Like a rebellious teenager who gets slapped with an 8 p.m. weekend curfew after ignoring his parents’ requests to be home by a decent hour, the state’s industrial development agencies are in line for some tough love from the Cuomo administration.
Despite growing dismay over the value of tax breaks for car dealerships, doughnut shops and restaurants, IDAs in the Buffalo Niagara region – and across the state – continued to dole out incentives for projects that failed to create new wealth.
And now, Gov. Andrew Cuomo is finally saying enough is enough, tucking a proposal within the state budget that would slash the value of sales tax incentives available for retail projects almost in half. That’s a big deal because most retail projects don’t get property tax breaks. The sales tax incentives typically are the most lucrative part of their handout.
But the governor’s proposal doesn’t stop there. It also imposes tough new rules that would reduce the value of sales tax incentives available for projects to redevelop or bring new uses to dilapidated or long-vacant buildings. It would restrict sales tax incentives for any project that falls outside seven key business categories and force those projects to also meet the tougher eligibility guidelines used for the state’s Excelsior tax credit program.
Developer Rocco Termini, who received about $2 million in sales tax breaks for the Hotel @ the Lafayette project downtown, said the stubborn refusal of IDAs, especially the suburban agencies in the Buffalo Niagara region, to stop backing retail projects is prompting the Cuomo administration to crack down like a frustrated parent.
“If the IDAs would only police themselves, we wouldn’t have this problem,” he said. “Now we have the heavy hand of government policing them, and sometimes, when government gets involved, they use a sledgehammer.”
That’s exactly what Cuomo is doing. Had Cuomo’s proposal been in place, the sales tax break the Hotel Lafayette project received likely would have been slashed by almost $1 million.
If Cuomo gets his way, a lot of nonretail projects that qualified for a tax break equal to the entire amount of their expected sales taxes, such as the Hotel Lafayette renovation and a $6 million plan to convert the largely vacant White Building at 298 Main St. into offices and apartments, would have only been eligible for a break on the 4.75 percent local portion of the sales tax. Projects like those, under Cuomo’s plan, still would have to pay the 4 percent state portion of the sales tax.
“On the one hand, we talk about the state being open for business, but on the other hand, it makes commercial real estate development more difficult,” said Andrew J. Rudnick, the Buffalo Niagara Partnership’s president.
While IDAs sometimes have used the adaptive reuse and redevelopment guidelines as a loophole to give tax breaks to unworthy projects – like a children’s play center in Hamburg and the Pizza Plant restaurant in Amherst – those programs also have aided some very legitimate projects, like the Hotel Lafayette renovation.
Cuomo’s plan would limit state sales tax breaks to projects involving scientific research and development, software development, agriculture and back office operations. It also would allow state sales tax breaks for projects involving distribution centers, financial services data centers and manufacturing.
It would require the local regional economic development councils to sign off on projects getting state sales tax breaks. And it would make developers wait to get their money, requiring them to apply for a rebate, rather than saving on the sales tax when they make a purchase related to the project. And to get the rebate, the developer would have to certify that the promised job and investment targets were met.
“This could have an impact on some of the major projects happening in the urban core,” said John Cappellino, the executive director of the Erie County IDA, which has been restrained in giving incentives to retail projects.
“The rules you have to follow to give away state money would be significantly stricter than the rules you’d have to give away county money,” said Assemblyman Sean Ryan, D-Buffalo, an IDA critic who has been pushing his own legislation to rein in the local suburban IDAs.
“The next logical step is my bill, which says IDAs can’t give away county money without county approval,” Ryan said.
So the ridiculous tax breaks for the likes of Paula’s Doughnuts, Prime Wines and Northtown Lexus jeopardize legitimate aid for projects, like the White Building.
Call it the high cost of being stubborn.