Empire Zone yields secrets after suit; Capital Region companies get $38M in breaks annually, newly released data show

BYLINE: By LARRY RULISON Business writer {FACTBOX} Beneficiaries Here is a sampling of local companies located in Empire Zones and the state tax benefits they received between 2003 and 2005. Brookfield Power* Location: Cohoes Empire Zone: Albany County What it does: Operates School Street hydro power station on Mohawk River Employees: 13 2005: $1,324,562 2004: $1,337,250 2003: $1,323,250 *Brookfield acquired the School Street facility in late 2004 from Reliant Energy Crystal IS Location: Green Island Empire Zone: Albany County What it does: Makes substrates for semiconductor industry Employees: 23 2005: $10,250 2004: $5,250 2003: $4,540 Fortitech Location: Schenectady Empire Zone: Schenectady What it does: Makes nutrient premixes for food and beverages Employees: 155 2005: $170,000 2004: $104,000 2003: $75,000 SuperPower Location: Schenectady Empire Zone: Schenectady What it does: Makes high-temperature superconducting wire Employees: 60 2005: $432,056 2004: $296,676 2003: $211,858 Finch, Pruyn & Co. Location: Glens Falls Empire Zone: Warren County What it does: Paper manufacturer Employees: 850 2005: $2,477,149 2004: $1,563,159 2003: $1,315,300 Target* Location: Town of Florida Empire Zone: Amsterdam-Florida-Glen What it does: Operates distribution center for retail stores Employees: 650 2005: $1,175,000 2004: $180,000 2003: NA * Warehouse opened in 2005 Wal-Mart Stores Location: Johnstown Empire Zone: Gloversville What it does: Operates distribution center for retail stores Employees: 900 2005: $643,530 2004: $3,825,123 2003: $800,000 Source: Empire State Development Corp. and the companies Job generator More than 9,000 jobs were created by companies located in 11 Empire Zones in the Capital Region that received tax breaks from 2003 to 2005, according to data from the state. Empire Zone New jobs Tax Breaks Albany City 1,687 $24,624,452 Albany County 722 $15,973,772 Amsterdam-Florida-Glen 1,362 $5,169,777 Columbia County 151 $4,020,618 Gloversville 497 $7,744,286 Rensselaer County 589 $10,202,811 Saratoga County 709 $2,598,992 Schenectady 1,441 $17,559,120 Troy 722 $5,754,492 Warren County 1,096 $13,216,406 Washington County 475 $5,390,076 Totals 9,451 $112,254,802 Source: Empire State Development Corp.

ALBANY - New York state's Empire Zone economic development program provides a windfall of tax breaks to hundreds of Capital Region companies - to the tune of about $38 million a year.

That information had been a well-kept state government secret until recently, when The Post-Standard of Syracuse successfully sued the state to make statewide Empire Zone data from 2003 to 2005 public.

Empire Zones were created in 1986 by the state to help stimulate economic growth in poor areas with high unemployment.

The Post-Standard had sought the data through the state's Freedom of Information Law in 2005, and a judge ruled in the newspaper's favor in February. Empire State Development Corp., the state economic development agency that runs the Empire Zone program, released the data to the public last month.

Information gathered by the Times Union last week reveals that from 2003 to 2005, Capital Region companies were given more than $112 million in tax breaks through Empire Zones. During that time, those companies created nearly 9,500 new jobs.

To qualify for the various tax breaks and credits available, businesses typically must be located in an Empire Zone and create jobs or make investments that will enhance the local economy. Incentives include sales, wage, investment and property tax breaks.

And although business leaders praise the program and the benefits they have received over the years, the program has come under fire recently from consumer advocates who say that taxpayer money is being wasted.

About 1,000 local companies have been certified under the program, although not all receive benefits, state data show.

State economic development officials under Gov. Eliot Spitzer are looking at possible changes to the program, which was significantly expanded and widely used under Gov. George Pataki's administration.

"We are aware of the criticisms of how the Empire Zones program has been administered," said A.J. Carter, a spokesman with Empire State Development. "We know we can, and will, do a better job going forward."

Since January, the management consulting firm A.T. Kearney has been developing a new strategic plan for Empire State Development - at no cost to the state - and looking closely at its economic development programs.

"Empire Zones is one of those programs," Carter said. "We are awaiting their recommendations."

That's not to say the program hasn't helped tremendously to stimulate the Capital Region's economy, which suffered with the disappearance of manufacturing during the late-20th century but has been energized over the past decade with the promise of the growing number of technology companies and startups.

One of the companies aided by the Empire Zone program is SuperPower Inc. of Schenectady. SuperPower is developing and manufacturing high-temperature superconducting wire that could revolutionize power lines used by electric companies. The technology - which has billions of dollars in potential - is years away from acceptance, and SuperPower has been spending millions of dollars on research and development, and on expanding its manufacturing operation. So far, it hasn't posted a profit. Its spending on equipment and other capital projects alone since 2000 has reached $20 million.

The company, which is owned by Philips Medical Systems but is seeking to spin itself off in a possible sale, employs 60 people and earned $432,000 in tax breaks through the Schenectady Glenville Empire Zone in 2005, after getting more than $500,000 in total benefits during the two previous years.

SuperPower President Philip Pellegrino said those tax breaks have loomed large in the company's drive to commercialization.

"Every single dollar counts," Pellegrino said. "It is an extraordinary benefit."

Another local technology company, Crystal IS Inc., has reaped a much smaller amount of Empire Zone benefits - about $20,000 from 2003 to 2005.

But founder and chief technology officer Leo Schowalter said the company's decision to move to the Island Park business park in Green Island in 2005 was largely influenced by low real estate costs made possible by an Empire Zone. The park, which is owned by the Galesi Group of Rotterdam, sits in an Empire Zone, and Galesi is able to pass on those benefits to tenants in the form of lower rent, he said. Crystal IS, which makes materials used by the semiconductor industry, employs 23 people.

"Our biggest criterion was cost per square foot," Schowalter said.

An entity called Green Island Properties LLC, which is associated with the Island Park business park and shares the Galesi Group's address, according to state records, received nearly $350,000 in Empire Zone benefits in 2005. David Buicko, Galesi's chief operating officer, wasn't available for comment.

Not all companies receiving Empire Zone benefits are creating jobs. Brookfield Power, a Canadian company that owns the School Street hydroelectric power station on the Mohawk River in Cohoes, receives about $1.3 million in tax breaks each year from the Albany County Empire Zone.

State records show that less than one full-time job was created at the site between 2003 and 2005. But Brookfield, which acquired the 38-megawatt power plant in 2004, said it receives the tax benefits because of the invest ments it has made in the facility, which include $2.5 million over the past few years, and its continued employment of 13 people at the site. The company also plans as much as $25 million in upgrades in the next five years.

"Easily, there has been a good return for Albany County," said Tom Uncher, general manager for Brookfield's Hudson River operations. "It (Empire Zone status) was essential to the future of the facility."

Indeed, Empire Zone benefits can be earned from either the creation of new jobs or investments made in the zone, according to program guidelines.

The Empire Zone program also helped to attract Advanced Micro Devices Inc. to the Luther Forest Technology Campus in Saratoga County. Although the state has offered AMD $650 million in cash to build a $3.2 billion computer chip factory on the site, which is located within Saratoga County's Empire Zone, AMD would also be eligible for $250 million in Empire Zone tax breaks if it goes ahead with its plan. A decision by AMD is expected as soon as this summer.

Ken Green, president of the Saratoga Economic Development Corp., the nonprofit that manages Luther Forest, said Empire Zone benefits were a major factor in AMD's decision, which was announced last June as the largest private-sector industrial investment in state history.

"Without it, the project would have gone to Singapore or Dresden (Germany)," Green said.

Not everyone likes the program. Ron Deutsch, executive director of New Yorkers for Fiscal Fairness, an Albany-based state spending watchdog group, said the Empire Zones have been mismanaged, and companies often don't live up to their job-growth commitments. Others reincorporate themselves under a different name to get benefits they otherwise wouldn't receive, he said.

"We've ruined this program, in my opinion," Deutsch said. "Either the program needs to be completely reformed or just scrapped."

Deutsch said he would like to see the tax benefits going to Empire Zone companies used to make the entire state more competitive for businesses - something that would trickle down to all businesses, not a select few.

Matthew Maguire, a spokesman for the Business Council of New York State, a business advocacy group in Albany, said "there are questions about whether the overall program is an efficient use of state resources."

He stressed that the program allows the state to compete with business incentive programs offered by other states that often have lower taxes and lower business costs. But the council does support looking at the program's costs and possibly making changes to it.

"Going forward, we need to do more to improve the state's overall economic competitiveness," he said.

Larry Rulison can be reached at 454-5504 or by e-mail at lrulison@timesunion.com.