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Hevesi launches audit of local IDAs State comptroller wants to know if tax breaks are creating promised jobs

State Comptroller Alan G. Hevesi is auditing six industrial development agencies statewide -- including those for Erie County and Amherst -- to study how they approve projects for tax breaks and whether those companies live up to their job creation promises.

The state's top fiscal watchdog is zeroing in on the economic development organizations for five counties -- Erie, Onondaga, Ontario, Suffolk and Tompkins -- and the Town of Amherst. The six were selected because they are among the biggest and most active IDAs statewide.

The review, which began this summer, is still in its early stages, and no report is expected until at least the spring. But as with a prior review of Empire Zones, Hevesi wants to make sure that if tax breaks are awarded for creating jobs, then jobs should result.

"Tax breaks are real money," said Hevesi spokesman Dan Weiller. "We need to make sure that what we're supporting through tax breaks is in fact happening."

Weiller said the review is not an investigation of failures by the particular agencies. The office also is not suggesting there are problems in these six IDAs, which were chosen as a representative sample purely based on size.

Rather, the audit is designed to find out if the incentive programs are working and to make recommendations on how to make them better, Weiller said.

"It's important to look at the way these programs aren't succeeding, so that we can find ways to improve them," he said.

Amherst IDA Executive Director James Allen said it wasn't unusual for the comptroller to audit the IDA, noting that former Comptroller H. Carl McCall reviewed all six of Erie County's IDAs in 1999. But that was a financial audit, not an operational and policy one, he said.

Allen said he's waiting for details, but isn't concerned. "This seems to be a little unique, but until they tell us specifically what they're auditing, we're just guessing," he said.

IDAs are independent "public benefit corporations" that "promote, develop, encourage and assist" companies in creating jobs and furthering economic development. There are about 117 IDAs statewide, created by state lawmakers at the request of municipalities.

They offer financial incentives to retain, expand, and attract businesses, by issuing low-interest bonds or providing businesses with tax breaks.

The comptroller's review is the first statewide examination by Hevesi of the policies and performance of IDAs, which already routinely submit to financial reviews by the comptroller. The current audit was disclosed during an Amherst IDA board meeting on Friday.

Hevesi's office completed an initial operational audit of five IDAs in four counties of the Capital District in 2004 before deciding to expand the performance review to the rest of the state. That audit looked at financial activities, governing board oversight and policies for 2001 and 2002, but reviewed project files from 1997 to 2003.

The goal, as specified in the final report, was to see if IDAs have and use standard criteria for deciding who gets benefits, and to see if they monitor the companies' performance.

Hevesi found that four of the five IDAs in the Albany area did not have formal criteria and that none of them kept records showing how companies' claims were verified. There also was not enough monitoring of projects.

Also in 2004, Hevesi completed three audits of Empire Zones and related economic development programs geared for struggling areas.

One focused on eight Empire Zones statewide, including in Buffalo and Tonawanda. The second reviewed three zones in New York City, while the third looked at the New York City Department of Economic Development.

Hevesi said the zones are "poorly administered," don't keep adequate records to track total costs and benefits from tax breaks, and don't hold businesses that receive benefits accountable.

He said individual zones "routinely failed" to analyze whether the tax breaks were cost-effective or if businesses were reporting their results accurately.

His report found that while many firms do create jobs, nearly half don't meet their targets for the number of jobs they were supposed to create, and 23 percent even lost jobs. In all, 2,380 fewer jobs were created than had been projected.

Yet 34 of 86 businesses that reduced jobs still got tax breaks for years totaling $2.4 million. Some tax credits even exceeded total salaries for new jobs.

In his final report, the comptroller called for more comprehensive reporting of benefits that companies get from Empire Zones, a stronger role for the State Department of Economic Development in overseeing the zones, and reforms to refocus the program on creating jobs and attracting private investment. There are 72 Empire Zones statewide.

"We know that the concept can work, but it has to work right and work well," Weiller said.

Charles E. Webb, president of the Erie County Industrial Development Agency, welcomed the audit.

"I'm sure they'll come back and recommend to us ways the job can be improved. We look forward to that," he said. "We don't shrink from any inquiry. It's a healthy thing to have the questions asked. And the process can be better."

Once the initial draft is completed, the IDAs will have at least 30 days to review it and submit responses before a final report is issued.

e-mail: jepstein@buffnews.com

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