The companies that moved into the StartUp NY network of tax-free zones have created just 408 of the more than 4,100 jobs they promised to add to the state’s employment rolls within five years, according to a long-delayed report released late Friday by Empire State Development.
The companies created 332 jobs last year after creating 76 in 2014, the first year of the StartUp NY program. The jobs information is included in a footnote to the Business Incentives Report released Friday by the state agency that oversees the tax-free zone program, which offers the companies and their employees a suite of state and local tax incentives in exchange for investment and job creation.
As of Dec. 31, 159 companies had moved into StartUp NY tax-free zones or planned to move into zones around the state at some point in 2016. They promised to create 4,140 jobs and invest $230 million across the state.
A top official with StartUp NY insisted the data shows that companies that have moved into tax-free zones affiliated with the University at Buffalo and other colleges and universities are on pace to meet their goals.
“We are tracking, that’s what’s important,” Leslie F. Whatley, StartUp NY’s executive vice president, said in an interview Friday. “It’s a pretty steep hockey stick. We’re on target.”
StartUp NY seeks to leverage the intellectual capacity of New York’s colleges and universities to boost the state’s economy, particularly in upstate New York. Schools across the state have created 441 tax-free zones containing 5.1 million square feet of building space and 1,981 acres of land, according to Empire State Development.
The program, established in 2013 at the urging of Gov. Andrew M. Cuomo, allows new or expanding companies with ties to participating schools to operate without paying most state or local taxes for 10 years.
StartUp NY and its benefits took effect Jan. 1, 2014, with the first tax-free zones approved in March of that year and the first companies admitted into the program two months later.
Seventy-eight colleges and universities are enrolled in StartUp NY, though only 37 of the schools have drawn at least one company to one of their tax-free zones, Whatley said.
In Western New York, UB kept up its pace as the most successful university in the program – as measured by sponsored businesses – throughout 2015 and into this year.
A total of 67 companies have pledged to create 1,859 jobs and invest $50 million in the region through the UB-connected zones, the university reported. Seven other companies that had been approved for the program later left the UB zones. Three schools in the Western region have one company each: Canisius College, Alfred University and Alfred State College.
The first progress report on StartUp NY released one year ago showed the companies had created just 76 jobs and invested just $1.7 million as of Dec. 31, 2014.
StartUp NY officials attributed the low numbers to the growing pains involved in getting the program off the ground, and vowed it would show marked improvement in its second year.
The state agency was required to issue its most recent progress report by April 1, but missed that deadline by 90 days. The report finally was posted online at 4:30 p.m. the Friday before the long Fourth of July weekend.
Asked why the report was released then, Whatley said agency officials needed more time to properly collect data from the many new companies that are participating in StartUp NY. And she said she wanted to make sure she was available to talk to reporters about the report before she stepped down from her post next week, as was previously announced.
“We’re trying to be very transparent here,” she said.
A spokesman for an organization that is critical of many of the state’s incentive programs was skeptical of the reasons given for the timing of the report’s release.
“If there was anything to be proud of, they would not have buried this report late on a Friday. It’s seriously disgraceful,” Doug Kellogg, communications director for Albany-based Reclaim New York, said in an email. “If they are going to make all of us pay a full tax load, but exempt StartUp NY companies in the name of fixing the economy, they owe it to people to explain what’s happening.”
The Bak success story
One company that was drawn to the area by StartUp NY’s promise is Bak USA, a maker of low-cost tablet computers. Founders and Denmark natives JP and Ulla Bak considered starting their company in Detroit, but said the StartUp NY tax breaks convinced them to set up shop in Buffalo.
The company had 49 employees as of last month and promises to hire 267 workers by the end of 2019 for their facility at the East Side’s former Sheehan Memorial Hospital building. Many of the workers who assemble Bak tablets are refugees.
“For them, this tax break really matters,” JP Bak said before the report’s release.
Bak said he doesn’t understand criticism that StartUp NY has moved sluggishly. He said he first met with UB officials in March 2014 and made the decision to come to Buffalo in April. The company received approval from StartUp NY in June 2014 – approval was announced publicly in July – and the first tablet was produced in Buffalo in December 2014.
“Is this a slow start? That is fabulous,” he said.
Liazon is by far the largest company in UB’s StartUp NY zone. It’s different from most program participants because it is a locally based company with an extensive history prior to joining Start Up NY.
Three partners founded the company, which operates private health insurance exchanges on behalf of employers, in 2007. They sold the company to Towers Watson in November 2013, but pledged to stay and grow in Buffalo.
Liazon joined StartUp NY in July 2014, making a major commitment to hire 500 workers and invest $5 million over five years at its offices in the Fairmont Creamery building.
But the income tax benefits don’t apply to people who started working at Liazon before the company entered the program. The company had 170 employees in Buffalo prior to joining StartUp NY and, as of one month ago, had hired 108 employees in Buffalo after joining the program.
CEO Ashok Subramanian said the company has not specifically boosted the salaries of pre-StartUp NY hires to even out the after-tax incomes of employees who are eligible for the program and those who are not.
He said that divide has not been an issue at Liazon, and officials have not heard complaints from envious workers who can’t receive the income tax benefits.
“Honestly, we’ve been brutally transparent about that. And it’s really a dialogue around, sure, there is a potential benefit for a new person who is joining the company, but you’ve had the benefit of being part of building this company,” Subramanian said before the report was released.
Buffalo State lags
SUNY Buffalo State hasn’t brought in any firms since joining StartUp NY two years ago.
“We had close to 100 companies we were talking to at the very beginning,” Michael F. LeVine, the college’s vice president for finance and management, said in an earlier interview. “We were talking to companies too early, before we had the space locked up.”
In fact, the college ended up scrapping its original StartUp NY plan and going through the process of submitting an amended plan of tax-free zones. The new plan didn’t receive approval from Empire State Development until March.
Buffalo State’s initial Start-Up NY zone was on campus, in the “B” wing of Buckham Hall. But the space-challenged college is moving administrative offices from Bishop Hall to Buckham because it needed to free up room in Bishop Hall for a roughly 200-bed dormitory.
“What’s been frustrating is our inability to have space on campus to do this,” LeVine said.
The college worked with Empire State Development and city agencies to identify off-campus space.
Ultimately, the college reached an agreement with the Buffalo Economic Renaissance Corp. to take about 39,000 square feet of office, warehouse and light industrial space at three addresses on River Rock Drive and Rano Street in North Buffalo.
“I think it will make a difference,” he said.