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By Rick Moriarty

April 8, 2013

A new state law bars industrial development agencies from assisting retail projects, but local officials say that won't stop them from giving tax breaks to projects like a proposed suburban Syracuse shopping center that will include Upstate New York's first Costco store.

Mary Beth Primo, Onondaga County's economic development director, said the $50 million Township 5 project in Camillus would qualify for tax breaks under exceptions built into the law.

The law is included in the recently approved 2013-2014 state budget. Gov. Andrew Cuomo had sought restrictions on the ability of industrial development agencies to hand out exemptions from sales taxes on construction materials. He did not get that, but he did get the retail restrictions in a compromise with legislative leaders.

The new law prohibits the 109 industrial development agencies in the state from assisting retail projects.

Critics say retail projects should not receive government subsidies because the jobs they create, if any, are generally low paying and the projects likely would be built without government help.

But the new law allows the agencies to make exceptions under certain circumstances. And those exceptions can be pretty big.

IDAs can assist retail developments they deem to be:

• Tourism destinations, defined as a location or facility likely to attract a significant number of visitors from outside the area.

• Located in a "highly distressed" area. The law does not define what makes an area highly distressed.

• Offer goods or services not already available in the city, town or village in which they are located.

The IDAs -- appointed government boards which can grant tax breaks by taking nominal title to a property -- get to decide whether a project fits any of the exceptions.

Before providing financial assistance to retail projects in highly distressed areas or to those that offer something not currently for sale in the community, a development agency must hold a public hearing and determine that the project would preserve or create permanent, private-sector jobs. Also in such cases, the chief executive officer of the municipality for whose benefit the agency was created must approve of the agency's action.

Primo said Township 5 would fit two of the exceptions in the law.

The presence of a Costco Wholesale store in the development would make it a tourist attraction because Costco, a warehouse club known for its low prices, typically attract shoppers from up to 100 miles away, she said.

Primo said Township 5 also would likely qualify for IDA assistance because it would be a "lifestyle" center where people could live, work and shop. No similar center exists in Camillus, she said.

Onondaga County lawmakers and the Camillus Town Council recently voted to approve property tax exemptions for the project. The West Genesee School Committee is expected to do the same.

"I've never seen a project receive this much support," Primo said.

Under a payment-in-lieu-of-tax agreement sought by Township 5's developer, Cameron Group LLC, the Onondaga County Industrial Development Agency would allow $9 million of the $41 million that Cameron would pay in property taxes over 25 years to fund roadway improvements, a sewage pumping station and other infrastructure upgrades required for the project.

The remaining $32 million in tax payments would be distributed to the town, the school district and the county.

Cameron Group also is seeking $1.6 million in exemptions from the mortgage recording tax and from sales taxes on construction materials.

In addition to Costco, Township 5 would have a 12-screen movie theater, at least five restaurants and a 96-unit apartment complex.

The restrictions on IDA assistance for retail projects are nearly identical to limits that were in state law until 2008, when they expired.

Industrial development agencies had no trouble granting tax breaks to retail projects under the old restrictions because the agencies had wide discretion in deciding whether a project met one of the exceptions in the law.

In a 2006 report on industrial development agencies, then-state Comptroller Alan Hevesi said the broad exceptions allowed by the law "severely dilute" the prohibition against assisting retail projects.

Jennifer Diagostino, executive director of the Buffalo-based Coalition for Economic Justice, said she is glad the retail restrictions were put back into the law. However, she said the exceptions, which are identical to the ones that existed under the old law, are too broad.

"The way IDAs abuse these exceptions is really appalling," she said. "It's not tourism to build a Costco."

Supporters say retail projects play an important role in revitalizing distressed areas, especially in urban settings where a manufacturing facility would not fit.

"Retail projects are important economic drivers," said Brian McMahon, executive director of the New York State Economic Development Council, which represents the state's industrial development agencies.

The council, however, supported the new restrictions as part of the compromise with Cuomo, McMahon said.

"We think this is a much better outcome," he said.

The Syracuse Industrial Development Agency granted a 30-year property tax exemption to Central New York's ultimate retail project, the expansion of the Carousel Center shopping mall, now named Destiny USA.

The development agency deemed the mall, one of the largest in the country, to be a tourist attraction because its draws visitors from as far away as Canada. In addition, the mall is built on the site of a former scrap yard in an economically distressed area south of Onondaga Lake.

The agency is considering giving tax exemptions to the proposed redevelopment of a city block near St. Joseph's Hospital Health Center. Butternut Commons would replace 10 run-down commercial buildings and homes with a Kinney Drugs store, other retail shops and apartments.

Ben Walsh, deputy commissioner of the Syracuse Office of Neighborhood & Business Development, said it's unlikely the new restrictions will prevent the development agency from assisting retail projects because many areas of Syracuse could be considered highly distressed.

"We're still doing our homework on what qualifies as highly distressed, but at this point we don't anticipate an impact," he said.

IDA assistance for retail projects in the suburbs is less common than in urban areas, but it is not unheard of.

When the old restrictions were in place, the Onondaga County Industrial Development agency granted tax breaks for the redevelopment of two dead suburban Syracuse malls.

The tax breaks were given to the redevelopment of the former Fayetteville Mall into the Towne Center shopping plaza and the redevelopment of the former Penn Can Mall in Cicero into Driver's Village, a collection of car dealerships.

The malls, which had become virtual ghost towns, were judged by the agency to be highly distressed properties. And county officials, eager for the sales tax dollars generated by car sales, viewed Driver's Village to be a tourist attraction because it would draw car buyers from outside the county.

Economic development officials in nearby Oswego County have given out tax breaks to retail projects in the past and hope to again despite the new restrictions.

L. Michael Treadwell, executive director of the county's economic development office, Operation Oswego County, said retail projects are often the only type of economic development available, other than a logging operation, in the county's many rural areas.

"There's a lot of economic activity and job creation that comes from retail, particularly in rural areas," he said.

Last year, the Oswego County IDA granted property tax exemptions for the expansion and renovation of the Burritt Chevrolet dealership in Oswego. Treadwell said the expansion created 19 new jobs.

The IDA also recently approved tax breaks for Syracuse hotelier Norm Swanson's conversion of a former elementary school in the village of Altmar into a 42-room hotel. Treadwell said Tailwater Lodge will be a tourist destination because it will cater to people coming from outside the area to fish on the nearby Salmon River and to snowmobile.

Treadwell said he hopes to assist more retail projects, using the exceptions in the law.

"If there are restrictions, there always could be some problems or you have to find a way around them," he said.

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