owned by developers who
are Republican Party contributors. For the news media and in part for Brodsky,
that’s been the big story. Party and county officials, as well as the
developers themselves, insist that political contributions do not influence the
awarding of Empire Zone status. It’s not likely that anyone could come up with
proof, one way or another. And developers often donate to both parties, giving
more to the party in power. But the issue and the problems are much bigger than
that.
First, a
bit of clarification about Empire Zones and the lucrative goodies they bring. The goodies are lucrative indeed, particularly
in MonroeCounty.
They can include wage tax credits, investment tax credits, property-tax
abatements and credits, sales tax exemptions, utility bill discounts.
But with
one exception, it’s not the real-estate developers, who own the properties, who
get the goodies; it’s the businesses who are tenants in those properties. The
one exception: the developers might qualify for sales-tax exemption on
materials used in renovation or construction, but that savings alone wouldn’t
be enough to warrant their investment.
Even the
property-tax abatements and credits go to the tenants. The developer pays the
property tax, and the state reimburses
the tenants. The amount of the
reimbursement is based on the amount of property tax and the number of new jobs created in that particular Empire Zone.
No new jobs created? No property tax reimbursement.
But
according to the MonroeCounty
website, you can get some of the incentives — including wage tax credits,
investment tax credits, and utility rate reductions — even if you don’t
create a single new job. You can become eligible for those benefits by simply
moving your business out of a non-zoned building into a zoned building, keeping
the same number of employees. The rationale, apparently: You’re “retaining”
jobs. And job retention is one of the criteria for Empire Zone status.
(Neither
the county’s Empire Zone certification officer, Rocco DiGiovanni,
nor Joseph Rulison, chair of the county’s Industrial
Development Agency and vice chair of the county’s Empire Zone board, returned City’s phone calls requesting comments.)
The
benefits aren’t automatic; businesses that locate in an Empire Zone or zoned
building must apply for them, to the county’s Empire Zone board. And the Empire
Zone status must be recertified every year. The state also oversees the
application approvals.
Because the
property owners continue to pay the property taxes, towns and villages love
Empire Zones. No money comes out of their pockets. It’s the state that pays the
property tax credit. And it’s the state that loses revenue for such benefits as
wage tax credits. New York
taxpayers are paying for the incentives, regardless, of course.
(Businesses
can own their own property and qualify for Empire incentives, but it’s the
developer-owned properties that have grabbed the recent headlines.)
Why do developers
want Empire Zone status? All those goodies for the Empire Zone tenants —
tax credits, tax abatements — make a developer’s property a very attractive location.
“It’s a
very generous incentive,” says Kent Gardner, Director of Economic Analysis at
the Center for Governmental Research. “And it does influence where business locates.”
But if it
brings new business and new jobs to the zone, what’s the problem?
There is
the question of whether businesses should get taxpayer-financed incentives of
any kind. But even if you believe incentives are necessary (the Upstate economy
is bad, states and regions around us are offering incentives, New York has an
anti-business reputation, New York’s taxes are too high, etc.), there are
plenty of reasons to be concerned about Empire Zones.
The
incentives aren’t free. The state pays for some of them, such as the property
tax credits and wage tax credits — which means
taxpayers pay for them. Empire Zones, the Democrat
and Chronicle reported recently, “are expected to cost the state $291
million this year”:This in a state
with major budget problems.
Some Empire
Zone businesses get sales-tax credits and exemptions, which reduces the amount
of sales tax that the state and the county take in. Taxpayers will either pay
more taxes or get fewer services as a result. (And the county, like the state,
is scrambling to make ends meet.)
Everyone
who pays a utility bill chips in as well, since an important Empire Zone
benefit is a reduction in utility bills on increased utility usage. RG&E
(which, according to Sunday’s Democrat
and Chronicle, gave rate cuts to 114 Empire Zone businesses) has been
seeking a substantial rate hike.
Empire Zone incentives were
created to spur economic development in depressed areas: urban areas like
inner-city Rochester, for instance.
But the focus has been loosened. Cities with Empire Zones can modify the
boundaries of their zone, letting businesses outside
the city get the benefits. Eastview Mall, owned by
giant developer Wilmorite, is in part of the City of Geneva’s
Empire Zone.
And in
addition to the City of Rochester, MonroeCounty has been awarded its own
Empire Zone. The Empire Zone legislation requires that areas eligible for zone
status “must be characterized by pervasive poverty, high unemployment, and
general economic distress.” But “in lieu of” those provisions, the legislation
also lists “seven other less onerous sets of criteria.” Among
them “a county that loses (or is likely to lose) 8000 jobs from one employer or
industry.”
And so,
citing the loss of jobs at Kodak, MonroeCounty got its zone and is now
approving Empire status for properties around the county — including some of
the region’s most upscale office parks in the county’s highest-income towns.
If the original
intent was to aid highly depressed areas, how’d this happen? While the
Empire Zone and similar programs began with a “noble idea,” says Gardner,
they didn’t work. “Tax breaks are usually not enough to get businesses to
locate in difficult neighborhoods,” he says.
And so you
set up the program, set up the bureaucracy, put in the infrastructure, “and
nobody applies,” says Gardner.
“There’s only so much you can do with public policy to address that.”
“There’s
not anybody to blame here,” says Gardner.
“It’s kind of a nice idea, a good intention. But it is just hard to get results
in neighborhoods that are in serious trouble.”
“And so the
programs, over time, morph,” says Gardner.
“Everybody’s in favor of the morphing. Legislators and administrators want the
program to succeed. The program becomes looser and looser, and the outcome is
what we have in the Empire Zone. And now most major projects can manage to get
zone status, one way or another.”
That leaves, of
course, the issue of which businesses and which developers get Empire Zone
status — and whether this loosening of the Empire restrictions is a good
idea.
This is not
a growing region, economically. We have job losses, not gains. And presumably,
not every empty building in the county will get Empire Zone status. If that
were to happen, it would magnify the tax loss we’ve already committed to. So
Empire Zoned buildings have an enormous competitive advantage over the others.
Particularly for new businesses and those planning to expand, there’s a
“tremendous” incentive to locate in the zones, says CGR’s
Kent Gardner. “If you increase your employment by 100 percent,” says Gardner,
“your property and income taxes pretty much disappear.”
But even
for existing, non-growth businesses, Empire Zone status offers a reason to
move. Says Gardner: “I’ve been told
by developers that the incentives are so good that very little development
happens outside a zone these days.”
As for
providing tax breaks to a company that simply moves from a non-zoned building
to a zoned building and merely “retains” jobs rather than increasing them: This
encourages competition among municipalities. It hurts property owners who don’t
own zoned buildings. And unless the county plans to offer zone incentives to
every existing company that changes location within MonroeCounty, it gives enormous
competitive advantage to businesses that snare a zone location. Because they
get wage-tax benefits and lower utility bills, they can lower their prices or
increase profits. Or both.
Is the
Monroe County Empire Zone board handing out favors to Republican contributors?
Or is it just coincidence that many of the real-estate developers who got zone
status also contribute to the Republican Party?
You’d be
crazy to be a developer in this county and not contribute to whichever party
was in power. County government has control over some major contract awards.
But clearly, the Empire Zone subsidies result in unfair competition among
businesses. The bigger issue may be whether the county administration has any
strategy for its role in that unfair competition. Whether it has any vision of
where development ought to be encouraged with public funds. And whether the
administration and its Empire Zone board feel any responsibility for declining
properties and neighborhoods in other parts of the county: existing ones, and
the ones that will be created when businesses relocate.
MonroeCounty has plenty of empty and
underutilized commercial and industrial space. We can blame that on the poor
Upstate economy, but that’s not the only cause. In the case of office space, we
simply have too much. We have overbuilt, and we continue to build more. And we
are offering benefits to the owners and tenants of some of that office space
— at taxpayers’ expense.
We are
encouraging, and paying for, development further and further out in the
suburbs, making older commercial and industrial areas less attractive to
developers. As we do that, we are using a state program intended to spur
economic development in the inner city.
We are
paying for road construction and other public improvements and services to cope
with the increased demands of the new development.
We are
losing valuable open space.
And we are
not generating growth. We are simply transferring it from one part of the
county to another. This may be good for developers and construction workers.
But every taxpayer in MonroeCounty
— including every construction worker — is paying for it through higher
taxes and higher utility bills.
And in the
end, all of this is doing what businesses and government officials say is the
problem with New York in the
first place: raising taxes.
Brighton Empire
On March 23, members of the Brighton
town board received a request to approve a revision to the Monroe County Empire
Zone boundaries, covering 12 properties in the town. Board members were to vote
the next day.
The
properties consist of office parks scattered around the town, including some of
the town’s most upscale commercial properties. Some are currently completely occupied, some are empty or partially empty. One is still
under construction. The 12:
• 200
Canal View Boulevard;
• Part of The Park at AllensCreek on Allens Creek Road;
• Three
buildings in Meridian Centre;
• 172 Metro
Park;
• 70 and 80
LindenOaksOffice Park;
• Two
properties on Hagen Drive;
• 2440 and
2452 West Henrietta Road.
Town board
members wanted more information, so no action was taken that night. The next
day, Assemblymember Richard Brodsky’s criticism of
Monroe County Empire Zones was front-page news.
The Brighton
town board members find themselves in a dilemma, and not just because of the
controversy in the news. The properties won’t get Empire Zone status without
the board’s approval, and if the board members deny it, they’ll be portrayed as
being anti-business.
This isn’t Brighton’s
first Empire Zone request. For the first one, about two years ago, says Town
Board member Ray Tierney III, the county “pitched it as: It would only be used
to create jobs and to help distressed areas.”
And because
county officials pointed out that the state, not towns, take the hit on tax
incentives, “it went through,” says Tierney. “I voted for it.”
In 2003,
however, the county sent a request for the addition of more properties.
Tierney, concerned that upscale office parks were getting benefits, voted no.
His was the sole dissenting vote.
And Tierney
is fighting the county’s new request. “SoutheastMonroeCounty
is the healthiest office market in the county,” says Tierney. “They’re coming
to the classiest areas in MonroeCounty
and asking us to sign up.”
“Everybody,”
says Tierney, “ought to be outraged.”
But Brighton’s
decision won’t be easy. “If we say no,” asks Tierney, “does that eliminate the
Empire Zone from Brighton?” If so, Brighton
will find itself in a severe competitive disadvantage with other towns.
The
Brighton Town Board hasn’t yet scheduled a vote on the new Empire requests.
Tierney says that at the board’s meeting tonight (Wednesday, April 7), he’ll
ask the board to schedule a public hearing.
This article appears in Apr 7-13, 2004.
