Empire Zone or Twilight Zone?

You may have read that the Town of Canandaigua is at war with the Ontario County IDA (chaired by Chris Iversen, not to be confused with the Geneva City IDA, chaired by Charlie Bauder) over the expansion of the airport and eminent domain proceedings surrounding that expansion. Well, that’s not our topic here, but the latest move by Canandaigua is to hold up approval of Pactiv’s certification as a Regionally Significant Project through the NYS Empire Zones Program. We don’t really understand how Pactiv’s expansion is being linked to the airport expansion, and we do hope that Pactiv gets what it needs to add the jobs it plans, but we thought we’d take the opportunity to discuss the Empire Zones Program in general and raise some questions that relate to other businesses that have been certified closer to home.

The New York State Department of Economic Development (aka, Empire State Development Corporation) created Empire Zones[EZ] “to stimulate economic growth through a variety of State tax incentives designed to attract new businesses to New York State and to enable existing businesses to expand and create more jobs." There are 82 such zones across New York. Soon, says the State, every county will have at least one. Right now, Geneva has the only EZ in Ontario County. Our EZ is run by our Economic Development staff. Like the Geneva City IDA, the EZ is a deal maker’s paradise, with all kinds of tax breaks within easy reach for local companies. But are the EZ’s working? Do they actually create jobs and stimulate investment? What about the City of Geneva EZ? Is it an Empire Zone, or a Twilight Zone? Let’s take a look.

The key for a company to unlock EZ benefits is for it to become “zone certified,” i.e., to become a Qualified Empire Zone Enterprise [QEZE]. That means a company located within the boundaries of the zone (or, if outside the zone, designated a “regionally significant project”) has filed an approved application that “demonstrates it will create new jobs and/or make investments in the zone and be consistent with the local zone’s development plan, including a cost-benefit analysis.” That’s where a vivid imagination sometimes comes into play: many companies never create the jobs and/or shell out the investments they discussed in their application.

Once certified, a company can apply to the State’s Taxation and Finance Department for a variety of benefits, listed on that department’s website, as follows:

QEZE Sales Tax Exemptions: Qualified Empire Zone Enterprises (QEZEs) are granted a 10-year exemption from State sales tax on purchases of goods and services (including utility services) used predominantly in an Empire Zone.

QEZE Credit for Real Property Taxes: Qualified Empire Zone Enterprises are allowed a refundable credit against business or income tax equal to a percentage of real property taxes paid in the zone (effective for taxable years beginning on or after January 1, 2001).

QEZE Tax Reduction Credit:Qualified Empire Zone Enterprises are allowed a credit against business or income tax equal to a percentage of taxes attributable to the zone enterprise (effective taxable years beginning on or after January 1, 2001).

Real Property Tax Abatement: EZs may offer tax abatements from an increased assessment, with the abatement value based on improvements to real property for up to 10 years. This holds true for up to seven years at 100%, decreasing over the last three years of the exemption.

EZ Wage Tax Credit: This credit is available for up to five consecutive years for companies hiring full-time employees in newly created jobs. For employees in special targeted groups, this credit equals $3,000 per year, with a credit of $1,500 per year effective 1/1/2001, for all other new hires.

EZ Investment Tax and Employment Incentive Credits: Businesses that create new jobs and make new investments in production, property and equipment may qualify for tax credits of up to 19% of the company's eligible investment.

New Business Refund: Businesses new to New York State are entitled to a 50% cash refund of unused EZ-WTC and ITC amounts. Other businesses may carry forward unused credits indefinitely.

Utility Rate Savings: Special reduced electric and gas rates may be available through investor-owned utilities in New York State. Businesses that locate or expand their operations in an EZ may receive significantly reduced rates.

Zone Capital Credit: A 25% tax credit against personal or corporate income taxes is available for contributing or purchasing shares in a zone capital corporation; or for a direct equity investment in a certified zone business; or for contributions to approved community development projects within an EZ.

Sales Tax Refund or Credit: Purchases of building materials to be used for commercial or industrial real property located in an EZ are eligible for a refund or credit of NYS sales taxes. A similar refund or credit of local sales tax may also be available from the locality.

Technical Assistance: Each local zone office is staffed with professionals qualified to assist businesses locating or expanding in an EZ.

Media, including Rochester’s Democrat and Chronicle, have been checking up on EZ outcomes across the state. When the State turned down various Freedom of Information requests, one newspaper took the State to court and won, and now we are all able to track down what’s been happening with our tax dollars. The D and C lists nearly 70 zone certified companies in the City of Geneva EZ, for the years 2003-2005, (view the list here). Of 25 companies claiming benefits, 9 are falling way short of the investment and/or job creation commitments stated in their application. See the detailed analysis here. It’s much like the IDA Revolving Loan Funds we’ve discussed in earlier posts. Many of the City’s favorite companies/developers are EZ companies.

City Council agreed to include the expansion of Pactiv as a Geneva EZ regionally significant project. A special memorandum of understanding regarding direct benefits to the City of Geneva was worked out between Geneva, Pactiv, and the Ontario County IDA, as a condition of this designation. The benefits include job recruitment for City residents and “a good faith effort to contract with businesses situated in the City for goods and services.” We contacted State EZ officials who said such an agreement for benefits in exchange for the EZ designation is not a part of EZ legislation and is not enforceable by EZ staff. Augustine voted for the inclusion of Pactiv in the EZ, after receiving assurances from City staff that Pactiv would be held accountable for its performance and for delivering the agreed upon benefits to the City of Geneva. Capraro voted against the deal, citing his general misgivings about EZ’s and IDA’s. The question is, “Is our next stop the Empire Zone or the Twilight Zone?”