Testimony to New York City Council Economic Development Committee on the Empire Zone Program
BCNYS president and CEO
Nov. 24, 2009
We appreciate this opportunity to talk with you about the New York State and New York City economies, and more specifically about the need for effective economic development programs and the future of the Empire Zones program.
The Business Council is New York’s largest statewide employer organization, representing 3,000 businesses in all sectors and in all parts of the state.
Today, I will provide you with an overview of our economic development priorities, as well as specific recommendations for new and revised incentive programs for the State to consider in the 2010 legislative session.
Given current economic conditions, and the expiration of both the Empire Zone and Power for Jobs programs next year, it is essential that we make timely decisions on our economic development priorities and the means to achieve them.
And while we recognize that the majority of the actions and proposals we are about to share with you are actually within the purview of the state legislature rather than the NYC Council, as you have so appropriately demonstrated through your scheduling of this oversight hearing, the Empire Zone program has impacts across New York and is very much a New York City issue as well.
So, in terms of the overall big picture, is there any doubt that New York State’s economic climate is becoming non-competitive?
A few quick facts:
Over a ten year period, 1997 to 2007, the state’s job growth was 34th among states, and about 40 percent below the national job growth rate.
Interestingly, the state’s climate for new facilities was relatively good over this same period. In 2005, “Site Selection” magazine found that New York was 4th among states in new and expanded corporate facilities. We were 6th in 2008, but have fallen to 16th in 2009.
What do these seemingly inconsistent data tell us? We think they show that:
Despite our overall uncompetitive economic climate, before the recession the state had done reasonably well in attracting new investments. We believe that this points directly to the impact of the Empire Zones program and other state incentive efforts.
We believe that the most effective economic development strategy for New York State is to create a more competitive business climate.
New York needs to reduce its business tax burden, especially real property taxes, reduce energy costs and bring the cost of employer-provided health care under control.
We need to make the hard choices to reign in spending at both the state and local government levels.
No new taxes, a state spending cap, and a cap on real property tax growth would be invaluable first steps in positioning New York for an economic recovery.
However, real progress toward restoring our business climate will take time. In the meantime, given the significant, on-going competition we face from other states and nations, we believe that New York State also needs to continue to offer economic incentive programs.
Let’s face it: we desperately need more jobs in New York State. With unemployment at 10.2% nationally, over 10% here in NYC, and with at least 850,000 New Yorkers out of work across the state, we have to do everything we can to encourage private sector job growth, including realigning and strengthening economic development programs such as the EZ program.
The Empire Zone program has been the basis for some of the largest capital investments in New York State in recent years. In many cases, its significant tax credits were essential; by offsetting uncompetitive high business costs in New York - particularly real property taxes – they provided a business cost framework that encouraged significant new in-state investments.
Because of its significant incentives, the Empire Zones program had become the state’s de facto principal economic development tool.
As such, it has been amended, extended and administered to address a wide range of development objectives beyond its initial focus on redevelopment of distressed areas.
By now most of the program’s initial “loopholes” have been closed. We believe that this “mission creep” was the basis for much of the recent criticism of the Empire Zone program.
We agree that the state needs to re-think its economic development efforts. We need to assure that development incentives are focused on strategic development objectives, and that incentive programs are economically efficient.
Going forward, the state should consider multiple programs, each designed to address specific development objectives.
Based on input from Business Council members, we believe these objectives and incentives should include:
- Major Investment/Retention Projects - The state needs to have a flagship economic development program that focuses on major reinvestment in existing business to help retain valuable employers and high paying jobs, and to promote major new investments in New York State. An effective program could be based on the incentive structure currently provided under the Empire Zones program, but with eligibility based on targeted industries, rather than geographic location; and with modified incentives that provide more up front benefits. This new “Empire” program would:
- Target businesses in strategic, high wage sectors, including manufacturing, financial services, life sciences, and clean tech and projects with significant regional impact.
- Provide an enhanced and fully refundable investment tax credit of 12 percent for tangible property investments and 15 percent for R&D activities.
- Provide a real property tax credit based on the increased assessed value of property due to new investment; this credit should be refundable for all eligible business, with equal treatment for RPT payments and for PILOT payments. Eligibility criteria for this credit would include significant capital investment and job retention; job creation; value of jobs based on wages and benefits.
- Technology/Innovation - The state needs to support emerging technology sectors, with support for business growth, R&D, and commercialization of new products. The Business Council will be issuing a comprehensive “innovation” incentive proposal next month. Our recommendations will include:
- Expansion and extension of the Qualified Emerging Technology Company credit by increasing the company income-based eligibility threshold to $40 million, and by increasing the credit for tangible property investments from 18 to 30 percent, and by increasing the credit for other research investments from 8 to 15 percent.
- Adopt credits for pharmacological, cellulosic ethanol production, alternative energy storage and distribution, and deployment of commercial alternative energy.
- Adoption of a sales tax exemption for academic incubators.
- Urban/Distressed Areas – A separate program targeting reinvestment in distressed urban areas should be adopted. Components could include:
- Improved implementation of the state’s Brownfield cleanup and incentive programs, including an expedited application, project review and approval process by the Department of Economic Development; extended eligibility to include state superfund and RCRA sites; elimination of the tangible property credit cap for manufacturers and high-tech firms.
- An enhanced job/wage incentive for job creation in distressed communities, with baseline grants of up to 80 percent of personal income tax withholdings related to increased employment, with grants up to 10 years’ duration.
- Allow transferability of the New York State Historic Rehabilitation Tax Credits for distressed communities, allowing them to be purchased by investors or allocated to investors separate from the federal credit.
At the same time as we can hopefully work toward some of these innovative and thoughtful economic development program updates and reforms, we must also focus on two other key programs that will be considered by the State Legislature in 2010 and which will have significant, long-lasting impacts in New York City:
- Economic development power – The Business Council supports a long term replacement program for the Power for Jobs and Economic Development power programs that provide long-term contracts with allocation-based incentives, and that redeploys “rural and domestic” power for economic development power purposes.
- And finally, Industrial Development Agencies – As you may be aware, NYC leads New York State in IDA financing by a large margin, so this issue is of critical importance to the five boroughs. The state should re-establish the authority for IDAs to finance “civic facilities.” While we support amendments that increase oversight and transparency of IDA operations, and measures that promote the use of regional workers and resources, we strongly oppose new wage mandates applied to construction, tenants and building operations.
Once again, we appreciate the opportunity to provide you with input on the future of the state’s economic development programs. We look forward to the opportunity to discuss these issues with you and your staff.