By Michael Bartlett
Gov. Andrew M. Cuomo recently submitted a provision in his executive budget to “reform” industrial development agencies. The proposal would dramatically restrict the ability of local IDAs to exempt the state’s portion of the sales tax in any incentive package. The practical consequences of this provision will set back economic development in every village, town and city in New York.
The provision states that only projects that meet the criteria of the state’s Excelsior Program would qualify for sales tax abatement. There are just seven categories of this program, including manufacturing, agriculture, financial services, scientific R&D, software development, back office and distribution centers. In addition to restricting the benefit to these categories, the proposal also requires the creation of “net new jobs,” which can be as high as 150.
For New York City, this proposal would have minimal impact. But in upstate New York and especially in Western New York, this “reform” amounts to a job killer. Here’s why.
Economic development projects in rural areas are not likely to meet the job creation numbers. In addition, many economic development projects in rural areas revolve around tourism activities – a sector not even eligible under this proposal. Small business and small technology business, which make up a large share of economic development in Western New York, are ineligible under this proposal. Commercial development, adaptive reuse and mixed-use development, so critical to city and suburbs alike, would be ineligible for this valuable incentive. Some of Buffalo’s most dynamic renewal projects, like the Hotel @ the Lafayette, might never have happened if this policy were in place.
The proposal sets up bureaucratic delays that could be both lengthy and fatal to a project. Qualifying projects would not receive sales tax abatement as a “front end” benefit but would receive it as a future tax rebate. As an up-front benefit, sales tax abatement can be used as developer equity in arranging private financing. As a future rebate, it cannot.
Lastly, the proposal flies in the face of one of the governor’s own initiatives. Cuomo established Regional Development Councils to custom design economic development plans for their regions. Most of those plans have identified sectors and projects that would be excluded from using the sales tax incentive as a tool. The plan for our region identified tourism, binational logistics and redevelopment of urban and suburban main streets and commercial districts as top priorities, all of which would not qualify for incentives.
So, now we’re faced with a policy that on one hand encourages a customized regional approach to economic development and on the other offers a restrictive “one size fits all” tool box to implement those plans. A bit disjointed, I would say.
Michael Bartlett is executive director of the Hamburg Industrial Development Agency.