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Budget deal cuts Empire Zones to save money ; State favors shorter, cheaper Excelsior plan

Throughout this year of fiscal turmoil at the Capitol, business groups have been among the most vocal in calling for a reduction in state spending. Now, they are about to share in those cuts.

The Empire Zone program, the chief economic development program for upstate New York for the past decade, will be eliminated and replaced with a scaled-down version offering lower benefits and a shorter life span, under a deal reached Wednesday by budget negotiators for Gov. David A. Paterson and the State Legislature.

Additional cuts for corporations are being considered, including a delay of several years in various business tax breaks -- valued at up to $100 million in savings this year for Albany.

The Empire Zone program, criticized over the years for bloated job-creation promises but still considered a vital tool in some distressed areas, will end June 30 to help reduce the state's red ink. Companies already in the program will get benefits until their contracts expire.

Empire Zones, which now offer a range of tax breaks for more than 6,000 companies in 85 geographic zones over 10 years, would be replaced by the Excelsior Jobs program, which would have a life span of five years.

And tax incentives would be lower than they are under the existing program, according to several people involved in the talks.

Paterson has wanted to end Empire Zones in favor of a new effort targeting specific industries and requiring stronger job-creation guarantees. Given the state's $9.2 billion deficit, he has said economic development efforts must face spending cuts like other state programs.

What has been depicted as uncontrolled and ever-rising spending on Empire Zones would be halted.

Excelsior would spend no more than $50 million in the first year, followed by a maximum of $250 million by the fifth year. The program is being timed in such a way that it will not cost the state any money until 2012.

The Empire Zone program this year will spend about $600 million.

Upstate economic development officials complained Wednesday that the cuts to the Empire Zone replacement program come at a time when the state's tax-incentive effort for the film industry -- which they say heavily benefits the New York City economy -- is getting a comfortable hike in funding, which one source put at $80 million.

"It is certainly a lesser program," Assemblyman Robin Schimminger, D-Kenmore, chairman of the Assembly's Economic Development Committee, said of the Empire Zone replacement.

Industry groups condemned the cuts and said businesses, given the recessionary pressures still being felt, need tax incentives to create and retain jobs. Brian McMahon, executive director of the New York State Economic Development Council, said the new plan will offer businesses "a fraction" of the money that was provided under the state's past efforts.

McMahon criticized the film industry tax break. He said the credit cost $425 million last year and was set to drop to $85 million this year, but now lawmakers and Paterson are looking to give the industry $505 million.

"These proposals represent a significant shift of economic development resources from upstate and Long Island to New York City," McMahon said of the cuts for the Empire Zone and the hikes for the film credits.

The Empire Zone program was created in 2000 to target investments in economically depressed areas by giving tax credits and other incentives to companies for meeting certain job-creation numbers. But the original mission was diluted as the incentives spread to a number of more affluent areas of the state.

In addition, companies often failed to meet their job-creation numbers, and tax breaks were given to law firms, banks, bars and others that planned to hire workers with or without the incentives. Nonetheless, in distressed areas, the program was still seen as a vital tool to lure companies that otherwise would have gone elsewhere.

Today, there are 85 geographic zones that qualify for Empire Zone tax breaks, including much of Buffalo, the Town of Tonawanda and Lackawanna.

Besides capping the annual growth in funding for companies entering the new program at $50 million and giving it a five-year life span, the new deal calls for a variety of lower benefits for enrolled companies. It envisions a wage tax credit of $2,500 to $5,000 for each new worker hired.

The deal also calls for a 2 percent investment tax credit, which means a company could get a $20,000 state tax break for building a $1 million facility. Under the Empire Zone, up to $100,000 in credits for such an investment was possible.

Empire Zone companies also now get property tax breaks for up to 75 percent of their tax bill. The new program caps the tax break at 50 percent in the first year, and it then is reduced by 10 percent each year.

The new program also wipes out a number of geographic locations eligible for benefits in the Empire Zone, though it maintains property tax credit breaks for about 40 of the 85 zones located in "distressed" census track areas, which includes the zones in Western New York.

Instead of local Empire Zone boards making decisions, the new program will be directly controlled by state economic development officials.

"This is a much more well-defined program," a senior Paterson administration official said. "The benefits are tied to people actually providing jobs and proven economic development efforts in a much more structured, targeted way to high-growth and high-wage industries."

Also, there are new protections to prevent past abuses, negotiators said. For example, a company getting a wage tax credit for hiring 10 new employees will earn the full credit only if all 10 positions are maintained during the five-year life of the program. They would lose the credit, for example, if the 10 promised jobs were reduced to nine during the contract period.


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