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Groups wage fight against Cuomo plan

Rochester Business Journal
February 15, 2013

Several local and state economic development groups are fighting a proposal in Gov. Andrew Cuomo's executive budget that would wrest control of state sales tax exemptions from local industrial development agencies and put them in the hands of state-controlled entities.
 
The proposed change-127 words on page 64 of the 86-page budget book released Jan. 22-would limit the industries eligible for state sales tax exemptions and other benefits to those that qualify under the Empire State Development Corp.'s Excelsior Jobs Program.
 
The state benefits also would have to be approved by the state's regional economic development councils, with sales taxes reimbursed following upfront payments.
 
"It takes away a local approval that we've been doing since 1969," said Judith Seil, executive director of the County of Monroe Industrial Development Corp. and director of the county's Department of Planning and Development.
 
The Cuomo budget would reduce the eligible projects to those eligible for Excelsior tax credits. Those credits are for scientific research and development, software development, agriculture, back-office operations, distribution centers, financial services data centers and manufacturing, the budget item states.
 
The Excelsior program requires at least 10 net new jobs for scientific R&D, software development and agriculture, 25 or more new jobs for manufacturing, 100 for financial services data centers, and 150 for back-office and distribution firms.
 
Excelsior also offers tax credits to any firm creating at least 300 jobs and investing at least $6 million.
 
"To be eligible for the Excelsior Jobs Program, you have to fit into one of six industry categories, and you have to meet a threshold level of net new jobs, and they're significant," said Brian McMahon, executive director of the New York State Economic Development Council.
 
"The reality is that many areas of the state, particularly more rural areas, don't have the ability to compete for those projects. Their economies are based more on tourism and small businesses. They're not going to be able to support those businesses as fully as they should be able to. And these are businesses that are core to their economic growth."

Redevelopment issues
The redevelopment of city and town centers also would be threatened, said Rachael Tabelski, director of marketing and communications at the Genesee County Economic Development Center.
 
"Some of our other projects we do in the downtown core of the city of Batavia-and this will apply to the city of Buffalo, Rochester, any village or town that has a center where they're doing redevelopment projects in-it will apply to those," she said.
 
The Excelsior Jobs Program does not mesh with center cities, said Christopher Wiest, vice president of public policy and advocacy for the Rochester Business Alliance Inc.
 
"In downtown Rochester, you're not seeing a lot of projects dedicated to, for example, developing new manufacturing sites," Wiest said. "But they do quite a bit in the area of housing. Those housing projects no longer would qualify under this list of eligible projects, for the state portion. That would be a concern."
 
The state sales tax is 4 percent. The county sales tax in Monroe, Genesee, Livingston, Orleans and Wayne also is 4 percent. The Ontario County tax is 3.5 percent.
 
If the state portion is reformed as part of budget negotiations involving the governor and the state Senate and Assembly, local entities would control only the county portion of the tax.
 
"A lot of developers are rehabbing vacant or unused buildings for creative-class loft space," GCEDC's Tabelski said. "If it does go through, they wouldn't receive as big a break and their margins might not be as large, so they might not do the project.
 
"It'll greatly reduce the benefits those projects receive and could stop some of them from actually moving forward."
 
High-profile projects such as the $206 million yogurt production plant at the Genesee Valley Agri-Business Park in the town of Batavia would not be affected, Tabelski said.
 
"It wouldn't impact the bigger projects, except for the fact that those projects would be granted the local portion of their sales tax exemption, then have to apply to the state for a rebate," she said. "That would possibly slow down the process."
 
In Rochester, projects such as the consolidation of Nothnagle Realty offices at one location on West Main Street and ESL Federal Credit Union's move to Chestnut Street would not qualify under the Cuomo proposal.
 
"Local governmental control can be beneficial to the region," Wiest said. "It's helpful to have that sort of input into where these incentives are directed come from local officials."
 
Nothnagle moved 70 employees to a renovated four-story building in 2011. ESL moved more than 300 workers to Chestnut Street from Irondequoit in 2010.
 
"A project like the Nothnagle headquarters facility would not qualify because it would have to create 150 net new jobs," Seil said. "The ESL credit union, you'd say that's a financial services data center. Well, it'd have to have 100 net new jobs. They wouldn't qualify for the state sales tax exclusion on their project."
 
Those that do would have to pay the state sales tax on purchases related to their project, then apply for reimbursement. Tax breaks approved by local IDAs are effective immediately.
 
"They wouldn't get the (state) exemption upfront like they do with an IDA right now," Seil said. "They'd have to pay it, and then they'd have to ask for it back."

Impact on projects
The provision will mean significant delays for projects that qualify for state sales tax breaks, McMahon said.
 
"The process requires a determination that the project qualifies for Excelsior," he said. "Two, it requires regional council approval. Three, it requires ESD approval. And four, it gives ESD the flexibility of providing a portion of the state sales tax, and for a term that could be less than what an IDA would normally provide as part of their PILOT (payment in lieu of taxes) agreement.
 
"Because the terms are flexible, a business is not going to know for a very long time what its benefits are. They're not going to be able to go to a bank and line up their conventional lending, because they're not going to know what their incentives are."
 
At least 70 percent of COMIDA projects approved for tax breaks would not qualify if the Cuomo proposal becomes law, Seil said. One of them would have been the relocation of Harris Corp.'s RF Communications division to Jefferson Road in Henrietta.
 
Some 1,100 RF Communications workers moved to a vacant Xerox Corp. building after Harris spent $19 million to buy the facility and another $19 million to renovate it into an operations center.
 
"That was a $30 million-plus project," Seil said. "They weren't creating new jobs. They were keeping jobs. If you look at it as the economic development council does, in order to qualify for those Excelsior credits, a manufacturer must be creating 25 jobs.
 
"All those numbers added up when Harris tries to decide whether to buy a building here and think of the reuse of that building, or take it down to Melbourne, Fla., where they are headquartered."
 
McMahon is hopeful that state officials will change their minds.
 
"The fact that it's in the budget is of concern to us," he said. "We're trying to make them understand what the real ground-level impacts of the proposal will be on local economic development, as well as making the Legislature aware of what those impacts are."
 
McMahon is lobbying the Cuomo administration and state Senate and Assembly representatives.
 
"We're reaching out to our legislators, on both sides of the aisle, and letting them know what this does," Seil said. "It takes away a local incentive. It adds time to the project, if it even qualifies. The big thing is most of the projects would not qualify.
 
"In these times where we're saying New York is the 49th-worst state to do business in, we're taking away another incentive. It boils down to 'Well, I can do my business elsewhere.'"
 
For companies that stay in New York, a project's size might be reduced because of upfront costs if the reforms become law, Seil said.
 
"At the end of the day, what's lost on everybody is that these companies had to go out and borrow money," she said.
 
"Typically, they're small businesses and they have to sign on the bottom line personally. The incentives that we offer are small in comparison to the risks that they take and the jobs they create."
 
Representatives from Cuomo's office did not respond to a request for comment.
 
Lt. Gov. Robert Duffy told the Buffalo News last week that IDA reform is needed but the Cuomo administration might be willing to alter the governor's budget proposal.

Regional councils
"I think everybody is digging their heels in, thinking that it's the right thing to do," Seil said. "It's all part of taking power away from us locally and putting it into regional councils.
 
"The regional councils are good. I'm not saying anything bad against them. But we can have a project under way the next day after it's approved by the IDA at their monthly meeting. (Qualifying companies) have their sales tax package, and they're ready to go and ready to start."
 
Cuomo's proposal is the second high-stakes tax-related issue to face IDAs in the last two years.
 
In April 2011, a proposed state tax on IDA operating revenue was repealed retroactively after being included in the 2010-11 state budget. COMIDA's payment was set at $86,808.
 
IDAs statewide disputed the calculations, saying they are based partly on pass-through revenues such as payments in lieu of taxes that were forwarded to taxing jurisdictions within 30 days after being received.
 
The NYSEDC sued the state on behalf of 36 IDAs to block the tax, which was repealed following negotiations between Cuomo and the Legislature.
 
"The IDA tax was not a provision created by this administration," McMahon said of Cuomo. "When they came in, they eliminated the tax that was enacted in the prior administration.
 
"This is a proposal which they have put forth in their budget. We're just hopeful that we can provide enough information to them about impacts that they would reconsider it."
 
The deadline to pass the $136.5 billion spending plan is April 1.
 
"But the good point is the governor putting it out there gives us time to have discussion on it," Tabelski said.
 
"They're supposed to have an early budget this year, but by the second week in March we hope there's some kind of resolution that works for the state and the IDAs and municipalities that can offer these exemptions."

2/15/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email service@rbj.net.


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