Fiscal group: do away with EZ

ALBANY — A fiscal watchdog group says it is time to end the state's Empire Zones program. The Citizens Budget Commission, in a report released Tuesday, blasted Empire Zones as unfixable and "not worth the tremendous loss of revenue" needed to sustain them.

The program's "problems are so extensive and longstanding, its past reform attempts so ineffective, and its impact so dubious, that it should be abolished. New York's economy, especially in the distressed areas that the Empire Zone program was meant to address, is struggling and deserves effective economic development initiatives — not a catalogue of lucrative tax breaks for firms sophisticated enough to take advantage of them," the report said.

A spokesman for Empire State Development, the state agency overseeing the program, said ESD is "committed to overhauling" it. Local economic developers urge caution and seek input.

"The governor has repeatedly called for reform of this flawed program," spokesman Warner Johnston said in a prepared statement. "Especially in these times of fiscal restraint, it is important that the state's economic development incentives be targeted to key sectors of our economy. We anticipate making an announcement regarding the future of the program later this year."

CBC identified three major problems with Empire Zones:

■ Rapid proliferation: The program has grown largely for the benefit of developers, resulting in "convoluted" zones that "look more like politically gerry-mandered legislative districts than focused economic development targets."

■ Accountability and administration: Local oversight boards vary in "sophistication, financial acumen, and managerial capacity, and this leads to substantial variation in results." Different boards measure job creation and business startups in different ways, making analysis of progress difficult, if not impossible.

■ Failure to meet investment and employment goals: In 2007, 58 percent of participating companies failed to reach job-creation or investment targets by at least 60 percent.

While acknowledging the program's problems, experts agree that some form of the program is vital to New York's economy.

James A. Murphy, economic development specialist for the Potsdam Planning and Development Office in St. Lawrence County, noted that most of the criticisms of the program are not prevalent in rural areas. He said "shirt-changing" — the practice of reincorporating an existing company under a new name to draw benefits — is rare in his experience. Potsdam's Empire Zone, he said, remains true to its original purpose, listing Potsdam Paper Specialty Papers, North Lawrence Dairy and Newton Falls Paper Mill as its main beneficiaries.

"In Potsdam, the program has spurred job growth and investment in the business community — just as it was supposed to," Mr. Murphy said. "We're using it to sustain regionally significant projects."

Nevertheless, he questioned the direction the program has taken over the years.

"Instead of a community building program, it's become slanted toward large businesses — things that aren't in the north country and won't come here because of the lack of transportation infrastructure," Mr. Murphy said. "As the program becomes more focused on large manufacturers, it doesn't bode well for areas like Potsdam."

He said one of his best high-tech companies, Zero Point Clean Technology — an energy company using biomass technology developed in conjunction with Clarkson University — wouldn't qualify under EZ's now-higher threshold for job creation.

"It isn't so much jobs, it's the wages," Mr. Murphy said. "The higher-wage jobs are what support our retail — the people who make enough to go out and spend money in stores and restaurants."

Another expert says Empire Zones should be strictly for economic development. Michael N'dolo is an associate principal with Camoin Associates Inc., a consulting firm that administers Empire Zones in Watertown and Plattsburgh and in Franklin, Lewis and Greene counties. He advocates a return to the program's original focus — to attract businesses with a non-captive clientele, meaning those that can export goods and services outside the state.

"The Empire Zone program should do economic development and deal only with businesses like manufacturing, financial services and high technology," Mr. N'dolo said. "We want to give them a reason to locate here. Eliminate construction companies, law firms, personal and professional service companies, and especially retailers."

Such employers should be eliminated from EZ incentives, he said, because they have a captive clientele and shouldn't need the incentive to come to New York.

"The best outcome of this whole thing is to make Empire Zones about economic development — focus on the exporting industries and get rid of everything else," he said.

Mr. N'dolo noted that the "incomplete and ineffective" 2005 reforms were made by the Legislature after five days behind closed doors with almost no public input.

"If we had input, the reforms would have been much more effective," he said.