GOVERNOR PATERSON’S EXECUTIVE BUDGET FUNDAMENTALLY REFORMS EMPIRE ZONE PROGRAM

Governor David A. Paterson’s Executive Budget fundamentally reforms the Empire Zone program, putting in place rigorous standards to ensure that the State’s investment of tax incentives produces results and spurs economic development.

“This budget fundamentally reforms an Empire Zone program that is simply not getting the job done,” said Governor Paterson. “We will force each company that receives these benefits to pass rigorous standards and prove that they are keeping up their end of the bargain. And if they fail to do so, they will be removed from the program. In a time of unprecedented fiscal difficulty, we cannot waste money on tax breaks for companies that fail to produce results. Just like any business, the State must demand a return on its investment.”

The Empire Zone program provides tax benefits to businesses for a ten-year period in return for creating jobs and investing in New York. In 2008, the Empire State Development Corporation put in place regulations that require all new program participants to demonstrate that they are producing at least $20 in actual investment and wages for every $1 in State tax incentives. Participants certified from 2005 to 2008 had to meet a 15:1 benefit/cost standard, and those certified prior to 2005 did not have to meet any set benefit-cost standard.

The Executive Budget proposal would require all Empire Zone program participants to meet the 20:1 benefit-cost standard. Only those that meet or exceed this standard will remain in the program.

Certain industry sectors such as utilities, retail, and real estate, which are engaged in activities that make them unlikely to relocate outside of the state, would also be excluded from applying for certification in the future. Current program participants from these sectors that meet or exceed the 20:1 standard would be allowed to continue in the program.

Empire Zone spending was previously projected to total $610 million in 2009-10. After these reforms, total tax expenditures for the program will be $338 million, a decline of $272 million in 2009-10. Savings will grow to $310 million when fully annualized. The new Empire Zone program will continue until its sunset date of June 30, 2011.

The Executive Budget recognizes the need to provide resources to invest in job creation, especially in our upstate communities. When fully effective, $100 million of savings from these Empire Zone reforms will become available for reinvestment through the following initiatives:

• A new $50 million grant program known as the New York Growth, Achievement and Investment Strategy (GAINS) Fund, which will be targeted to job creation in strategic industries such as manufacturing, financial services, agri-business, high technology, and biotechnology;
• Research and development tax credits totaling $50 million, including the expansion of a current benefit for qualified emerging technology companies (QETC), as a well as new R&D program. The new research and development credit will allow businesses that invest in innovation in New York, either at their own facilities or in partnership with colleges and universities in the state, to recoup a portion of their costs.