Erie County Executive Mark C. Poloncarz is pushing the Erie County Industrial Development Agency to adopt tougher standards for granting tax breaks for development projects, including the addition of a key test that would assess whether a project would proceed even without taxpayer subsidies.
Poloncarz’s call for including a “but-for” test within the IDA’s eligibility guidelines would make it significantly more difficult for companies to obtain tax breaks through the agency. It also could place the agency at odds with the five other suburban IDAs in Erie County, none of which have been considering the adoption of a more rigorous standard.
Poloncarz, who proposed the establishment of the new litmus test in his Initiatives for a Smart Economy program being released today, said the more stringent standard would limit the use of tax breaks to targeted projects where the incentives would play an essential role in persuading a company or developer to carry out a project in Erie County.
It also would force IDA board members to make a subjective judgment on projects, by asking whether a particular development would take place even without tax breaks being provided. The eligibility guidelines currently followed by the Erie County IDA and the five suburban agencies are much less subjective, based largely on the type of industry and the level of investment and job creation that would come with it.
The “but-for” concept is fairly simple: If a project otherwise meets the IDA’s eligibility guidelines, its board members would be required to ask themselves whether they believe the project would still happen if the developer didn’t receive any tax breaks. If a majority believes that the answer is yes, then the project would not receive any incentives. If the answer is no, then it would be eligible for tax breaks.
Poloncarz said the “but-for” test would apply to all projects that come before the Erie County IDA but would be focused primarily on developments that do not involve manufacturing.
Adding such a test to IDA eligibility guidelines has been discussed before, especially during the tenure of then-County Executive Joel A. Giambra, but it never gained enough support to be adopted by the Erie County IDA, let alone the suburban agencies, which have been more aggressive in granting tax breaks.
Poloncarz also is pushing for changes in the adaptive-reuse policies that all of the county’s IDAs follow for projects that bring new investment to empty or underused buildings.
Those adaptive-reuse projects, often located along Main Streets or in commercial districts that have been targeted for redevelopment, have been controversial because many have involved retail businesses such as stores, car dealerships or medical offices that are not widely viewed as creating new wealth in a community because they mainly serve a local clientele.
Under a state law that took effect in March, projects that devote more than a third of their space to retail use are no longer eligible for IDA tax breaks, unless they are part of a destination tourism project or would provide goods or services that otherwise would not be available locally.
But some IDAs have been testing the limits of the new rules. The Genesee County Economic Development Center drew criticism last month when it approved tax breaks for a Dick’s Sporting Goods store in Batavia, arguing that it fell within the exemption for goods and services that are not readily available.
“We want to create new net wealth for the community,” Poloncarz said. “We don’t want to shuffle the pieces on the chessboard.”
Deputy County Executive Richard M. Tobe is the chairman of the countywide IDA policy committee, which includes Amherst IDA Executive Director James J. Allen as a representative of the suburban agencies.
Poloncarz said a culture has developed among developers and business officials that every development project in Erie County is entitled to tax incentives. That belief, he said, and the accompanying tax breaks granted to those businesses distort the free market and weaken the county’s tax base.
“Not every project should receive taxpayer support,” Poloncarz said in the report.
Poloncarz also is proposing that the Erie County IDA re-establish a venture capital fund of $7 million to $10 million to provide financing for early stage companies that have high growth potential. Poloncarz said the revived Niagara Region Ventures Fund could provide investments that average as much as $300,000 to fledgling companies, often as part of a broader fundraising initiative that involves other venture capital firms, “angel” investors, the state’s new Launch NY investment fund or other private funding sources.