In its first two years, only about half of the available Excelsior credits have been awarded to business. Unfortunately, Excelsior tax credit capacity that is unallocated or unused in a given tax year is lost forever to the program. So far, an estimated $75 million in Excelsior economic development capacity has permanently evaporated. Because of its high job and investment targets, a large percentage of businesses interested in growing and investing in New York are precluded from applying for Excelsior support. The Business Council believes the state can do more to support economic growth, particularly in upstate, and particularly among new and small businesses, by assuring more complete use of already-designated Excelsior resources.
The Excelsior program has showed initial successes, with about 130 businesses committing to nearly $2 billion in capital and research expenditures and creation of nearly 14,000 new jobs, with the potential to earn $184 million in current and future tax credits. It has been an efficient program as well, with Excelsior program participants awarded about 40 percent of the maximum credits for which they are eligible.
The Business Council believes that Excelsior can produce greater overall economic benefits for New York by expanding eligibility requirements within targeted industry sectors, and increasing the maximum value of some of its tax credits. This approach provides ESDC with more flexibility in supporting economic development projects, while retaining full discretion in awarding Excelsior credits and determining the level of credits available for any particular project. Further, the program would maintain its existing credit caps, meaning that these reforms would not impact the state's financial plan, The program would continue to apply its overall cost-benefit tests, assuring significant payback to the state's taxpayers.
Our specific recommendations include:
- To maintain the state's commitment to support statewide economic development efforts, the existing caps on Excelsior program tax credits can be retained, but they should be amended to allow unallocated tax credits to be carried forward to subsequent tax years. The Excelsior program has been described as a grants program administered through the tax code, with annual appropriations and spending limits. However, most grants and development funding programs have carry forward provisions, with resources subject to reappropriations. We are recommending the same approach be applied to Excelsior.
- To make the program accessible to smaller, growing businesses, we recommend reducing the net new job creation thresholds for each of the seven targeted industry sectors by at least half, as indicated below. This change will allow ESDC the ability to support growth among smaller employers that can be a major force in regional economic growth, but are now categorically excluded from Excelsior.
SECTOR CURRENT JOB CREATION REQUIREMENT PROPOSED JOB CREATION REQUIREMENT Manufacturer 25 10 Agribusiness 10 5 Financial service data center/back office 100 50 R&D 10 5 Software development 10 5 Back office 150 50 Distribution 150 75
- Reduce the size threshold for the so-called "investment track" criteria from 50 to 25 employees in general, and 10 for manufacturers. Under this current provision, an employer in the seven specified industry categories not meeting the job growth thresholds can qualify for Excelsior if they already have at least 50 full time employees and demonstrate at least a 10 to 1 benefit/cost ratio (i.e., total remuneration paid for all net new jobs and all capital investments made during the eligibility period, divided by the value of Excelsior tax credits awarded), thereby allowing employers to qualify for support based on new capital investments or reinvestments, crucial for the long-term viability of manufacturing firms. Again, the head count threshold makes the program inaccessible for small business with a significant potential for in-state growth.
- Increase the maximum rate for the refundable Excelsior investment tax credit from 2 percent to 5 percent. The Business Council believes that significant, ongoing capital investment is the best indicator of a business' long term commitment to the state. We believe that Excelsior would be more effective, especially for manufacturing and R&D activities, if it allowed for a greater incentive targeting capital investment.
- Allow for a pro-rated tax credit in a tax year where the business has substantially achieved their job creation and/or capital investment targets. Current law provides that in any tax year that the taxpayer fails to satisfy eligibility criteria (i.e., exceed job, job creation and/or investment targets), they are prohibited from claiming any credit for that year. In many cases, external factors can impair a business' growth plans. We recommend allowing for a pro-rated credit in any year that the taxpayer achieves at least 75 percent of the job creation or capital investment commitment, with the credit based on the percentage of job creation or investment level achieved.
- Adopt a reasonable timetable for ESDC review of Excelsior program applications by business, to avoid project delays and potentially discourage job growth/investment projects. We are recommending that applications be acted upon (meaning accepted or denied, and if accepted, issuance of a preliminary schedule of benefits by year) within forty-five dates of their receipt by ESDC, with this time frame including any required consultation with a regional economic development council.
- Eliminate the statutory mandate that, to qualify for Excelsior tax credits, a taxpayer agrees to be permanently disqualified for remaining Empire Zone tax credits related to any location admitted into the Excelsior program. It is well established legislative policy in New York that a taxpayer cannot claim more than one tax credit for a single action or investment, and that continues to apply under Excelsior. But we see no valid public purpose to eliminate already-earned tax credits for prior, unrelated capital investment or job creation efforts in order to accept state assistance for a new round of investment or growth.
The Business Council believe that these reforms will make Excelsior more effective in bringing new, good paying jobs and increased capital investment to New York State. Importantly, these reforms would not increase the state's existing ten year financial commitment to the Excelsior program, nor would it diminish ESDC's role in determining the appropriate level of incentives to offer for a specific development proposal. The program would maintain its focus on key business sectors, and continue to assure a significant economic return on the state's investments.
For these reasons, we urge the Senate and Assembly to adopt these reforms as part of the final state budget for Fiscal 2014.