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Excelsior program not causing elation; Called too small to get the job done

The scaled-back program that would replace Empire Zones as the state's main economic development tool is getting poor reviews from the Buffalo Niagara business community.

With funding capped at $50 million a year, just 10 percent of the annual cost of the Empire Zone program, the Excelsior Jobs program is too small to overcome New York's competitive shortcomings, critics said.

The five-year limit on incentives is too short, and the focus of the program on seven broad industry groups is too targeted, they said.

"We've got a state that has a lot of incentives, because we have a lot of disincentives to doing business here," said Andrew J. Rudnick, president of the Buffalo Niagara Partnership.

"Now we're not making any of the disincentives less, and we're reducing the incentives," he said. "The expected outcome should be reduced investment in New York State."

Gov. David A. Paterson and the State Legislature agreed last week to scrap the state's controversial Empire Zone program, which was seen as a powerful tool in the state's economic development efforts in distressed areas, but one that also was criticized for bloated job-creation promises.

Under the deal, the Empire Zone program will close on June 30, although companies that currently receive benefits will continue to get them until the 10-year contracts on their benefits run out. More than 6,000 companies in 85 geographic zones across the state, including portions of Buffalo, the Town of Tonawanda and Lackawanna, receive a wide range of lucrative tax breaks, including tax credits of $1,500 to $3,000 for each worker.

The new program, coming as the state tries to close a $9.2 billion budget deficit, would save the state money by dramatically scaling back the incentives available to businesses. It also would address some of the major criticisms of the Empire Zone program by requiring stronger job-creation guarantees and pegging more of its incentives to the creation of new jobs.

The new program would offer tax credits of $2,500 to $10,000 for each new job created by a project that adds a minimum of 50 new positions. It also would offer a 2 percent tax credit on qualified investments and an additional tax credit on research and development.

Paterson has said the state's economic development programs must face cuts, along with other state-funded programs, because of the deep fiscal crisis that has left lawmakers unable to agree on a budget 2 1/2 months into its fiscal year.

Local economic development officials, however, said the new program comes up short and will make it harder to persuade companies to expand here, or possibly prevent them from moving elsewhere.

"I don't think it's enough," said James J. Allen, the executive director of the Amherst Industrial Development Agency. "State and local taxes are 50 percent higher here than the national average. We have to do something to combat that."

With a $50 million pot of funding available -- compared with the $515 million annual price tag of the Empire Zone program -- local officials said the Excelsior program's funding level was far too low.

"You'll probably go through that fairly quickly," said Thomas Kucharski, the president of the Buffalo Niagara Enterprise business development and marketing initiative.

Despite the allegations of abuse within the Empire Zone program, Kucharski said developers and site selectors generally had a positive view of the initiative. "They said it puts you in the game," Kucharski said. "To be competitive, you need something like an Empire Zone."

"This is a huge reduction in resources at a time when New York needs to invest in job growth," said Ken Pokalsky, the senior director of government affairs for the Business Council of New York State. The Excelsior program "will limit New York's ability to compete in the race to create and retain jobs."

Karen Merkel-Liberatore, a HealthNow spokeswoman, said Empire Zone benefits were a factor in the health insurer's decision to build its headquarters in downtown Buffalo in 2005, but not as important as the brownfield tax credits that were available. Still, the Empire Zone incentives were worth about $1 million to the Health Now project in 2007, according to the latest state figures available.

Erie County Executive Chris Collins, who controls three companies that currently receive Empire Zone benefits, criticized the Excelsior program for being too targeted. It would focus on biotechnology, the pharmaceutical industry, high-tech and clean-tech firms, green technology, financial services and back office operations, along with manufacturing.

"Who are these guys to pick the winners and the losers going forward?" he said.

To combat past abuses where companies made bloated job creation promises and failed to deliver, the Excelsior program would award many of its incentives only after the promised jobs had been created. It also would include provisions to revoke the tax credits if those job targets weren't met later in the term of the contract.

Allen said he supports clawback provisions if it can be proved that a company lied about its intentions when seeking the incentives but was wary of any plan to take away benefits because of a company's overall financial health.

"I don't think this is fair, because companies have very little control over that, especially during a recession," Allen said.

Brian McMahon, the executive director of the New York State Economic Development Council, noted that the state is proposing an $80 million increase the tax credits available to the film industry, which largely benefits the New York City area. The film industry tax credit would swell to $505 million -- more than 10 times the size of the annual Excelsior Jobs budget.

"New York's economic development strategy would largely be focused on benefiting out-of-state movie studios that come into New York City for a few months, make a movie and leave," he said.

e-mail: drobinson@buffnews.com

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