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UB catches startup wave as other schools tread water

Since the state launched the Start-Up NY program in 2013, no school in the state has had as much success as the University at Buffalo in bringing businesses and new jobs into tax-free zones on or near college campuses.

UB has made deals with 42 companies that promise to hire nearly 1,500 people, and invest $47.2 million, over five years. That represents 37 percent of all 110 companies across the state.

While UB is setting the standard for Start-Up NY, the nine other area schools in the incentive program have gotten off to a much slower start. The schools, covering four counties, have just one company among them: a startup clothing manufacturer that moved in January into a former Oldsmobile dealership at Canisius College.

Gov. Andrew M. Cuomo unveiled his Start-Up NY proposal to great fanfare in 2013, saying the program’s tax incentives would create thousands of much-needed jobs.

But the dozens of businesses accepted into the program hired only 76 workers last year.

Critics say Start-Up NY is an unwise giveaway of tax breaks that rewards new companies at the expense of existing businesses, with little to show for it. Opponents also blast the $53 million that the state is spending to market the program.

Officials at the smaller Start-Up schools in Western New York say UB’s expertise in life sciences and its experience in working with area companies gave it a head start. But they say they are making progress in finding the right projects with the right business partners.

High hopes but slow start

“It can be slow, and it has been slow. We’re small – it’s basically me, which is a disadvantage,” said Kevin P. Kearns, SUNY Fredonia State’s vice president for engagement and economic development.

Cuomo introduced the program as “Tax-Free NY,” and it initially was meant to bring startup companies and jobs to State University of New York campuses throughout upstate. Renamed Start-Up NY, lawmakers broadened the program to include private colleges and more downstate schools.

A package of incentives eliminates for a decade sales taxes and property, business and corporate taxes for companies that open on or near college campuses. Further, newly hired employees won’t pay state income taxes for up to 10 years.

“I believe it is the boldest economic-development program for upstate New York ever. Period. This is on a scale that has never been attempted before,” Cuomo said in June 2013.

One year into Start-Up NY, the program has yet to pay widespread dividends.

A report released in April by Empire State Development showed 54 companies joined Start-Up NY in 2014 – a total that rose to 110 companies as of last month. The companies accepted last year pledged to create 2,085 jobs and invest more than $91 million over five years.

However, the companies have created just 76 jobs and invested just $1.7 million last year while earning $56,561 in tax breaks.

Leslie F. Whatley, executive vice president of Start-Up NY, said that it takes time to get a program of such complexity off the ground, and to change the culture at schools that don’t have development experience.

She said the number of schools participating in the program bodes well for further job creation in 2015 and beyond. In 2014, 62 colleges and universities – offering a combined 356 tax-free zones – were added to the Start-Up NY program. Seven more schools were added early this year, and 18 applications are pending.

“People took moment-in-time stats, and they started getting hysterical about it. Economic development does not happen overnight. We are planting the seeds today for benefits that are going to flow over time,” Whatley said.

Start-Up NY is drawing attacks from across the political spectrum, uniting opposition groups such as the state’s Conservative and Working Families parties that otherwise have little in common. Critics say Start-Up NY’s tax incentives reward new companies at the expense of existing businesses.

“You are distorting the economic playing field,” said Elizabeth Lynam, vice president and director of state studies for the Citizens Budget Commission.

She said the incentives interfere with the market by, for example, encouraging a business to move into a tax-free zone instead of a nearby parcel that remains on the tax rolls.

Eventually, Lynam said, communities and interest groups push to expand the boundaries of the tax-free zones, as has happened with Start-Up NY and with the state’s Empire Zone program, increasing the cost without obvious benefits.

Criticism of Start-Up NY also is focusing on the $53 million the state is spending on print, radio, online and television ads to promote the program, including TV commercials running in all 50 states.

The money covered the cost of ads that ran from December 2013 to March of this year, and it came from New York Power Authority proceeds.

Marnie LaVigne, president and CEO of Launch NY, said she knows that the ads reached a wide audience because she hears about them from family members and business owners during her travels out of state. “I think it created, clearly, huge attention to New York State. No question about it,” said LaVigne, who previously led UB’s Start-Up NY push.

UB offers plenty of room

A Start-Up NY ad caught Paul Shelter’s attention and convinced him that it was the right time to leave the corporate world and move back to Buffalo to start his own business here. “It sparked the entrepreneur in me again,” said Shelter, who had split his time between California and Washington, D.C.

Shelter started Mitigate Injury Management, a medical software and consultation company that helps companies cope with common workplace injuries. The state approved his application last year and he moved into the UB Downtown Gateway building. There are three full-time workers now, but he’s promised the state he will hire 81 people in five years.

Start-Up NY plays to UB’s strengths, and the university embraced the program from the beginning. It was in the first wave of schools approved in March 2014, and it was in the first batch of schools to work out agreements with companies three months later.

UB had a long history in forging ties with businesses, an experienced group of economic-development staff members and a deep bench of scientists and researchers who make the school an attractive partner, said Karen M. Utz, director of program administration in its Office of Economic Development.

UB also has plenty of room available in buildings on and near its campuses and the Buffalo Niagara Medical Campus.

“The space that they have is ready to move into,” said John Sayegh, vice president for continuing education at Jamestown Community College, which has one tax-free zone.

Elsewhere in Western New York, Start-Up NY really hasn’t started up. The nine other schools, stretching from Niagara University to SUNY Alfred, have 193,000 square feet of building space and 66 acres of vacant land approved as tax-free zones – but just the single company between them.

Officials at the schools say that they have few of UB’s advantages and that they had to build their Start-Up NY operations from scratch. They had fledgling – or nonexistent – offices devoted to economic development and business outreach, they in some cases had limited space on campus to offer to Start-Up NY companies and they don’t have a reputation for research in the life sciences that can draw in company partners.

Negotiations underway

Further, some schools are located in rural communities that are less attractive to many prospective business tenants. “We got out really fast. The regulations, the steps you had to take, were all evolving. We were partially a guinea pig. But even more frustrating is just our lack of space to be able to make this work. And that’s nobody’s fault,” said Michael F. LeVine, vice president for finance and management at SUNY Buffalo State, which is altering its original Start-Up NY plan.

Holly Henderson, owner of Simply Natural Clothing, learned about the program in 2013, before any schools were approved for Start-Up NY. Henderson made connections with the Canisius Women’s Business Center, and its Sew REDI project for refugees, and decided to work with Canisius to apply.

“I really wanted to build something here,” she said.

After she was approved, she moved in January into Demerly Hall and began knitting her sweaters, dresses and scarves from organic raw materials.

Henderson assured the state that she would hire 16 people, and spend $1.2 million, over five years. Simply Natural Clothing has five employees now and owns two machines that each can seamlessly knit a sweater from fine brown, white or gray alpaca yarn in about an hour.

The Start-Up NY-fueled expansion is paying off. Henderson said she had $80,000 in total sales in 2013 and 2014, while in the first three months of this year she booked $120,000 in orders.

Officials with the other nine Start-Up NY schools in the region say they are in negotiations with a number of companies, and several schools say they expect to submit project applications for approval by the state in the coming months.

While the companies connected with UB have pledged to create a total of nearly 1,500 jobs over their first five years in the tax-free zones – Liazon, the health insurance exchange operator, alone would hire 500 – the other colleges are likely to bring in companies with smaller workforces.

“You give it another 18 months, and I am certain that you’re going to have announcements throughout the region,” said Thomas A. Kucharski, CEO of Buffalo Niagara Enterprise. “They may not be really big, in some of these places, but they don’t have to be.”