A second company with ties to the slumping oil and natural gas market is in danger of having to pay back tax breaks for failing to meet the job promises that it made to obtain incentives from the Erie County Industrial Development Agency.
Cheektowaga manufacturer API Heat Transfer is facing clawbacks from the ECIDA after it cut its local workforce because of falling sales of the equipment that it makes for use by energy companies.
The company pledged to maintain a minimum of 287 local jobs and to create six new positions when it sought $159,000 in tax breaks in November 2013 for a $1.7 million expansion project at its Walden Avenue factory and headquarters.
But because of the steep decline in drilling activity as oil and natural gas prices have fallen, API Heat Transfer had 247 jobs at the end of last year, putting it on the cusp of violating the terms of its incentive agreement and placing it in danger of having some of the tax breaks that it already has received clawed back by the IDA. The company has since notified the IDA of an “anticipated decrease in employment,” according to agency documents.
If that happened, API Heat Transfer potentially could be required to repay more than $86,000 in tax breaks that it already has received for the 2013 expansion, including $73,866 in sales and use taxes, along with $12,379 in savings on its property taxes.
The agency’s staff is preparing options for dealing with the company’s potential clawbacks for discussion at the IDA’s next board meeting in late August, said Richard Lipsitz Jr., chairman of the agency’s policy committee.
Cheektowaga Supervisor Diane M. Benczkowski has asked the IDA to give the company more time to meet its job promises.
API Heat Transfer officials could not be reached to comment.
If the IDA decides to claw back tax breaks from API Heat Transfer, it would be the second local company to lose incentives under the agency’s recapture policy. In June, the IDA moved to recover tax breaks that it had granted to another Cheektowaga company, Derrick Inc., that failed to meet its job promises following a slump in its energy markets.
Derrick has since said that it will be returning $509,000 in sales and use tax breaks that it received for a pair of expansion projects that were carried out before its energy markets began to slump. It also is asking the IDA to terminate its property tax incentives, effectively refunding the agency for any tax incentives that it received and canceling any subsidies that it could have received in the future.
The IDA had agreed last month to give the company two years to restore the jobs and come into compliance with its job promises before seeking the return of the tax subsidies that it already had received. The IDA also had told the company that the property tax savings that were scheduled to begin this year would be delayed until it met its job targets.
A Derrick executive said the company had no comment on its decision to return the tax breaks and cancel any future incentives that it might have been able to receive if its employment levels rebounded.
Since Derrick went before the IDA in June 2014, the company has cut 25 percent of its jobs, putting 119 people out of work.
IDA officials have said they are walking a fine line in dealing with companies that don’t meet their job promises, not wanting to make the companies’ financial position worse by penalizing them at a time when they already are struggling.
At the same time, the policy was put in place to prevent companies seeking tax breaks from making promises that they can’t keep, and County Executive Mark C. Poloncarz has argued that ignoring the recapture policy when businesses fall short would render it meaningless.