Companies that get tax breaks by promising to keep jobs in Erie County, but then fall short of its pledge – but only temporarily – are getting some extra wiggle room before they potentially face the loss of those incentives.
The Erie County Industrial Development Agency on Wednesday approved a change to its policy for clawing back tax breaks from companies that don't meet their job retention promises. The change gives companies temporary relief from clawbacks if their workforce falls below promised levels because of employee turnover and other short-term job fluctuations.
The change, however, does not apply to companies that fall short of their job retention targets because of permanent changes in their workforce, resulting from job cuts, employee buyouts or other long-term moves to reduce payroll expenses.
Instead, the change is intended to give companies more flexibility if their workforce dips below the targeted level because some employees leave their jobs, possibly because of retirements or better job offers elsewhere. While those departures may cause a company's job count to drop below its required level, the policy change doesn't immediately trigger an IDA review as long as the company believes the shortfall is temporary and that it intends to replace those workers quickly.
"I think it's smart. It reflects the situation that we're in," said Dottie Gallagher, president of the Buffalo Niagara Partnership and an IDA board member. "We have a really tight labor market and there are a lot of jobs that are taking a lot longer for companies to fill than they expected."
But if the shortfall persists, the IDA still could launch a more formal review that potentially could lead to the loss of tax incentives that the company already has received or is slated to receive in the future, said John Cappellino, the IDA's executive vice president.
The change applies only to companies that received tax breaks from the IDA for projects that were not expected to create new jobs, only to retain existing positions.
The IDA's clawback policy had required companies receiving subsidies for "retention projects" to maintain all of the jobs that were in place at the time the incentives were granted. Falling below that level made the company subject to an IDA review that could lead to the loss of future subsidies and a requirement that the business repay any tax breaks it already received.
But IDA officials said some companies had been running afoul of the job retention requirement because of temporary factors. While companies are required to file reports on their employment levels each quarter, the loss of even one worker just before the filing deadline could trigger a shortfall. And with unemployment at just 4.3 percent, the tight labor market is making it harder for companies to quickly fill open positions.
The policy change allows companies with fewer than 150 employees to temporarily fall as much as 10 percent below their job retention target before triggering an IDA review. Larger companies, with more than 150 employees, could fall 5 percent below the target.
"We really needed to be more cognizant of the business cycle and the tight labor market," said Brenda McDuffie, the IDA's chairwoman.
Those companies, however, still are required to retain all of their promised jobs in the long run, even with the change in policy.
"When you do permanent layoffs, you're subject to recapture," said Steven Weathers, the IDA's president and CEO.
The policy change also does not alter the IDA's approach to clawbacks for companies that do not meet their job creation projects. With those projects, a company is required to maintain 85 percent of the new jobs it promised to create, while also maintaining 100 percent of its existing jobs at the time it received the incentives.