Gov. Andrew M. Cuomo’s proposal to create “tax-free” zones to encourage businesses on and near the state’s public colleges and universities is sparking some interest, as well as skepticism, among entrepreneurs, investors and development experts.
Although the governor’s proposal still lacks many details as he negotiates with legislative leaders, experts say his promise not to collect state income taxes on employees who join the new or expanded businesses could help startup companies attract talent.
“That’s something that is immediate,” said Jack McGowan, director of the Western New York Venture Association and project manager at Insyte Consulting. “That could be meaningful.”
Some observers say the governor’s announcement of “Tax-Free NY,” though vague, sends a message that the state is trying to shed its high-tax reputation.
But others say the property and corporate tax breaks in the proposal don’t address the most fundamental problem facing local innovators who want to build a company – raising enough money – as well as the struggle to find the right executives and mentors.
“All those are needs that still are going to have to be addressed,” said Paul S. Pfeiffer, director of investor and public relations for Buffalo Niagara Enterprise, who nonetheless called the announcement a “bold initiative.”
Cuomo unveiled his proposal in broad terms Wednesday during a visit to the University at Buffalo’s North Campus in Amherst and at two other stops in upstate New York.
“New York is a high-tax state,” Cuomo told The Buffalo News Editorial Board following his appearance at UB. “Let’s just shatter the myth and shatter the perception by actually changing the reality.”
Under the proposal, startup companies, out-of-state firms or area businesses that agree to expand would be eligible to pay no sales, property, business or corporate taxes – for up to 10 years – if they open up a facility on or near a college campus.
Employees of the companies could avoid paying state income tax for up to a decade. State University of New York, some City University of New York and some private colleges are eligible for the program, though the companies must be connected to the colleges in some way.
“This is a creative way for us to use our university centers as a way for growing our economy,” said Colleen C. DiPirro, president of the Amherst Chamber of Commerce.
“It can’t be a bad thing,” said Andrew J. Rudnick, president of the Buffalo Niagara Partnership.
Rudnick said the creation of the tax-free zones will increase the importance of future state funding for the SUNY system. “To some extent, it means the state and the citizens need to be supporting SUNY,” he said.
Few details were released, and officials from the Citizens Budget Commission said they couldn’t comment on the proposal until they receive more information.
The governor, in the meeting at The News, said he did not know when the program would kick in because talks are under way at the State Capitol. He insisted that the program would not have a revenue impact on the state – even though Albany would be giving lucrative tax breaks to companies – because the state wasn’t previously counting on the new jobs without the program.
This would be a break from other programs of tax breaks, such as the expiring Empire Zone or local industrial development funding, where such incentives are built into a fiscal plan.
Cuomo administration officials and the Governor’s Office offered a few more details Thursday.
For instance, workers of a company getting the benefit would not have to pay any state income taxes for five years; and for the second five years, there would be no tax paid on the first $200,000 of income. Certain companies can’t get the breaks, such as law and real estate firms and retail outlets, but the full list was not available.
A company relocating jobs from another part of the state, say from Westchester County to the UB South Campus, would not be eligible, since only “net new jobs” would qualify. An existing company on campus expanding jobs could qualify for the breaks, but the new employees would have to be in a new corporation or subsidiary.
Cuomo spokesman Richard Azzopardi told The News that the “tax-free” zone is limited to a one-mile radius surrounding each campus.
The governor still must flesh out his proposal, and the State Legislature must approve the program, but the general initiative drew a range of reactions from the business and development communities Thursday.
“It may stanch the brain drain,” said Assemblyman Robin L. Schimminger, D-Kenmore, chairman of the Assembly Economic Development Committee.
The most supportive officials say the plan could change attitudes about New York in the business community.
“I think it does hold a great deal of promise,” said Buffalo Niagara Enterprise’s Pfeiffer, especially in the intense competition among regions across the country to bring in high-tech businesses.
The state income tax provision is intriguing to McGowan, who thinks that it could help attract prospective employees – particularly those who now work in high-tax states.
But the tax-exemption provisions don’t tackle the larger problem for startups of finding venture capital firms willing to invest in their ideas.
Founders and investors don’t tend to worry about taxes because startups typically lose money early on – meaning they don’t pay much if anything in corporate taxes – and venture capitalists who put money into a new company usually cash out within three to five years, well before the 10 years would be up.
But David J. Colligan said this program, combined with the Launch New York business competition, could make this area more attractive to out-of-town entrepreneurs and help ensure that locally developed technology ends up generating local jobs.
“If you set a lofty goal, you have to take a couple of different approaches to meet it,” said Colligan, one of three directors of Launch New York and a board member of the area venture association. “Once they’re here, you’ve got to keep them here. This helps keep them here.”
The recipients of the Launch New York awards must agree to stay in Western or Central New York for at least a year.
James J. Allen, executive director of the Amherst Industrial Development Agency, wants to know more about which companies are eligible. He also wonders whether a company such as ATTO Technology – which was launched in a UB business incubator but now is in the CrossPoint Business Park – could benefit from the program.
“I think that’s going to be an issue that has to be resolved. I’ve already heard about that from a couple of companies,” he said.
But at least one entrepreneur thinks the program has a lot of potential as a way to leverage the ideas produced in labs and classrooms on the area’s college campuses.
Eric S. Reich, a UB graduate who co-founded Campus Labs with Michael J. Weisman in 2001, sold the higher-education data-analysis company to Higher One Holdings last year for more than $40 million.
Reich remains with the firm, which has about 75 employees in downtown Buffalo, as a senior vice president. He recalled the difficulty the founders initially had in lining up investments and finding qualified employees.
If the program had existed a decade ago, Reich said, “I think it would have been much easier, and I can almost certainly say we would have taken advantage of it.”
News Albany Bureau Chief Tom Precious and News Business Reporter David Robinson contributed to this report. email: firstname.lastname@example.org