Now more than ever, business owners have to pick their spots carefully if they’re on the hunt for tax breaks.
Amherst is looking better than ever these days. So are Lancaster and Clarence. Hamburg has new appeal, and so does the Town of Concord.
On the other hand, some of the shine is off Buffalo and Boston. The same holds true with Cheektowaga and all of the Tonawandas. Orchard Park and West Seneca too.
That’s because it’s suddenly a lot riskier for companies that accept handouts from the Erie County Industrial Development Agency and then fail to live up to their promises for creating new jobs or investing in their facilities. If they fall short, those companies risk having to pay back a big portion of the property taxes, sales taxes and mortgage taxes that they dodged by hooking up with the IDA.
For big projects, that means millions of dollars.
But not in towns that have their own IDAs. Businesses that break their job and investment promises there are on the hook only for a little less than half of the sales tax break they received. That typically is just a small part of their overall incentive package.
It’s yet another bad situation created by Erie County’s fractured network of IDAs. This time, it puts the communities served by the Erie County IDA at a distinct disadvantage because the agency – wisely, I think – adopted a tough policy that allows it to claw back much of the tax breaks granted to companies that deliver much less than they promised.
In comparison, the suburban IDAs – and most other IDAs in the state – don’t share the Erie County IDA’s vigilance in protecting taxpayer money. They prefer to follow the letter of the state law that took effect last year and focus their required claw-back provisions only on the state’s 4 percent portion of the sales tax.
The state law doesn’t require the claw-backs to cover property and mortgage taxes – or even the 4.75 percent portion of the sales tax that goes to Erie County and local governments – and most IDAs aren’t putting those incentives at risk for companies that break their promises.
“I don’t know what the answer is,” said Dottie Gallagher-Cohen, president of the Buffalo Niagara Partnership and a member of the Erie County IDA board. “We have so many IDAs, it’s a little bit like hugging Jell-O.”
Gallagher-Cohen thinks the Erie County IDA’s policy is a good one. “But ultimately, it’s not going to be successful unless it’s universally applied,” she said. “It needs to be consistent.”
The trouble is, the suburban IDAs generally disagree. They think the Erie County IDA went too far in extending the claw-backs to include property and mortgage tax breaks. They think the way the policy is worded is too harsh. And they think the Erie County IDA is taking too much of a “my way or the highway” approach.
“Please don’t pit this as the suburban IDAs against the Erie County IDA,” said James J. Allen, the Amherst IDA’s executive director. “It’s the county versus the rest of the state at the moment.”
The Amherst IDA, for instance, suggested a policy that would consider a company as having fulfilled its obligations as long as it completed its construction and met its employment target for at least a year.
The Erie County IDA policy, on the other hand, would allow claw-backs even if a company initially met its job and investment promises but then fell below those targets later on. Only the benefits received during years when the company fell below 85 percent of its job and investment targets would be at risk of being clawed back, and even then, the Erie County IDA’s board would have broad discretion to not proceed with recapturing tax breaks if they believe the shortfall was the result of unavoidable factors, such as a recession or a downturn in a particular market.
“We’re just holding them accountable,” said Erie County Executive Mark Poloncarz, an Erie County IDA board member. “What we’re saying is that if we’re going to provide you with these benefits, then we expect you to hold up your side of the bargain.”
Yet with each side accusing the other of not wanting to compromise, it underscores the growing divide between the suburban IDAs and the Erie County IDA.
Consider the ill-advised tax breaks that the Amherst IDA granted last month to personal injury attorney William Mattar. The Erie County IDA never would have considered the project because it won’t provide tax breaks to professional services firms, like lawyer offices. The Amherst IDA embraced the project, which is said would bring new jobs to the community by helping Mattar create a new veteran’s advocacy practice.
And now, there’s another difference: Mattar is only at risk of claw-backs on a little less than 20 percent of his tax breaks – about $105,000 – under the current state law. But if the Erie County IDA had granted the tax breaks under its new policy, Mattar would have been subject to claw-backs on the bulk of the $550,000 in incentives he received, if the project only created 17 jobs, instead of the 20 he promised or if he invested less than $3.4 million of the $4 million initially earmarked for the expansion.
Would that be enough to drive projects to the more lenient suburban IDAs and away from the communities covered by the Erie County IDA?
Maybe, although officials on both sides of the issue note that the broad discretion that IDA boards have in deciding whether to actually proceed with claw-backs means that offending firms are likely to face penalties only in the most extreme violations, such as deliberate deception. Companies that say their shortfall was due to a bad economy or a lost contract are likely to get a pass on the claw-backs because yanking their tax breaks when business is down would put the jobs there at even greater risk.
“It’s indicative of the approach to development that the Erie County IDA is taking right now, and that’s to discourage development rather than to encourage development,” Allen said. “By Erie County going beyond the state law, I think we put ourselves at a competitive disadvantage relative to other parts of the state.”
Allen isn’t alone. Grand Island Supervisor Mary Cooke described the ECIDA policy as “heavy handed” and “foreboding” for businesses that want to invest in Erie County. And she sees no need to go beyond the state mandate to recapture the state portion of the sales tax incentive.
“We should not be piling on more regulations and what is construed as not a business-friendly policy on companies,” she said. “We have enough of that in New York State already.”
Lancaster Supervisor Dino J. Fudoli said the Amherst IDA’s proposed 1½-page recapture policy is “far and away superior” to the 4½-page one adopted by the ECIDA. Fudoli, who also is the Lancaster IDA’s chairman, said the Amherst proposal is less cumbersome and a much simpler way to deal with companies that fall short of their job and investment targets.
Garry Eppolito, the Town of Concord Supervisor, worried that the ECIDA policy would scare potential development away. “There comes a point where an IDA project just isn’t worth the effort,” said Eppolito, who also is chairman of the town’s IDA. “We have to keep in mind that we compete with areas of the country where the business climate is much better than ours.”
With scant hope that the six IDAs would be able to find common ground, the Erie County IDA decided to strike out on its own.
“We’re sort of on the forefront of this,” Poloncarz said. “If we wait for the other, smaller IDAs to act, we’re going to be sitting here for a long time.”
Assemblyman Sean Ryan, D-Buffalo, thinks the Erie County IDA was right to push ahead on its own.
“The outliers know they’re being watched. It’s harder and harder for them to do their bad deals,” he said. “I hope they recognize that these are sane economic development policies and that they come on board.”