Buying Tax Breaks
The Empire State Development Corporation (ESDC) is a public authority with which I have long had concerns. The agency is managed by political appointees, and the decisions the ESDC has made have become increasingly alarming.
The mission of the ESDC is to foster economic prosperity in areas of economic depression through tax break incentives and job growth initiatives. Yet according to the ESDC's own 2004 report, fully 40-percent of ESDC-funded projects were out of compliance with job creation goals.
One would think that such a low rate of success would result in increased oversight since it is New York taxpayers who are left footing the bill for the ESDC's rate of failure—yet this has not been the case.
The Syracuse Post-Standard recently reported how "New York state officials allowed a Rochester mall owner to BUY Empire Zone tax breaks while thousands of other state businesses were excluded from the program." The mall owner paid the local community $1.5 million to expand the boundaries of an Empire Zone to include his business. In return, the mall owner is expected to receive more than $14 million in tax breaks over the next ten years, all at the expense of us, the taxpayers. Of course the mall owner argues this was just to stay competitive with another mall owner (Destiny USA) who is expecting even BIGGER tax exemptions—another story, and ANOTHER problem.
There is a pattern with ESDC that we have to break. While the Legislature has closed some loopholes that allowed some of these deals, their grandfather clauses continue to cost New York State millions in revenue each and every year. And frankly, we haven't done enough to justify even the newer Empire Zone law.
Yet another recent example of blatant mismanagement of Empire Zones was the September 2006 discovery that the ESDC had awarded $22 million in tax breaks to a New Jersey-based company, NRG Energy. In return for $22 million in tax breaks, NRG created one part-time position. The size of this tax break, coupled with the paltry economic benefits that local communities reap, simply fail to justify the use of taxpayer dollars by the ESDC.
Some people will look at these decisions and say they reflect new lows in this agency's self-governance. I believe these actions confirm that Governor Pataki's appointees either lack the most basic understanding of the very laws they are charged with implementing, or worse, they simply don't care. The good news is that I fully expect Governor-Elect Spitzer to address this problem post haste.
There is no oversight and there is no accountability in these programs. We need to completely revamp these programs and the staff of the ESDC, as well as other public authorities that are equally mismanaged.
To ensure accountability and transparency of the tax expenditure and tax credit process, which will be applicable both to the ESDC deals and to any corporation doing business with New York State, I have introduced S.5921, The Corporate Accountability for Tax Expenditures Act. This act would require that economic assistance—including tax credits and exemptions—provided by any state agency or public authority must be based on the terms of a standardized written incentive agreement. The legislation mandates that certain development assistance agreements would be submitted to the Department of Taxation and Finance, and also provides that if a business fails to create or retain the specified number of jobs and breaks the contract, the business will no longer qualify for State economic assistance.
The increasing size and frequency of these mishaps emphasize the immediate need for this legislation to be enacted. New York's structural budget problems demand that the Legislature not ignore how some corporations are exploiting loopholes, and taxpayers are being left with the bill. This legislation will go a long way towards ensuring that tax incentive programs such as Empire Zones are actually delivering the economic development benefits they claim to provide to New York.
Liz Krueger is the State Senator for New York's 26th District, representing Manhattan's East Side and Midtown.
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