New York State should either fix, or eliminate, Empire Economic Development Zones. Rather than helping our area, they are hurting it. What are Economic Development Zones and why am I worked up about it? In a nutshell, New York State has a program that grants tax breaks to businesses that locate in certain “economically depressed” areas of New York State. (Lest you think I’ve fallen off the turnip truck and now advocate higher taxes, bear with me!)

Starting with the 2001 budget, “Empire Zones” were created in New York State. Local governments lobby Albany to have certain areas designated as an Empire Zone (EZ for short), and once recognized, businesses that are in those zones or move to those zones can, under certain guidelines, get big tax breaks. Here in Broome County the local EZ office says the Broome zones include “portions of Binghamton, Endicott and Johnson City, the Town of Union and Kirkwood.”

What do businesses have to do in order to earn EZ tax breaks? The reality is different from the perception. In reality, they have to do nothing but put on a good dog-and-pony show for the people who administer the program. However, they promise (which is the perception) to do good things like provide new jobs for our area. For example, high tech firms moving into an EZ agree to create at least 20 new jobs over a certain period of time. Manufacturers agree to create at least 50 new jobs. And insurance and financial call centers agree to create 300 or more new jobs. So far so good, right? Last time I checked, creating new jobs was a good thing we can all support.

In return for creating these new jobs, the business gets a break on their New York State franchise (corporate) tax bill. Not only that, the owners and investors get a break on their personal income taxes. The business also stands to get a break on property taxes. And finally, the business may qualify for a break on gas and electric utility bills. That’s a pretty generous and business-friendly package, I’d say.

So what’s the problem? A business provides jobs, that business gets to save on taxes (I’m all in favor of lower taxes)…sounds like a good deal all around. A couple of recent articles from the Press & Sun-Bulletin provide the answer.

The first was published just a few days ago and was titled, “Hansmann’s gone from area market.” The article recounts the sad ending to a company in our area. Starting in Smithville before the Civil War, Hansmann’s Mills, maker of pancake mix, moved to Bainbridge in 1971, and eventually relocated to Endicott and Binghamton a few years back, receiving large tax breaks from the EZ program. The short story of their demise is, they “bet the ranch” on product lines for the low-carb market and lost. In retrospect it was not a very bright move for a maker of pancake mix (which is high-carb) to bet the whole company’s future on the low-carb fad. The article says this about Hansmann’s EZ tax breaks:

The state said it helped the company, providing $352,777 in Empire Zone tax credits from 2003 to 2005.

In 2003, Hansmann’s said it employed 200 people in Endicott and Binghamton. But in 2005, the company employed the equivalent of 75 full-time workers, the state said.

And now they are no more. Promise made and promise broken–Broome taxpayers shafted.

Then there was a recent online opinion piece by Jeff Platsky titled, “Business tax credits must be tied to performance guarantees.” Jeff really nails it with his analysis of our recent local bank fiasco:

Under the state’s Qualified Empire Zone Enterprise program, BSB Bank & Trust was granted $692,000 in tax credits in 2002 and 2003. At the time, the bank said the credits would enable the institution to retain and maintain employment in downtown Binghamton.

Subsequently, BSB was acquired by Utica-based Partners Trust. On the heels of that deal, the bank trimmed 170 jobs and vacated a downtown building. Now, as Partners Trust prepares to be acquired by Buffalo-based M&T Bank, there’s news that another 101 people in Binghamton are to be cut from the payroll as redundant operations the eliminated from the combined operation.

Instead of retaining jobs, the entity that used to be BSB has thrown more than 270 Binghamton-based workers out of its doors. The penalty for welshing on the promise to retain and maintain jobs: none.

Once again, promise made and promise broken–Broome taxpayers get shafted and quite a few get a pink slip as a bonus.

These are two of MANY examples of businesses right here in Broome County who have benefited from tax breaks under the EZ program and who subsequently broke their promises. The jobs they promised don’t exist, but there is no penalty for the promise-breakers.

How can this happen, you ask? There are whopping big holes in the EZ program that allow it to be abused like this. The EZ legislation lets a business off the hook for not creating jobs if the failure was due to “economic circumstances or conditions which such business could not anticipate or which were beyond its control” (page 51, section 11.9.3). You read that right. As long as a company can convince the administrator of the program they had good intentions, if and when things don’t work out “as expected” and the jobs don’t materialize, it is the EZ program (i.e. the taxpayers) who have assumed all of the risk and take it on the chin. The company does not have to pay back the money they received as a tax break. This is nuts!

In addition to the State (i.e. taxpayers) assuming all the risk, I also see no “teeth” in the legislation that allows the State to go after companies who have not lived up to their promises. As far as I can tell, there is no way for the State to collect from these promise-breaking companies.

In summary, the EZ program is fatally flawed. The State assumes all the risk instead of the company, and the State has no practical way of enforcing their own program. It’s time to either eliminate Empire Zones, or fix the program.

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