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State comptroller issues critical audit of Excelsior Jobs tax credit program

The agency that runs the state’s Excelsior Jobs tax credit program often failed to check on companies’ eligibility before they joined the program and did not follow up on whether the companies had met their investment and job creation goals before awarding them tax credits, the state Comptroller’s Office found in a critical audit, the results of which were released Thursday.

Auditors said their review of the program found Empire State Development was lax in seeking documentation from the companies to which it promised millions of dollars in tax incentives. And the Comptroller’s Office said the agency was uncooperative in responding to questions as auditors delved into the program’s operations.

The auditors looked at 25 companies, including five in Western New York that were promised at least $13.6 million in tax credits starting in 2010.

“I think they need to improve their oversight of the program, and I think that we provided some constructive recommendations for them to actually follow to do that,” Tina Kim, the deputy comptroller, said in an interview Thursday.

Empire State Development officials said the Comptroller’s Office misunderstands how the Excelsior Jobs Program works. The agency also defended its responsiveness to auditors’ requests for information and its overall management of the program.

The agency said it “has implemented numerous statutory and programmatic safeguards to ensure that state taxpayer dollars are spent appropriately,” according to a response included in the audit report.

The Excelsior Jobs program was established in 2010 to offer refundable tax credits, over 10 years, to companies in targeted industries. Companies must demonstrate their eligibility, and the tax credits can be withdrawn if companies don’t meet annual job growth or capital investment targets.

The Comptroller’s Office began auditing the Excelsior Jobs Program last year, taking a sample of 25 companies for which, as of June 2015, Empire State Development had authorized tax credits 39 times totaling $4.84 million.

About $170 million of the funding for the Buffalo Billion economic-incentive program comes in the form of Excelsior Jobs Program tax credits. But Mark Johnson, a spokesman for the Comptroller’s Office, said the office couldn’t determine whether the tax credits for the five Buffalo-area projects were from the Buffalo Billion pot of funding.

The five projects are:

•$5.7 million in Excelsior Jobs tax credits to support First Niagara Financial Group’s planned hiring of 500 employees in upstate New York in 2011. At the time, bank officials said at least 300-400 of the jobs would be based in the Buffalo Niagara region.

Empire State Development didn’t provide auditors with corroborating documents to show that First Niagara met its job growth targets in 2012 and 2013 or its investment target in 2012, for which the bank received $1.4 million in tax credits, according to the Comptroller’s Office report.

Auditors also said an analysis of First Niagara payroll records found between 33 and 40 of the bank’s reported new hires in 2012 and 2013 worked part-time, not full-time, and should not have counted toward the job growth target. However, the auditors said the bank’s hiring was sufficient to meet the job growth goal even with the apparent part-time workers.

•$4.5 million promised in 2012 to Muller Quaker Dairy, a joint venture between Pepsi and a Luxembourg company, that opened a $206 million yogurt production plant in Batavia. The Comptroller’s Office again said Empire State Development did not provide documentation for the company meeting its job growth target in 2013.

Further, auditors found, the agency acted in 2014 to retroactively lower the job creation target for the previous year from 186 to 127 so Muller Quaker could remain eligible to receive $248,000 in tax credits. Empire State Development authorized $309,000 in tax credits for 2014. By the end of 2015, Muller Quaker Dairy announced it was closing down operations in Batavia, after earning $3 million in total incentives from all levels of government and laying off 170 workers.

“Had ESD held the company to its commitments in 2013, it would have saved taxpayers at least $247,000 and possibly more for 2014,” the Comptroller’s Office wrote.

•$2.25 million in 2012 to the $10.6 million FedEx office and distribution center in the Town of Tonawanda, which promised to create 80 jobs. The Comptroller’s Office said Empire State Development didn’t provide evidence the company met all of the eligibility requirements before it was officially admitted into the program and didn’t provide corroborating documents to support the $67,473 tax credit issued in 2013.

•$515,900 in tax credits promised in 2010 to Edwards Vacuum. The office raised the same concerns about documenting eligibility and the meeting of tax credit targets of Edwards Vacuum, which received an installment of $103,180 in tax credits in 2013. Further information on the project wasn’t immediately available, but in 2010, the company did reveal plans to consolidate its operations at a new, $6.9 million plant in Wheatfield.

•$633,200 in tax credits in late 2012 for Jiffy-Tite Co., the Lancaster auto parts manufacturer. The audit similarly found Empire State Development did not provide evidence that Jiffy-Tite met all of the eligibility requirements before being admitted into the program or met its job growth and investment targets for the $18,407 tax credit it received in 2013.

The Comptroller’s Office said Jiffy-Tite had a sister company, which it did not name, located near its main facility but auditors could not determine – and Empire State Development did not verify – whether Jiffy-Tite shifted any of the 25 reported new jobs between the two companies in 2013 because auditors did not have access to the sister company’s records.

Empire State Development needs to improve the rigor of its record-keeping, ensure all calculations are correct before authorizing future annual tax credits and allow more transparency into the operations of the program, according to the audit report.

“The program needs to be fixed,” Johnson said.

The agency responded forcefully to the Comptroller’s audit, denying the report’s premise that its employees were unhelpful in fielding requests for information from auditors and defending its oversight of the program.

Jason Conwall, an Empire State Development spokesman, said by email that the Comptroller’s one-year examination of the Excelsior Jobs Program produced a “flawed and inaccurate” report because auditors purposely ignored key facts.

He said the program is performance-based and companies must prove they have met their goals before they receive any tax credits.

Conwall said to date, the program has admitted 434 businesses that have committed to create more than 44,445 new jobs, retain nearly 158,000 existing jobs and invest $4.2 billion.

“To be clear: Auditors did not find a single instance where incentives were improperly provided. They also apparently ignored the success of this program,” he said.