11 Point Plan to Reform the Zones

March 22, 2005. FPI joins with environmental, human services and other budget watchdog groups in releasing a plan to reform the State’s Empire Zones Program.

Reform Groups Urge State to “FIX THE ZONES” or Let the Program Sunset on March 31 as Scheduled

Environmental, human services and budget watchdog groups joined together today to call upon state leaders to fix the state’s Empire Zones Program and released an 11-point plan designed to end the abuse, corruption and favoritism inherent in the current administration of the program. The groups estimate that the state could save approximately $100 million per year in much needed revenue, if the program is reformed.

Members of the Economic Development Conference Committee seem to have reached a consensus today on expanding the Empire Zone program to include 12 new Zones throughout the state. The Committee members were silent however on what reforms, if any, they are proposing to make the Zones program more accountable.

The Zones program is currently scheduled to sunset on March 31, 2005. The reform groups believe that the programs shortcomings are so great that it should NOT be renewed without real reforms.

“In its current form the Empire Zone Program has encouraged businesses to leave New York’s urban areas to locate in undeveloped rural areas. This wastes state and local investments in infrastructure, wastes natural resources, wastes state tax dollars and hurts our cities,” said John Stouffer, Legislative Director for the Sierra Club – Atlantic Chapter.

New York’s Empire Zone Program was originally created in 1986 to focus on promoting job growth in economically distressed communities. And the programs benefits were greatly increased in 2000 to increase its ability to achieve that end. But an administrative change in the program’s rules in that same year, allowed for a boundary amendment process that all but ended the program’s targeting. According to the Fiscal Policy Institute’s Frank Mauro, “In recent years, the program has become a game of `We bring the zone to you.’ The Zones program’s powerful incentives are now being used indiscriminately to subsidize favored businesses in areas of the state that are relatively well off while similar businesses in similar areas of the state pay taxes at the state’s regular rates. How can New York State justify maintaining a tax system in which businesses whose operations are the same in all material respects are paying taxes under what amounts to substantially different tax codes?”

“The eleven reforms we are suggesting will create an empire zone program that helps rather than hurts New York’s economically distressed communities and one that conserves our tax dollars as well as our natural resources,” said Stouffer.

Others expressed concerns that the program has moved far from its original intent of helping distressed cities throughout the state attract new businesses. “If the zones program’s extremely deep tax discounts are made available for those who want to develop in greenfields or set up shop in the plushest of suburban office parks, then how in the world can those incentives ever be effective in the revitalization of the areas of the state that are truly characterized by pervasive poverty, high unemployment and economic distress,” stated Ron Deutsch, Executive Director of SENSES.

The Luther Forest proposal in the towns of Stillwater and Malta in Saratoga County is a prime example of how the Zones program is being used to subsidize sprawl. This “Field of Dreams” approach of “if you build it they will come” is being undertaken by the Saratoga Economic Development Corporation. Bob Radliff of Saratoga County stated, “By providing Empire Zone benefits to this massive and inappropriate project, New York State taxpayer’s will be encouraging the abandonment of our urban cores, while subsidizing the destruction of open space and inducement of uncontrolled sprawl in Saratoga County. Smart growth principles apparently do not apply when we let industry dictate the future of our region. Empire Zones are powerful economic development tools — they should be used to solve the Capital Region’s most pressing needs.”

“In this era of multi-billion state budget deficits and moribund upstate economies, it is essential to ensure that public funds invested in job creation produce the intended results. The first five years of the Empire Zones have fallen woefully short of revitalizing inner city neighborhoods. Instead they have all too often been used to divert essential public resources to the political powerful and well-connected. The Governor and Legislature need to dramatically overhaul the Empire Zones and other economic development program to protect our tax dollars. The proposals we have outlined today are a small but critical step in restoring integrity to this program,” said Mark Dunlea, Associate Director of Hunger Action Network of New York State.

The 11-Point Plan to Reform The Zones

The state law authorizing the Empire Zones program should NOT be renewed without real reforms including:

1. implementing full, annual disclosure of the benefits received and the jobs provided by each participating business.

2. strengthening rather than weakening the program’s focus on the state’s neediest areas by prohibiting zone designations in areas other than census tracts that meet economic hardship criteria and immediately adjoining census tracts in the same community. Similarly, the extension of existing zones boundaries into areas other than census tracts meeting economic hardship criteria should be eliminated.

3. ending the current annual boundary amendment process (the “we bring the zone to you” approach) that has opened the operation of many of the state’s zones to favoritism and corruption.

4. halting the benefits going to businesses that used re-incorporation and other ruses to get into the program.

5. tightening the program’s certification requirements to ensure that firms that violate (or have, in recent years, violated) labor, health and safety, environmental or other important statutory safeguards are not certified to receive zone benefits; or, if they are already certified, that they lose such certification

6. requiring the Commissioners of Labor and Economic Development to hold well-advertised and timely public hearings on all proposed business certifications, all contested de-certifications and all proposed boundary amendments. (Note: Hearings on boundary amendments are currently required but the Commissioner of Economic Development views this requirement as being met by the hearings held by local legislative bodies on the local laws making those boundary amendments. Public hearings are not currently required on business certifications and decertifications.)

7, requiring that all of the tax breaks and other benefits available to participating firms be based on the number and quality of the jobs actually created. (NOTE: Some but not all of the program’s benefits are currently tied to the number of jobs actually created.)

8. strengthening the program’s job quality standards and the application of these standards to all zone benefits. (NOTE: Under current law employers are eligible for an enhanced wage credit [$3,000 as opposed to the ordinary $1,500 wage credit] for a targeted employee who is paid an hourly wage of at least 135% of the minimum wage for more than half of the period involved.)

9. limiting the total amount of all tax benefits available “per employee,” in any given year, to the lower of (a) $10,000 or (b) 20% of the total of the wages paid to the employee involved and the health insurance premiums paid on behalf of such employee.

10. applying de-certifications for cause to all periods beginning with the earliest documented date of the infraction on which the de-certification is based and require that any benefits received during such period by a decertified firm should be subject to mandatory repayment.

11. ensuring that the program promotes revitalization of the State’s existing cities, towns and villages, efficient use of municipal services and avoids the environmental problems associated with unplanned sprawl development, by limiting zone designations and boundary revisions to areas that are served by public sewer or water infrastructure, previously developed areas, or brownfields.

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