A top state official signaled this week that Gov. Andrew M. Cuomo may be willing to make changes in his proposal to limit state sales tax breaks available through industrial development agencies in the wake of criticism that the changes could put a damper on revitalization projects in places like downtown Buffalo.
Lt. Gov. Robert Duffy said the Cuomo administration is open to considering changes in his IDA reform proposal “that would not knock out projects” that would be aimed at revitalizing distressed areas.
“Clearly there are some unintended consequences that could take place,” Duffy said.
“There need to be reforms. Reforms are critical,” he said. “But there may be areas that you don’t want to miss out on.”
The Cuomo plan, tucked within his state budget proposal, would cut in half the value of sales tax incentives that industrial development agencies could hand out to often-controversial retail projects, from doughnut shops and wine stores to car dealerships and restaurants, which critics say serve only a local clientele and generate little new wealth within the region.
The proposal would limit the ability of IDAs to provide tax incentives that include the state’s 4 percent share of the sales tax. IDAs still could grant incentives involving the local portion of the sales tax, which in Erie County is 4.75 percent.
But the Cuomo proposal also would reduce the incentives available for other, less controversial projects to renovate vacant buildings, especially in struggling areas such as downtown Buffalo, by limiting the sales tax break to seven “key” business categories. It would prevent the agencies from extending that incentive to retailers or “adaptive reuse” projects that would bring new uses to buildings that have been vacant for several years.
Critics, however, have pointed out that sales tax breaks also have been part of incentive packages that have led to the renovation of several prominent downtown buildings, including the Hotel @ the Lafayette, which received $2 million in sales tax subsidies. Had the Cuomo plan been in place at the time, the value of those subsidies would have been reduced by nearly $1 million.
“It goes against some of the things we’ve been working toward,” said Andrew Rudnick, president of the Buffalo Niagara Partnership.
The proposal would not affect the ability of IDAs to grant property tax breaks, which typically are the most lucrative part of an IDA incentive package. Yet because retail projects typically do not qualify for property tax breaks, the sales tax incentive often is the most lucrative portion of the incentive package available to those often-controversial projects.
Duffy said the Cuomo proposal, which would raise an estimated $7 million in revenue for the state during the upcoming budget year and $13 million annually after that, is aimed at curtailing the use of state funds for projects that yield little economic benefit.
“Everybody wants to make sure that every dollar that gets spent has its maximum return,” he said. “There is a need for IDA reform.”