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By Jon Campbell

August 7, 2013

ALBANY A new program to extend tax-free benefits to certain businesses caused the state to downgrade its revenue projections by $323 million through March 2017, according to new estimates from Gov. Andrew Cuomo's budget office.

The program, known as START-UP NY, allows businesses to avoid paying taxes for up to 10 years if they create jobs and locate near participating college campuses. When lawmakers passed the plan in June, it was touted as having no cost to the state budget by Cuomo and his cabinet members, though a memo accompanying the bill acknowledged a potential loss in revenue growth.

When the state's quarterly budget report was released Friday around 6:45 p.m., Cuomo's budget office had revised its revenue projections downward. Over the next three fiscal years, the report estimates START-UP NY will cause the state to take in $323 million less revenue than had been projected when the budget was passed in March, starting with $68 million less next year.

"(The) START-UP NY program, which creates certain tax-free zones on or near qualifying university and college campuses, is expected to result in reduced receipts growth, starting in (fiscal year) 2015," the report reads.

In total, the state's budget gap is projected to be about $1.74 billion next year, with the state "prepaying" for about $318 million of next year's expenses this year. The deficit is projected to grow to $2.85 billion in fiscal 2016 and $2.92 billion the following year.

The tax-free program has been touted by some business groups and knocked by unions, who have characterized it as a giveaway by the state.

Cuomo began pushing the plan as a way to boost the stagnant upstate economy, an issue that has perplexed governors before him. Most of the tax-free zones will be centered around State University of New York campuses, the vast majority of which are upstate.

The Legislature passed the plan in the final week of the legislative session.

"We desperately need to jump start the upstate economy and these new tax-free communities will give New York an edge like we've never had before when it comes to attracting businesses, start-ups, and new investment," Cuomo said in June.

E.J. McMahon, a senior fellow for the Empire Center for New York State Policy, a conservative think tank, said the revised estimates raise questions about the promise of the tax-free plan.

"The theory of the program is that we would not get this economic development without this program," McMahon said. "The way that they have estimated the revenue implies that we would have got the growth without the program."

"How would there be any thought that this would be revenue neutral?" asked Jennifer Diagostino, Executive Director of the Coalition for Economic Justice in Buffalo. "This is going to cost hundreds of millions of dollars that we don't have," she said, noting that the state is already cutting several social service programs.

"The question is, are they going to raise taxes elsewhere to make up that gap, or are they going to cut services or reduce the quality of services around the state which are paid for through taxes?" wondered Josh Kellermann, a Senior Policy and Research Associate with ALIGN: The Alliance for a Greater New York, who says the group's mission is to create good jobs, vibrant communities, and an accountable democracy for all New Yorkers.

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