Paterson urged to veto Empire Zone measure

North country officials are lobbying Gov. David A. Paterson to veto a bill that will eliminate tax breaks for housing complexes within Empire Zones, including 400 units in the city of Watertown.

If the bill passes, "our economic development efforts will be severely hampered," Mayor Jeffrey E. Graham wrote in a letter to the governor. "Housing has become a major component of our economic development efforts simply because it is critical to the viability of Fort Drum."

The mayor and other city officials are asking that the bill be vetoed.

In the north country, Norstar Development USA would be the hardest hit by the bill. The three housing projects in Watertown that could be affected are products of the Buffalo-based company.

"It has become a bit of a real serious concern," Mr. Graham said. "We don't want to mess up any of these housing developments."

The bill's sponsor, Assemblyman Mark J.F. Schroeder, D-Buffalo, said in a Buffalo News article earlier this week that his intention is to stop owners of existing homes from "gaming the system" to obtain property tax relief.

"I will be looking at it more closely," he said. "I realize that my intent in the bill and what it actually does may be in conflict."

City Manager Mary M. Corriveau said the amended bill would affect two housing projects — Creek Wood and Summit Woods — that could provide more than 400 housing units in the town and city of Watertown within the next few years. It was unclear whether Starwood Apartments, which is in the Watertown Empire Zone, would be affected by the bill because its construction is complete.

"From the city's perspective, this is a real concern with the housing projects we have under way and planned," Mrs. Corriveau said.

Receiving Empire Zone benefits is considered more advantageous than payment-in-lieu-of-taxes agreements because the company pays property taxes that then are repaid, often in full, by the state. A company that does not receive the benefits and rather enters into a PILOT agreement still has to provide local municipalities with annual payments.

If PILOTS are used, taxes are not paid at all and the in-lieu-of payments are at greatly reduced rates, meaning the municipalities lose revenue.

Both the town and village of Potsdam governing bodies passed resolutions earlier this week protesting the bill.

"It's just bad public policy. We need to find ways to revitalize our low-income neighborhoods, and this would take away a very important tool for doing that," said Frederick J. Hanss, who administers Potsdam's Empire Zone. "This bill originated from a case in Yonkers. If Yonkers is having a problem, they should find a solution. They shouldn't impose something that could devastate the real estate market in upstate New York."

Of the 71 enrolled properties in Potsdam's Empire Zone, 42 are residential. Mr. Hanss, who also is the village's planning and development director, pointed out that half of all the housing units constructed in the village between 1995 and 2005 — the six duplexes built by KMA Construction on scattered vacant lots downtown — received the tax break.

"I think the Empire Zone, especially in a small community like Potsdam, needs to address housing issues as well as industry," village Trustee Steven W. Yurgartis said when he voted on the protest resolution Monday. "I hope downstate recognizes that there's an upstate, too."

Empire zones were intended to lure businesses into economically distressed areas using the tax breaks. Instead, critics have said, shoddy oversight and loopholes in the law have allowed businesses in economically healthy areas of the state to qualify for benefits. Some businesses also are allowed to keep their benefits despite creating few or no new jobs.

The bill passed both the Assembly and the Senate and is now sitting on the governor's desk. If signed, it would go into effect immediately. A veto, however, would send it back to the Legislature for reconsideration.

Dierdre K. Scozzafava voted in favor of the bill, as did the rest of the attending Assembly members on June 18.

The Gouverneur Republican said she was still reviewing the bill after receiving Mr. Graham's letter Thursday.

"I can definitely understand where real estate is needed for Fort Drum. I can see where this might be a problem," she said. "It's very possible that this bill has unintended consequences."

Mrs. Scozzafava said she is in favor of "closing loopholes and fine-tuning the program as long as it doesn't inhibit the usefulness of the program."

State Sen. Darrel J. Aubertine, D-Cape Vincent, voted in favor of the bill. The lone dissenting Senate vote came from Bronx Democrat Ruth Hassell-Thompson.

"The intent of the bill was to stop taxpayer dollars from subsidizing high-end housing in places like Long Island," Andrew G. Mangione, Sen. Aubertine's communications director, said in a prepared statement. "It has not been delivered to the governor, and we are optimistic it will never be."

A report prepared last year by international consulting firm A.T. Kearney and released by Empire State Development Corp. was harshly critical of the Empire Zone program, which it described as "good economic development intentions gone wrong." Empire State Development oversees the program.

"At the very least, it can be said that Empire Zones may have done some good, but has failed to create the depth and breadth of solution needed to eradicate poverty and replace it with a more viable, more sustainable model of economic development," the report said.

Bernard Carr, executive director of the state Association of Affordable Housing, spoke against the bill.

In a prepared statement, he said it would "cripple major efforts to provide affordable housing and economic revitalization throughout the state."

If passed, the bill still will provide tax exemptions for "commercial, business or industrial activity."

The Watertown Empire Zone Board also agreed at a meeting Wednesday to send a letter to Albany asking that the governor veto the bill.

"This could have a big impact on the housing in this area," board member Peter L. Clough said.

Mr. Clough also is a member of the City Council.

"Someone needs to put pressure on to say that this isn't a good idea," said R. Michael

N'dolo of Camoin Associates Inc. The Saratoga company acts as an administrator for the Watertown Empire Zone Board.

Times staff writer Alex Jacobs contributed to this report.