It isn’t easy keeping industrial development agencies in check when they’re handing out tax breaks.
Despite recent reforms aimed at limiting handouts for stores, doctor’s offices, hotels and all sorts of other retail projects, many local IDAs – including the ones in suburban Erie County and Niagara County – have managed to find loopholes in the law that have kept the handouts flowing.
But Gov. Andrew M. Cuomo is quietly making a new push in his state budget proposal to tie the hands of local IDA officials even tighter. He’s proposing that any IDA incentive package that would give away state sales tax money be approved by the state’s main economic development agency, Empire State Development.
Cuomo argues that IDAs now can exempt businesses from paying the 4 percent state sales tax on approved projects, without any oversight from the state.
His proposal would give Albany the final say, and given some of the bad choices local IDAs have made about handing out tax breaks for projects, like a new Dick’s Sporting Goods store in Batavia, renovations to the decrepit Summit Mall in Wheatfield or a new SpringHill Suites by Marriott hotel in Lancaster, that’s not a bad idea.
IDA officials justified the Dick’s store, saying it was providing a service that wasn’t otherwise available locally and would keep sporting goods shoppers from traveling to Buffalo or Rochester. The Summit Mall and SpringHill Suites projects were justified in getting tax breaks because the IDAs considered them to be projects that would promote tourism – one of the exemptions in the state law that bans incentives for retail projects.
There’s a good chance that, had Cuomo’s proposal been in effect, that each of those projects would have been rejected in Albany.
“It’s an excellent system to weed out bad deals,” said Assemblyman Sean Ryan, D-Buffalo, an IDA critic. “If an IDA tries to push through a Target store, a liquor store or a pizzeria, then the red flags will come up.”
So it’s not surprising that local IDA officials are up in arms over Cuomo’s plan, but not just because they don’t want Albany saving them from themselves.
They say the proposal would snatch control of development decisions out of the hands of local people and centralize it in Albany.
“They want to take that decision making away from local IDAs and local governments,” said James J. Allen, the executive director of the Amherst Industrial Development Agency. “This basically says, you can do whatever you want, as long as we think it’s OK.”
And adding a new layer to the approval process that could tack on another 45 days – or longer if the state seeks additional information – would only make it harder on businesses looking to expand or invest in New York. Even legitimate expansion projects that would create good-paying jobs.
“Time is of the essence in a lot of cases with economic development,” said Erie County Legislator Edward Rath, a member of the Erie County Industrial Development Agency board. “It would significantly delay the process” because the state wouldn’t start reviewing a project until the IDA had approved the tax breaks.
Ryan disagrees. “It will only slow things down if a red flag goes up on a deal,” he said.
Brian McMahon, the president of the pro-development New York State Economic Development Council in Albany, said the proposed change would make it hard for developers to do so-called “adaptive reuse” projects that renovate existing, but underused, buildings.
Those renovation projects, which often are in main business districts, can be more expensive than building new. And because many don’t qualify for the property tax breaks IDAs often hand out, the sales tax break is a big part of their incentive package.
Cuomo’s proposal would make it harder to renovate and revitalize city neighborhoods, including downtown Buffalo, McMahon said.
“What I don’t like is they’re trying to centralize decision making in Albany,” Rath said. “What’s economic development in Genesee County might be very different from economic development in Erie County or Amherst,” Rath said.
Cuomo’s proposal also would mandate that a project’s developer or other “responsible persons” be current on all of their tax payments.
Empire State Development would evaluate projects based on their job and investment targets, and consider whether the tax breaks would give a competitive advantage over others.
For adaptive reuse projects that are only getting sales or mortgage tax breaks, Allen said the proposed restrictions might convince developers not to seek tax breaks at all. For projects on the edge financially, that could be enough to convince their backers to walk away.
Cuomo’s proposal has stirred up a coordinated backlash. The Erie County Legislature has passed a resolution opposing the governor’s plan. So have county legislatures in Niagara County and Genesse County, among others.
The campaign against Cuomo’s plan seems to be making some headway. Neither state Senate or Assembly versions of the budget included Cuomo’s proposal.
But in a state where budgets are cobbled together in closed-door negotiations, that doesn’t mean the proposal is dead, although it would seem to face an uphill fight to make it into law this year.
“That doesn’t mean it’s gone,” Allen said. “Something could be negotiated back in.”
Of course, there’s another solution that would take away Albany’s urge to intervene in local economic development: Stop giving tax breaks to questionable retail projects that don’t create real economic growth or family-sustaining jobs.
But that would be too easy.