New York Budget Calls for New Oversight of Empire Zones

New York's Empire Zones Program dodged a veto from Gov. George Pataki as an agreement was met with the legislature to restructure the program. The state budget, signed into law last week, extends the program and allows for an additional 12 zones to be created throughout the state.

Under the agreement with the legislature, Gov. Pataki will give up some control of the administration of the program to a new board, which will oversee creation of the new zones and rule on boundary issues for all existing zones, according to an article in the New York Times. The new board will consist of a panel of representatives appointed by the legislature and the governor.

Currently administered solely by the Empire State Development Corporation (ESD), the program provides tax benefits to companies operating inside a specific area that create jobs. Benefits are not provided to companies based on job projection, according to ESD, rather on jobs created or qualified business activity.

The program has over the past few years come under scrutiny from critics saying it is ineffective and blaming the program for contributing to sprawl through increased zones in suburban areas. Growing concerns that the program has strayed from its mission of revitalizing the most blighted areas also have risen from state lawmakers. State Comptroller Alan Hevesi conducted audits on 11 of the zones last year, reporting they were poorly administered, kept inadequate records, and did not hold firms that received tax breaks accountable for actually producing jobs.

Other findings revealed that 47 percent of businesses within the zones created fewer jobs than promised and 23 percent actually lost jobs, according to Hevesi's press office. A recent article in the New York Times reported that the governor's office disputes the claim that tax breaks were given to companies that lost jobs. The governor's office has maintained that the program is a success, stating that during the challenging years of 2000-2002, certified businesses within the zones added more than 56,000 new jobs, outpacing the national average.

Both Gov. Pataki and the legislature do agree that reforms are needed to maximize the effectiveness of the program and prevent abuse. Gov. Pataki recently updated his proposals for reform submitted last year to the legislature, including:

• A five-year extension of the program, from March 31, 2005, to March 31, 2010;
• Establish zone performance requirements and zone report cards, and improve penalty provisions to allow for withholding of boundary revisions or new business certifications for poor performance;
• Limit benefit period to 10 years, rather than 15, for businesses certified on or after April 15, 2005;
• Hire an independent entity to evaluate the program;
• Revise the formula to calculate incentives so only those companies creating 100 or more new jobs qualify for 100 percent of zone benefits; and,
• Creation of "flex zones," so that one square mile per year could be allocated for major attraction projects.

To ensure that benefits given to companies are more proportional to job creation and investment and to reduce the potential for abuse, ESD advocates revising tax law formulas, according to a press statement by chairman Charles Gargano. The newly created board, however, will decide all future changes to the program.