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IDA Report - Assemblyman Sean Ryan

IDA Report - Assemblyman Sean Ryan

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Published by Alan Bedenko
Assemblyman Sean Ryan's (A-144) report on Erie County's IDAs
Assemblyman Sean Ryan's (A-144) report on Erie County's IDAs

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Published by: Alan Bedenko on Dec 14, 2011
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Giving Your Money Away
The Need to Reform Industrial Development Agencies in New York State
“I think this is probably the worst use of IDA incentives that I’ve seen in awhile. You’ve got anactive business. You’ve got a very good business in Kenmore
that’s making money, and you’rebringing it here.”
Robert M. Ciesielski, Amherst IDA Board member (discussing the
tax break given to Premier Group’s Prime Wine to move its store from Tonawanda to Amherst).
What are Industrial Development Agencies?
Industrial Development Agencies, or IDAs, are public benefit corporations created by the NewYork State Industrial Development Agency Act of 1969 intended to promote development,advance job opportunities, and improve the economic welfare of the people of New York. IDAsfunction by offering businesses incentives, such as tax exempt bonds and tax breaks, to invest intheir jurisdiction. New York has 115 IDAs in 62 counties. There are nine IDAs in the Buffalo-Niagara Region alone. Comparitively, 45 counties have only 1 or 2 (The whole of New York City has only 1). IDAs have grown consistently more active over the decade. In 2003 IDAsassisted 3,294 projects with $354 million in net tax exemptions; by 2009 they assisted 4,577projects with $496 million in net tax exemptions.The most powerful tool IDAs have is the property tax exemption. The tax exemptions affect therevenues of local governments and school districts, as well as New York State. For example, in2009, of the sales tax exemptions, $67.9 million were from State sales tax, and $48.4 millionwere from local, of which the majority goes to the county and local school districts. Of theproperty tax exemptions, $367.9 million were from school district taxes, $119.8 were fromcounty, and $676.8 were from local.The elimination of these taxes have real consequences. For example, the Niagara FrontierTransportation Authority recently announced that it faced a significant deficit; this correlateswith the decrease in the Erie County money the NFTA receives from the mortgage recording tax.This issue is further complicated by the fact that IDAs have great incentives to grant as many taxexemptions as possible. Each transaction the IDA approves generates a fee for the IDA, whichpays
the IDAs’ salaries, rent, professional services, and marketing expenses.
This allows theIDA to play with free money.
There is no one in the loop to guard the public’s interest
andensure that the IDA is not wasting money.Additionally, the overlapping IDAs each cost a considerable amount of money to function. The2010 expenditures for Erie County IDA were $6.6 million, for Niagara County IDA $1.2 million,and for Amherst IDA $0.7 million. The top salary at the Amherst IDA is $169,000
almostexactly the salary of the Governor of New York (by contrast, the Mayor of Buffalo makes about$105,000 per year).Due to the large expenditures of the IDAs many localities around the country have begun torequire results in return for subsidies, and to ask for money back where jobs are not created.Over 20 states and dozens of cities use clawbacks that require full or partial reimbursement whencompanies fail to fulfill their promises. Minnesota requires all state and local subsidy agreementsto include clawbacks and bans noncompliant companies from receiving further subsidies for five
years or until they have repaid their debt. Virginia, ranked by Forbes magazine as the top statefor business for several years in a row, has clawbacks in its Major Business Facility Jobs TaxCredit.
 New York’s economic development programs have very few clawback provisions. The IDA
statute lacks them entirely. A company may keep all of its tax exemptions even if it utterly fails
to deliver on its promises of jobs or other benefits to the region. Erie County’s Countywide IDAPolicy includes a clawback for cases of intentional, material falsehood in the company’sapplication, but it also states that “the failure of an appli
cant to meet any specific employmentnumbers set forth in the application . . . shall not be deemed to be false or misleading in any
material aspect.” In other words, the company is not allowed to lie, except about how many jobs
it will create or retain! That is truly a clawback with no claws.Despite their name, Industrial Development Agencies are not at all limited to industrial projects.In 2009, finance, insurance, and real estate projects captured almost 30% of net tax exemptions.Transportation, communication and sanitary services projects received 26% of net exemptions.Manufacturing received some 15%, and services received some 11%.Another popular misconception about IDAs is that they use their incentives to lure businessesfrom out of the area. Of the 71 tax exemption deals that the IDAs of Niagara County, ErieCounty, and the Town of Amherst did in 2010, only one appears to involve a company comingfrom out of state (Triad Recycling). All the other deals appear to be expansions or relocations of companies that were already in the region.
Where are the Jobs?
The 274 IDA subsidy agreements that ended in 2009 were based on promises to create 21,113 jobs. Instead, 4,957 jobs were lost. Some blame this on the dire economic climate of the time, butsuch a retort falls short. Of the 217,000 jobs promised by IDA applicants for 2005, only 79,000were actually created. One-fourth of IDA supported projects actually cut jobs in 2005, a greatyear for the American economy.There are many local examples of IDA assisted projects not creating any jobs. For instance,Fisher-Price, subsidiary of International giant Mattel, received a $1.4 million tax break in 2004and another $1.75 million in 2008 from the Erie County IDA to upgrade its offices in EastAurora without creating a single job.In assessing whether a benefit package is helping grow the economy, perhaps the most difficultquestion is whether the government aid is necessary, or whether the company would have donethe project anyway. Erie County Executive Chris Collins expressed this point succinctly whenhe (unsuccessfully) obj
ected to an ECIDA award of $74,000 in sales tax exemptions for Martin’sFantasy Island amusement park to build two new rides: “They’re going to put these rides inregardless. What company wouldn’t like a freebie, and this is a freebie.”
 HSBC Bank, headquartered in Europe, is a good example of lavish tax breaks with little localbenefit. In 2006, the Amherst IDA granted HSBC $79 million in tax breaks to expand a datacenter, a subsidy worth $6.6 million per job created. Now HSBC is dramatically reducing its
Buffalo operations, selling its 175 upstate retail bank branches, and closing its data center, which
will be purchased by M&T. In addition to assuming HSBC’s tax breaks, M&T is seeking tax
breaks of roughly $8.5 million over 10 years for new technology and equipment purchases forthe data center.
Undermining the Region
With the Western New York Regional Economic Development Council’s strategic plan “AStrategy for Prosperity in Western New York” recently approved for over $100 million in New
York State funding, economic development with a unified regional approach has gainedsignificant importance. IDA incentives have too often missed the target promoted by thisregional plan. If IDAs are to benefit Western New York moving forward, some prominentaspects of their incentive and governance structure must change.A town can form its own IDA, appointed by and accountable only to that town board, with thepower to give exemptions from taxes owed not only to that town, but also to the school district,c
ounty, and state. It would be one thing for the Town of Clarence to subsidize a Dash’s
supermarket with its own money; it is quite another thing for it to subsidize the market withmoney from Erie County. Residents of Buffalo, therefore, help foot the bill when Clarence
subsidizes the “New Buffalo Shirt Factory,” formerly located in Buffalo, now located in
Clarence.The six IDAs of Erie County have adopted a Countywide IDA policy that attempts to addresssome of these issues. For example, it makes retail, medical, and for-profit educational projectsgenerally ineligible. Unfortunately, the exceptions to the policy are so broad and the
enforceability of it so lacking that Amherst’s 13 projects in 2010 included four retail projec
ts,three medical projects, and one for-profit educational project.Governor Cuomo has laid out a statewide economic development platform that relies on regionsto come together and coordinate their actions. The WNY Regional Economic DevelopmentCouncil, spearheaded by UB President Satish Tripathi and developer Howard Zemsky,successfully brought together economic and political minds from across five counties to unite ina unified plan that will bring over $100 million in New York State funding to Western NewYork, facilitating hundreds of millions more in private investment. The focus on human capital,clustered development, and entrepreneurial incubators is the type of investment the originalcharter of Industrial Development Agencies meant to create. There is new life in WNY, it is timeto reform and rejuvenate IDAs so that they contribute to the sustainable growth of the region.

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