Good afternoon Chairmen Farrell, Chairman Schimminger, Chairwoman John, and Chairman Brodsky. It is a pleasure to be here this afternoon to discuss the Empire Zone program. We appreciate being invited.

The New York State Economic Development Council represents local, regional, and statewide development professionals, including the leadership of Industrial Development Agencies, Local Development Corporations, Empire Zones, commercial and investment banks, underwriters, bond counsels, utilities, chambers of commerce and private corporations.

Joining me today are Don Western, the Executive Director of the Onondaga County IDA, and the Zone Coordinator for the Onondaga County Empire Zone. Don also serves as the Chair-elect of our Board of Directors.  Bill Mannix is the Executive Director of the Town of Islip IDA, and the Empire Zone Coordinator for the Islip Empire Zone. Bill also serves as co-Chair of our Empire Zone Section. Don represents a county-level Empire Zone, and Bill represents a census tract, or distressed community Empire Zone.

Our members work to attract investment and jobs to their communities. It is a difficult job. While New York has many competitive advantages, such as a skilled and available workforce, world-renowned university research centers, and proximity to large financial and consumer markets, we also have serious competitive disadvantages. Per capita taxes and debt are too high; regulatory requirements discourage private sector investment; and cost burdens imposed on employers for workers compensation, unemployment insurance, health care, and energy, far exceed the national average.

Among New York’s most important competitive advantages, however, are the economic development programs that can be accessed by businesses to reduce the cost of projects they may build in New York and workers they may employ here. The most important of these is the Empire Zones program. The significance of the program to New York’s economic development efforts cannot be overstated. Since it was expanded three years ago, the Empire Zone program has become a “branded” program for New York State. Corporate decision makers and site location consultants know the program, and seek to locate projects in Empire Zones. Because of its significance to the State’s development efforts, it is important to preserve the program, improve it, simplify it, make it more efficient, and make it more cost effective.

NYSEDC has been actively involved in reforming the Empire Zone program since it was established in its current form in 2000. We were the first organization, for example, to point out the loopholes that existed in the law at that time which allowed businesses to qualify for maximum Empire Zone benefits simply by establishing a new corporate entity and creating a single new job. Those loopholes were largely closed 18 month later, but, in the meantime, many businesses qualified that contributed little new wealth to their communities or the state. Had these loopholes never existed, or had they been closed immediately, many of the problems that have been identified with the program never would have occurred.

Now, with the sunset of the program looming and with a great deal of finger pointing having already occurred with regard to perceived or real failings of the program, it is our hope that all parties can now focus on continuing the program and implementing meaningful reforms to improve accountability and efficiency, reduce costs, and allow the Empire Zone program to serve as a model economic development tool that attracts both capital investment and jobs to New York, its regions, and its distressed communities.

With this in mind, NYSEDC has developed a number of proposals that we would like to review and recommend for your consideration.

1. The Empire Zone program should be flexible and able to serve both the general economic development needs of counties, as well as those of urban and rural distressed areas. Counties, municipalities, and the State have designed and implemented economic development strategies around the Empire Zone program. And, because the Empire Zone program is New York’s most potent business attraction incentive, to retrench and reconstitute it as a distressed area-only program would have a significant impact on the state’s ability to compete for new capital investment projects – especially high technology projects. Competition worldwide for these projects is intense. Handicapping our most important attraction tool by focusing its use on our second best locations would undermine our ability to compete for these important high tech projects – projects that are critical to the future of our State’s economy.

2. Keep the program performance-based. One of the most important strengths of the Empire Zone program is that the authors, in their wisdom, made benefits dependent on performance.  In other words, qualifying businesses must create jobs, or make qualifying investment expenditures in order to receive benefits, which often are not provided until subsequent tax years. Businesses that are certified, but fall below their base level of employment, do not receive Empire Zone employment-based incentives. Similarly, if they don’t invest in capital improvements, they do not receive investment-based incentives.

3. Shorten the benefit period to10 years. The current 15 years is too long for economic development purposes.

4. Make incentives more proportional to project benefits so that more significant projects receive more significant incentives. This must be done, however, without hurting areas that rely extensively on small businesses for economic growth.

5. Get a better handle on the costs and benefits of the program. Taxpayers must have confidence that the program’s benefits are greater than its costs. Both the Speaker and Governor have made strong recommendations in this area.

6. Local Zone development plans should be strengthened and adhered to more rigorously. More cohesive development policies would make the Empire Zone program more credible and more focused. Boundary revisions and certification of businesses should be consistent with the plans, and rejected if they are not. We would further urge that the development plan and policy be incorporated into one document and updated annually.

7. Investments in urban downtown revitalization should be encouraged, but qualifying standards for QEZE Real Property Tax incentives should be based on the improved value of the property, not the total assessed value, as is currently the case. This would help distressed communities attract private investment in property rehabilitation, but benefit only those developers who make capital improvements to the property.

8. Grandfather existing Empire Zone-certified businesses. Businesses and developers have invested significant resources in important economic development projects. Long-term funding sources including leases, bank loans, and private equity investments have been committed based on the State’s promise to provide Empire Zone benefits. If changes to the program are implemented, they should not imperil the viability of these investments.

9. Extend the program to all counties. Counties without Empire Zones stand little chance of attracting new businesses or keeping major expansion projects.

10. Persons who have been on a lay-off for a certain number of months, but are hired back to work at a qualifying project by the same company, should count in the calculation of new jobs.

11. Empire Zone benefits are determined by comparing the employment of a business in a tax year by averaging employment levels reported in quarterly wage reports submitted to the Department of Labor, to the business’ employment prior to certification. The information reported on the quarterly wage reports should be required to also be reported on the Business Annual Reports. This would increase the accuracy of the information reported by the business to the local Zone Administrative Board by requiring that it be the same that is reported to the state for determining benefits.

12. The definition of “new business” should be redefined to include a new venture, if that new venture is undertaken with a separate corporate entity even though both entities may have common ownership, as long as the nature of the new venture is unrelated to any other project(s) that is owned by the same investors. This provision is important because developers often create unique corporations for each project they build, and often those corporations have some common investors. Each project should be eligible for Empire Zone benefits as long as it meets program criteria.

13. Corporate and development real estate holding companies should be allowed to access Real Property Tax Credits and ITCs when they are related in ownership to an employer that is leasing a qualifying facility. This provision reasonably accommodates a common business practice whereby a real estate holding company is created to own property, which is then leased to a related operating company.

14. Employees of both a real estate holding company and a related operating company should be combined when determining base year employment and the employment increase factor. This would minimize incidents where a holding company is created for purposes of owning a property, creating only a single job, yet qualify for maximum QEZE benefits.

15. Net new job creation should be required in order to receive sales tax benefits. That currently is not the case.

16. Make the program permanent. It is difficult to attract business investors on a consistent basis if the future of the State's most important economic development program is constantly in doubt.

At a time when there are major shifts occurring world wide with the competitive balance of entire industry sectors, New York can not afford to lose the one program that helps us compete with lower cost regions within the country and around the globe.  The New York State Economic Development Council urges your careful consideration of these recommendations. We look forward in the weeks ahead to working with all of you on this critical issue, and we thank you for the opportunity to testify today.