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Lucrative incentives lure industries, but taxing jurisdictions pay a price

There are many agencies that offer tax and other incentives to locate a business in their communities, but it's hard to beat the Town of Lockport.

If the town wants a project badly enough, its industrial development agency is willing to set things up so the business doesn't have to pay any taxes at all for years to come.

That's what happened for the $150 million Yahoo! data center, which opened in September 2010 off Junction Road in the town's industrial park.

The town granted Yahoo! a 100 percent tax exemption for 10 years as part of a 20-year incentive package.

The town had done that kind of thing before, and it's currently doing so for a local technology company with only 15 employees. But its heavy-duty incentives had never been lavished on a project that had the regional impact of Yahoo!.

The Internet giant was the bellwether for what local leaders hope will be a movement into Western New York of other high-tech enterprises.

The next one expected to be built is the Verizon Communications data center on Lake Road in Somerset.

If litigation over its environmental review doesn't derail the deal, Somerset officials expect Verizon to invest $4 billion in the site over a 20-year period.

"Given the other inquiries we've had about the community, I'd say it's worth it," Lockport Supervisor Marc R. Smith said.

There is no lost tax revenue for the town, since it doesn't have a general town property tax in the first place. But Niagara County and the Lockport School District also are shut out of possible revenue.

"Previously the land was vacant. It was paying only nominal taxes. In that regard, the taxing jurisdictions are not foregoing any revenue," said David R. Kinyon, the town's economic development coordinator.

But the town's willingness to give lucrative incentive deals has an impact on other agencies.

"Now everybody who comes to town wants the Yahoo! deal," said Henry M. Sloma, chairman of the Niagara County IDA. "When I was negotiating with Verizon their opening statement was, 'We want the Yahoo! deal.' "

The county IDA has a flexible incentive policy that allows negotiations on customized deals, but Sloma said with the exception of two Niagara Falls hotel projects that involved major renovations on abandoned or fire-damaged properties, the county IDA hasn't done a 100 percent tax break.

"I try in every case to bring fresh dollars to the taxing jurisdictions," Sloma said. "We want growth in two places. We want growth in employment, capital investment, purchases of goods and services, but we also want growth in revenue for the taxing entities."

Although Verizon has been approved for a major incentive package, including 20 years of tax breaks, it will at least have to make some payments to Somerset, the county and the Barker Central School District.

Based on an estimated assessed value of $495 million, Verizon is to pay a total of $2.3 million a year to the town, county and school district in the first three years of the project, which is 15 percent of full-value taxation.

That percentage rises to 25 percent in years 4 through 6; 35 percent in years 7 through 10; and 45 percent in years 11 through 20.

Based on the estimated assessment, Verizon will save more than $110 million in property taxes during the 20-year term.

It's hard to say how much Yahoo! is saving in property taxes, since the current assessed value of just under $9.7 million was set early last year, when the data pods were incomplete shells.

Town Assessor John Shoemaker said now that the project is practically finished, a revised figure will be entered on the tax rolls as of March 1.

"It will be considerably more than [$9.7 million]," Shoemaker said.

The current county tax rate for the Town of Lockport is $7.75 per $1,000 of assessed valuation, and the school tax rate for the portion of the Lockport district within the town is $24.66 per thousand.

Yahoo!, of course, won't pay that, but Kinyon says that doesn't mean there is no benefit from hosting the company.

"We have 75 new jobs, people who are buying homes and generating sales tax and consuming goods from local businesses. We have suppliers who have benefited from Yahoo! The spin-off benefits have only started to materialize," Kinyon said.

Sloma takes a similar view on the Verizon deal.

"I've got a soybean field that is producing next to nothing [in taxes]," he said. "They had no sales tax at all coming from that field. I figure it's a fair trade."

Kinyon acknowledged that Buffalo Niagara Enterprise, the regional business promotion agency, cautioned municipalities that were competing for Yahoo! that they would be setting a precedent for incentives in the data center field.

"The BNE never indicated to the Lockport IDA that its incentives were out of line," Kinyon said.

Paul Pfeiffer, BNE spokesman, confirmed that the agency wasn't being judgmental, but it did want to remind the localities about the impact of what they were doing.

BNE prepared a glossy four-page brochure in the wake of the Yahoo! deal for use in trying to attract other high-tech companies. It includes a mention of 10-to-15-year reductions in property taxes with payments on a percentage basis.

But the Town of Lockport, at least, is willing to go beyond that, and not just for big hitters like Yahoo!

Introl Design, a small business in the City of Lockport whose primary product is electronic sensors that triggers railroad track switches and gates and lights at grade crossings, is planning a move into the Town of Lockport industrial park.

Its new $850,000 building will be completely exempt from property taxes for 10 years, just like Yahoo! Introl president Ali Shams liked what he heard from the town IDA.

"The more they talked, the more attractive it became," Shams said.

Introl has 15 employees now and projects an increase of six jobs in the first two years at its new plant.

He said the City of Lockport was always cooperative with Introl, but the plant was always too small for the work being done.

By moving to an industrial park, "We don't have to go through zoning changes and all that rigamarole," Shams said.

And not having to pay property taxes doesn't hurt, either.