CONGRESS WILL be woefully shortsighted if it allows the authorization for federally tax-exempt industrial development bonds to expire at the end of this year, as provided in the 1986 Tax Reform Act.
These bonds play an important role in assisting small manufacturing companies both in Western New York and throughout the state and nation. Issued by local industrial development agencies, the bonds enable small manufacturers to obtain capital for plant and equipment from banks at lower rates than would be possible if interest on the bonds were subject to federal taxation.
Since 1971, the Erie County Industrial Development Agency alone has issued 308 bonds that have enabled local companies to raise $611 million. This has helped create or retain more than 11,000 jobs between 1983 and 1988.
For its part, the Amherst IDA has helped create or retain almost 10,000 additional jobs by issuing another 107 bonds to raise $190 million since 1979.
There have been undeniable abuses in the industrial bond program, but these have long since been corrected by Congress. Bond financing today is available only for manufacturing projects, not commercial enterprises, and there are statewide caps on the amount of such financing. Under present rules, most of the bonds are being used to promote employment opportunity for semi-skilled workers.
The rationale for phasing out industrial development bonds in the 1986 tax act was to reduce the federal deficit. However, continuation of the bonds would cost the U.S. Treasury only about $12 million each year on a cumulative basis, a trifling sum in relation to the value of the new investments and jobs being fostered -- jobs held by workers who, it should be noted, pay taxes instead of being dependent on public assistance.
The bonds are particularly important in helping keep the playing field even for small American manufacturers in competing with foreign companies that receive government subsidies.
As Gov. Cuomo noted in urging Congress to continue the bond program: "For the past decade, our manufacturing sector has been faced with severe competition from abroad -- sometimes from countries where manufacturing for the export sector is subsidized by the government. In the United States, particularly in New York State, industrial bond financing has been a most important tool for helping our manufacturers to meet and match foreign competition head on."
For the most part, too, Erie County IDA officials stress, the bonds are being used to help finance expansion of existing companies, not simply to move jobs from one region to another.
Without these instruments, IDAs will have to rely on other bonds that carry local tax breaks but are subject to federal taxation. Unfortunately, the latter bonds are effectively limited to large companies, not small manufacturers.
The House Ways and Means Committee will be considering amendments to the 1986 tax act next month. We urge it to preserve industrial development bonds. At little cost to the federal government, they are doing much to stimulate economic development and fight unemployment.