By Dwight R. Worley
October 6, 2012
The Lower Hudson Valley’s primary economic development engines — industrial development agencies — in 2010 reported the creation of 16,000 jobs, using generous tax incentives to lure companies to the region and help others expand.
But securing those new jobs cost taxpayers an average of $4,100 per position. The increasing use of incentives contributed to rising property taxes for many homeowners, and $16 million in tax incentives were given to underperforming companies and nonprofits that did not create jobs and some that laid off workers, according to a Journal News analysis of state data and reports on IDAs.
With the growing use of IDAs — government entities that foster economic development with tax incentives — the groups face increasing scrutiny from state authorities and advocacy groups who question the liberal use of taxpayer money and whether companies create promised jobs.
Officials with Westchester, Rockland and Putnam counties’ 10 IDAs say the incentives given to companies — temporary cuts in sales, property and mortgage taxes — are necessary for New York to stay competitive with other states. Though tax revenue to municipalities and the state is reduced, the increased business investment — more employees, larger plants, renovated properties — lays a foundation for long-term economic growth.
“When (companies) increase their employee numbers, those employees are buying goods and services,” said Laurence Gottlieb, Westchester’s economic development director who oversees the county’s IDA. “You get that money back many times over. It’s a small upfront investment to create a wave of economic opportunity out there.”
But an examination of IDA finances, job-creation figures and a review of reports by state agencies and advocacy groups reveal the increased economic activity and jobs boost do not come without strings. Among them:
• IDAs in the Lower Hudson Valley gave $66 million in tax exemptions in 2010, the latest year for which comprehensive data are available, but more than one-third of projects started between 1992 and 2010 saw 2,100 jobs lost, state data show. Those projects accounted for more than $16 million in tax exemptions, though as multi-year deals many could produce jobs in future years.
• The incentives can mean higher bills for taxpayers. The state Comptroller’s Annual Performance Report on New York State’s Industrial Development Agencies for 2010 said that in Yonkers, which has one of the state’s most active IDAs, homeowners paid an additional $96 in property taxes to cover revenue lost through IDA agreements.
• The cost to secure jobs is high. New Rochelle’s IDA had a cost per job gained of over $30,000 in 2010, the comptroller’s report said. Mount Vernon IDA’s spent about $16,600 per job. Comparatively, Westchester and Putnam IDAs’ cost per job were $1,517 and $784, respectively, in 2010. Rockland spent $1,843.
• Most IDAs acknowledge they cannot guarantee that companies create the jobs they promise. Companies that receive benefits are required to certify their employment figures annually, but such self-reported data have drawn criticism from state authorities who question their accuracy.
Tax exemptions also resulted in the loss of $56 million in net tax revenue for municipalities and schools in the region, according to an analysis by The Alliance for a Greater New York, which tracks IDA projects.
“At this point, the system’s broken,” said Nathalie Alegre, an organizer with the alliance. “Normal New Yorkers have a really hard time in knowing where investments are going and what’s the return.”
Yet advocates and critics call IDAs an essential development tool. From small businesses to national corporations, hundreds of companies have located or expanded offices, warehouses, research facilities and affordable-housing projects in the area, creating temporary construction jobs and thousands of permanent jobs.
That increased economic activity has helped revitalize communities that operate IDAs, including county-run IDAs in Westchester, Putnam and Rockland and municipal IDAs in Yonkers, Mount Vernon, New Rochelle, Port Chester, Mount Pleasant, Peekskill and Southeast.
The Ridge Hill retail development in Yonkers is bringing a nearly $1 billion investment to the city. One of the largest IDA-backed projects in the state, the incentives for the complex — more than $25 million since 2010 — have helped created 3,200 permanent jobs so far, officials said.
Putnam has helped companies expand, including Brewster Plastics, a 40-employee plastics manufacturer in Patterson that added 15 employees since building a 45,000-square-foot facility in 1996. The IDA helped the company secure a $3.4 million bond and provided additional incentives for a second expansion in 2006.
Rockland has drawn national companies, including a $40 million distribution center for Raymour & Flanigan. But most IDA efforts focus on smaller companies such as Sentry Industries, an electronics wholesaler that brought its operation from Tarrytown to Hillburn in 2006 with $306,000 in property-tax exemptions from the Rockland IDA. IDAs in New York do not poach companies from one another’s territories but are allowed to step in if a company is set on leaving the state.
“We wanted help building and bringing employees to Rockland County,” said Chris Bracone, Sentry’s chief financial officer, of the company’s decision to seek IDA assistance. “We could hire a few more employees, and it helped with fixing up the facility, warehouse and office space.”
Incentives help keep the region competitive with lower-cost states, said Kevin Bailey, chairman of the Putnam IDA.
“If you’re a business owner, you’re going to go where you can get the best deal,” Bailey said. “It’s the only way they’ll survive.”
After 50 years in Yonkers, Stewart Stamping, a precision metals manufacturer, left for North Carolina in 2008, taking 145 jobs, said Melvina Carter, Yonkers IDA director. Though Yonkers has attracted many companies, Carter said, each loss stings and underlines the critical role that IDAs play, particularly in a stalled economy.
“The general high cost of doing business definitely puts New York at a disadvantage,” Carter said. “The IDAs are very crucial to the local economy for retaining and creating jobs.”
There is little doubt about the impact of IDAs on local economies. The question is whether money is always well spent. Walter Lipscomb, a board member of Community Voices Heard in Yonkers, which advocates for low-income families, said the city’s IDA-backed projects do not guarantee any new jobs will go to residents. Though new businesses benefit the city, he said, residents face higher taxes to help subsidize the projects while employees with construction companies and unions from outside the city take many of the jobs.
“You have to put somebody in place to make sure jobs are created and that they are filled by people from the area,” Lipscomb said. “Otherwise it does no good.”
IDAs were authorized by the state in 1969 with a mandate to attract businesses, help create jobs and broaden the tax bases of their communities.
Governed by boards of three to seven members appointed by each municipality, the state’s 115 active IDAs are not supported by taxpayers and operate solely off the fees they charge companies.
Businesses have access to an array of incentives including bond financing, breaks on mortgage-recording taxes, sales-tax exemptions and property-tax abatements.
Any incentive package is typically tied to job creation or a company’s planned investment in a community. The reasoning is simple: A temporary loss of tax revenue today will bring more businesses into an area, more jobs and a larger tax base in the long term, said Steven Porath, director of the Rockland IDA.
“It’s a good feeling to drive and see a business where the parking lot is full of cars,” he said. “You see that business is here when a year ago there was nothing.”
To compensate municipalities and school districts for lost tax revenue, the deals often require companies to make payments in lieu of taxes, known as PILOTs, that are distributed to local governments.
But the PILOTs don’t recover all lost revenue, and often local taxpayers are left to cover the rest. In 2010, local companies received $66 million in exemptions and paid $42 million in PILOTs, leaving a gap of $24 million.
Bailey sees it differently. Fryer Machine Co. struck a deal with the Putnam IDA in 2004 to build a 40,000-square-foot manufacturing plant in Patterson. The property generated just over $2,400 in taxes prior to development, Putnam IDA records show, and generated $81,311 in 2009 even with Fryer getting about $150,000 in tax abatements.
Developers can never pay less in taxes than the property generates at the time of development, receiving a break only on the increased assessment from improvements and equipment purchases, Bailey said. Once the IDA deal ends, companies pay the full amount, he said.
But businesses do not always let go of the incentives easily. Regeneron Pharmaceuticals of Greenburgh, one of the most successful IDA-backed companies, is seeking to extend an IDA deal that provided it with $17 million in tax incentives when it spent $40 million to expand its headquarters in 2010. It is planning renovations to a building on its campus.
If all IDA agreements resulted in the jobs promised, criticism likely would be muted. But some companies underperform, failing to create jobs, laying off workers or leaving the area after a few years.
Nokia Corp. received nearly $389,000 in Westchester IDA sales-tax exemptions as part of a $30 million renovation in Harrison in 2006. The agreement called for at least 225 people to be employed at the site. But the Finnish phone maker ceased operations there as part of a global consolidation last year. Similarly, in 2003 Olympus received millions of dollars in tax incentives to relocate its U.S. headquarters from Nanuet to Orangeburg only to leave the state for New Jersey in 2009.
For such cases, most IDA agreements have “clawback” provisions, letting the agencies get incentive money back from companies that underperform. Eileen Mildenberger, director of the Westchester IDA, said the county recovered $228,000 from Nokia; Rockland recouped nearly $2 million from Olympus, Porath said.
Not all underperforming companies are subject to clawbacks. IDA boards can consider circumstances including economic downturns or unique market situations before deciding whether to recover money, Porath said.
“We’re not looking to unduly penalize a company,” he said.
Even when jobs are created, the cost can be high. With net tax exemptions totaling $14.1 million in 2010 and an estimated 463 jobs to be created, New Rochelle has the second-highest cost per job in the state at $30,500. Peekskill’s was $13,000, and Putnam had the lowest at $784.
Michael Freimuth, New Rochelle’s outgoing commissioner of development, said recent IDA projects have focused on affordable housing, which generates few permanent jobs. If other projects generate more tax revenue than they cost in services, along with increased employment, it’s considered a success, he said.
“If those taxes are discounted but still more than the services, that’s still a win,” Freimuth said. We’re “discounting the taxes to stimulate the activity and then graduating them to a full tax load.”
Questions also linger over the jobs-reporting process. Companies are required to report employment figures yearly to IDAs, which in turn relay them to the state, along with information on ongoing projects, finances and other data.
With jobs data being self-reported by companies, questions of accuracy often arise, though IDAs argue they require companies to fill out reports certifying employee counts and look at state tax filings to verify the figures.
But short of audits and headcounts — something smaller IDAs lack the staff to tackle — Neil Pagano, head of Port Chester’s IDA, acknowledges that reporting operates basically on the “honor system.”
“Other than going down and trying to count heads, I’m not sure how we can really confirm that,” he said.
Oversight of companies and IDAs may improve if suggested reforms are implemented. The state Authorities Budget Office in its 2012 annual report recommended shorter PILOT terms so municipalities could extend or end agreements based on whether employment targets were hit. And the comptroller is advancing a proposal to sanction companies that do not report accurate jobs data. He also wants IDAs to publish annual report cards, evaluating job retention and creation goals.
But Lipscomb, of Yonkers, simply wants assurances that IDA projects will directly benefit all residents in a community, not just companies.
“The unemployment rate is still going up,” he said, referring to the city’s 9.3 percent jobless rate in July, up from 4.9 percent five years earlier. “Everybody’s prospering but the people who live here.”
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