The controversial StartUp NY economic development program that granted lucrative tax breaks to businesses but created relatively few jobs would get a makeover under Gov. Andrew M. Cuomo’s budget proposal.
The revamp is an about-face by the Cuomo administration for a program that it had hoped would become a magnet for early-stage businesses by offering them the potential to operate free of virtually all state taxes – including state income tax for eligible employees – for 10 years.
The revised program would put new eligibility limits on companies, including a requirement that they not be profitable yet, while also backing away from job creation targets that had proven to be difficult to reach under the existing program.
While state officials cautioned from the start that the program would take years to generate a significant number of new jobs simply because many of its participants were just starting out, critics quickly pounced on the initiative as a waste of taxpayer dollars that was falling far short of its job creation promises.
A long-delayed report issued last summer found that the StartUp NY network of tax-free zones had created just 408 jobs during the program's first two years of operation. That was less than 10 percent of the more than 4,100 jobs that its participating companies had promised to bring to the state within five years, although state officials said the program was on track to meet its five-year goals because the firms are expected to grow faster as their businesses become more fully developed.
"StartUp NY lacked the fundamental elements necessary to spark the upstate revitalization its proponents hoped for when it was created," said Kenneth Giradin, an Empire Center for Public Policy analyst who issued a report on Cuomo's plans to transform the initiative into the Excelsior Business Program.
"If nothing else, it's served as a controlled experiment, showing that New York's hostile business climate extends beyond its tax code, and shows that other measures are necessary to make the state more amenable to private-sector growth," he said.
Much of the program's activity was centered in Western New York, especially at sites connected with the University at Buffalo. A total of 67 companies had pledged to create 1,859 jobs and invest $50 million in the region through the UB-connected zones, the university reported in July.
"We remain firmly committed to the model – innovative academia-business partnerships coupled with performance-based, tax-free incentives, which was a brand new concept when it began," said Jason Conwall, an Empire State Development spokesman.
Under Cuomo's proposal, only companies that are less than 5 years old would be eligible for the Excelsior Business Program, compared with the StartUp NY requirement that eligible companies "not be operating or located within the state" when they apply to the program. The current program has no size limits on participating companies. It also allows companies with existing operations in the state to participate in the program if they are establishing new operations that create new jobs.
Cuomo's proposal also requires that eligible businesses not have "generated net income from operations," or profits, in any tax year before its application.
Eligible companies also must have a workforce that has not exceeded 25 people during the 12 months leading up to its application for the program, another key change since several StartUp NY participants had more employees than that when they joined the existing program. Existing participants appear to be grandfathered under the Cuomo proposal.
The Cuomo proposal also scales back the program's job creation requirements. Instead of StartUp NY's mandate that participating companies create jobs within their first year in the program, the Excelsior Business Program would only require eligible companies to create one new job over five years.
The proposal also eliminates the Start-Up NY requirement that eligible businesses not be moving existing jobs into the tax-free zone that already were located in other parts of the state.
"Picking winners through big tax breaks and handouts won't help New York grow," said Doug Kellogg, communications director for Manhattan-based Reclaim New York.