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Movin’ on out

Businesses are relocating from city to suburb, from town to town. And Empire Zones are encouraging them.

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Between the towns of Malta and Stillwater, just northof Albany, local developers have been itching to get their hands on an Empire Zone designation for years. They see a neat set of computer-chip fabrication plants, or "chip-fabs," in part of LutherForest.

SaratogaCounty was granted an Empire Zone in 2001. The zone does not include any of the privately-owned forest --- not yet, says Saratoga Economic Development Corporation President Ken Green. But once an appropriate client presents plans for the site, he says, the area will be granted Empire Zone status.

Critics of the tech-park plan say that expanding the Saratoga zone's boundaries to include LutherForest bastardizes the tax-abatement program's original intent. "They don't have the industries yet," says Rochester resident Hugh Mitchell, who is conservation chair of New York's chapter of the Sierra Club. "They're just going to use the lure of Empire Zones to destroy a forest. It's a total abuse of Empire Zones."

The Empire Zone program, which provides substantial tax relief and other benefits for companies that create new jobs within a zone, began in 1986 with a goal of revitalizing depressed urban areas. In Rochester, the program subsidizes businesses in both the city and the county.

There is evidence that the program encourages suburban sprawl and merely provides incentives for businesses to move from one town to another within the county. And office parks are consistently being built despite increased office vacancies in both the city and the suburbs.

There is too little oversight of the program, critics say --- and too much potential for favoritism and corruption.

There's a lot at stake with Empire Zones. The program isn't cheap. While nearly all of the money for the tax incentives comes out of the state budget, in the end, all New Yorkers pay the cost --- in increased state taxes to make up for those not paid by Empire Zone businesses, and in decreased state funding for local programs. This is occurring while the state and local governments throughout New York are facing major budget problems.

In the long run, if Empire Zones substantially increase economic development, tax revenue goes up. But records on the zones' net impact are sketchy.

There are, however, estimates of the program's cost: $291 million in state tax credits for this year alone. Brighton Town Councilmember Ray Tierney III, who has raised questions about Empire Zone expansion in his town, did his own calculations: divide that $291 million by the state's population of about 19 million, and the per-capita cost to New Yorkers is $15.80. That means the program will cost the residents of the Town of Brighton $520,540 this year. The cost for MonroeCounty residents: more than $11 million.

"MonroeCounty could do a lot of economic development" with that much money, says Tierney.

The Empire Zone legislation sunsets at the end of this month. Both the Senate and the Assembly have proposed reform legislation, and several local lawmakers say they expect Governor Pataki to extend the expiration date another six weeks while they try to work out an agreement.

Elected officials --- Republicans and Democrats alike --- say they realize the program needs major changes. But they say it's much too valuable to let expire.

"This is a very important program to us," says Rochester Mayor Bill Johnson. "For distressed communities, this has been a very useful tool. Other communities have found a way to profit from this, if I can use that term. But these are nice bargaining chips in the poor communities as well. I don't think anybody wants to see this program die."

Republican Senator James Alesi says the Empire Zone program continues to outperform the expectations of those who initiated it 18 years ago.

"You can point to a lot of success stories, and you can show where there have been net jobs created, and you can show where, if nothing else, there's been interest where there was no interest before," Alesi says. "Without having that magnet, you don't get the companies that do locate."

"It hasn't hurt," says Henrietta Town Supervisor Jim Breese. "Anything that will preserve jobs, keep businesses here, or bring in businesses from elsewhere is good, and I think the Empire Zone has had a very positive effect that way, at least in Henrietta."

Gates Town Supervisor Ralph Esposito, whose town received the county's first Empire Zone designation outside the city, agrees that Empire Zones are "essential."

"If you travel through any of these other states, you see their version of Empire Zones literally planted all over the 'Welcome to...' signs," Esposito says. "We need to compete. It's that simple."

"Anyone who tells you the program has outlived its usefulness --- frankly, they don't have a clue as to what economic development is all about," Esposito says.

While officials argue that New York needs Empire Zonesto be competitive, the zones have developed while Upstate New York's economy has been in decline. And so Empire Zones sometimes have a destructive effect.

MonroeCounty is a good example. Because the county's population is relatively stagnant, there isn't much market demand for commercial development. "A lot of people in Rochester, because we're not experiencing a lot of growth, move from Space A to Space B," says Angelo Nole, an executive vice president of the international real-estate services company CB Richard Ellis.

"We see a lot of movement," Nole says. "We don't see a lot of growth in our economy."

A fair amount of that movement has been outward, from the city to the suburbs. "Suburban space has increased over the last 20 years annually," says Nole. "If you go back to the early '80s, there were really very few suburban office complexes. Corporate Woods, Woodcliff --- those places didn't exist until the late '80s."

According to CB Richard Ellis's 2004 Rochester Market Index Report, 1.35 million square feet of office space was constructed in Rochester's suburbs between 1999 and 2003. In that same period, the office vacancy rate in the city nearly tripled.

"The growth of the suburbs came at the expense of downtown," Nole says.

At first, the City of Rochester had the only Empire Zone in MonroeCounty. But the county was granted an Empire Zone when the former Kodak Elmgrove Plant became vacant. Since then, the county has amended the boundaries of its zone, and buildings throughout the county, particularly in the wealthier southeastern suburbs, have been included. Among them: new suburban office parks.

The office shift from city to suburb is a national trend, of course, and that trend started before properties in suburban MonroeCounty had Empire Zone status. With their sparkly new exteriors and modern, energy-efficient interiors --- not to mention their proximity to suburban residences --- office parks are an especially hot trend. The builders keep building them, and the buyers keep buying.

The office shift has followed the county's residential shift. People want convenience, says Nole, and a short commute.

"Everyone's busy," he says. "In Rochester, everything is 20 minutes away, but 20 minutes is 20 minutes. It's just basically a shifting of where people are choosing to work."

A good example: the Harris Beach law firm, which in the mid 1980s made the news for buying and renovating an architecturally significant building in downtown Rochester. Two years ago, Harris Beach moved most of its offices to a relatively new building with a spacious campus in Perinton.

"They basically said it's more convenient for their employees," says Nole. "That's unfortunate for downtown."

Unlike the state of Oregon, where development boundaries and incentives control sprawl, New YorkState puts the market in charge.

"You let people grow where they want instead of forcing them to stay in places they don't want," says Nole. "You hope when some people have moved out of downtown office buildings, it frees up those buildings for alternative uses."

With little population growth, however, the owners of those buildings must struggle to find uses and to compete with the suburbs.

Hugh Mitchell says the reason he and the Sierra Club have been so focused on reforming or killing the Empire Zone program is because it nurtures suburban sprawl. "It's not just the businessmen who are building an office park, but government support for these guys which causes sprawl to happen," Mitchell says. "This is going to be a way to continue to destroy New YorkState's environment."

The city's not the only place experiencing movement. Penfield Town Supervisor George Wiedemersays that the Empire Zone program "makes sense." But he believes that it has resulted in shuffling some businesses around within the county.

"The same thing goes on regionally," says Wiedemer, with businesses moving from MonroeCounty to OntarioCounty. "All they're really doing is relocating to Ontario. Competing."

"I am concerned a little bit that you're helping one community at the expense of another community," he says. "And I'm not sure that that's all positive."

Henrietta's Jim Breese thinks he may have lost a business or two to an out-of-town Empire Zone, but says it hasn't been a trend. "I think the businesses affected in Henrietta would have gone out of this county and probably out of the state," he says, Empire Zone or no Empire Zone.

"I don't think Empire Zones should be helping businesses moving from Greece to Henrietta and vice versa," he adds. "I don't think that's what the purpose of the Empire Zone program was. That's where I draw the line on Empire Zones."

Penfield has seen Empire Zone moves work both ways. Before it was possible to create a zone outside of the city, Miller Sandblasting left Penfield to move into a zoned property in the city.

Miller Sandblasting's move wasn't a problem at the time, says Jim Costello, the town's director of developmental services. In fact, he says, Penfield officials encouraged it. Empire Boulevard was rezoned in 1999, in hopes of luring restaurants, retail, motels, and hotels to the area in place of industries and construction companies. So Miller Sandblasting's move to Lincoln Avenue, Costello says, was appropriate.

But Penfield's town board approved the addition of an Empire Zone to the Linden Oaks North office complex on Hagen Drive in May. The property was one of 27 recently presented by County Executive Maggie Brooks to the CountyLegislature for consideration; but the proposal was later withdrawn, pending state revisions to the Empire Zone legislation.

"Why in the world would Linden Oaks need to be in an Empire Zone?" says the CountyLegislature's Democratic Minority Leader, Stephanie Aldersley. "It looks to me that they're thriving. Our downtown office buildings have more and more vacancies. So why would we be subsidizing Linden Oaks, when they appear to have a very low vacancy rate?"

Hugh Mitchell spoke at a public hearing on Empire Zones in April, along with local leaders from the Green Party and Metro Justice. One of the reforms the groups have suggested is to make it more difficult to erase and redraw zone boundaries. The current process, they say, has resulted in a "we bring the zone to you" approach, and it has "opened the operation of many of the state's zones to favoritism and corruption."

Critics also complain that empty buildings and land are sometimes given Empire Zone status. But "at some point," says State Senator Jim Alesi, owners of vacant property "have to demonstrate that they're not just sitting on a piece of property, that they intend to actually locate a business and to create jobs." There is, Alesi says, sometimes a chicken-and-egg problem --- adding empty space to an Empire Zone seems counterintuitive, but developers may say they need the incentive to attract tenants.

Fueling critics' concern is the lack of hard information about Empire Zone properties: why they were selected, and how effective they've been. Aldersley says she and her colleagues were particularly concerned that the county's most recent request for Empire Zone expansion was submitted to the legislature as a "Matter of Urgency," bypassing committee-meeting discussions.

Democrats have asked county officials who owns the properties, whether the owners owe taxes, and what owners plan for each site, says Aldersley. She'd like to see supportive documents like deeds and leases in some cases, she says, and she's gone so far as to file Freedom of Information requests.

Her questions, she says, have been met with resistance, "sneering," and a lack of paperwork needed to support what she calls "verbal assurances." And, she says, she's been told that some of the information she wants is "an invasion of the people's business privacy."

In his recent report on the state's Empire Zone program, Comptroller Alan Hevesi raised the same question. But in fact, some business financial information is protected by law.

Democratic Assemblywoman Susan John says she would like the privacy issues inherent in the program to be reformed. She says she looked at general numbers from the state tax and finance department in preparation for hearings on the Empire Zone program in Albany, but couldn't look at hard data from specific zoned companies because of tax privacy laws.

"One change that we need to make is that applicants have to agree to waive their privacy, at least with regard to income generated and tax credits that are claimed," John says. "We want to respect people's privacy, but we've set up this interesting conundrum that the state legislature can't figure out who's getting this money."

Then there's the question of using tax subsidies to encourage a major land-use change: turning part of a forest into a technology park, for example. In Saratoga County, while the Luther Forest land is not yet an Empire Zone, the town boards of both Malta and Stillwater have voted to zone part of the forest for technology uses, and the Saratoga Economic Development Corporation is promising Empire Zone status to potential builders.

Another concern of environmentalists: an infrastructure will need to be built to allow for the pumping of water up from the Hudson River, to sustain any chip-fab that moves in. Groups like the Coalition for Responsible Growth say the water line is absurd, considering that no computer chip industries have expressed solid interest in the site.

It's natural to want to build chip-fabs in LutherForest, says a website created by a group called Tech Valley Capital Region Advocates for Intelligent Growth. "Suburban green campus work environments have become the 'atmosphere of choice' for both engineers and high-tech corporations," says the website. "These areas are not haunted by current and mounting urban ills, and the employees find them desirable places to work for all the same reasons residents find them desirable places to live."

Another concern: SaratogaCounty is one of the wealthiest counties in the state. Unemployment is much lower than the state average, and population growth is high.

Should New York offer tax breaks in a rich county, to encourage development of a plant that spans nearly half of a forest? Does subsidizing the clearing of forestland and the invasive construction of a water supply system encourage similar development in other parts of the state?

Mitchell says the Empire Zone program needs to change. He cites one of the amendments that the Sierra Club has proposed to state legislators: that Empire Zone designation be limited to areas already served by sewer and water infrastructure.

"The whole purpose [of the Empire Zone program] was to help reinforce struggling urban areas with tax benefits for buildings which could perhaps be rehabbed to attract new jobs for urban people," Mitchell says with an edge of frustration in his voice. "We're lobbying statewide to ask the state legislature to return to the original intent of the law, which is to help struggling urban areas."

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