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Such a deal! You’re subsidizing upscale offices

It is, to quote journalist David Cay Johnston's book, all "perfectly legal." MonroeCounty is offering lucrative tax breaks --- originally designed to create jobs in distressed, high-poverty areas --- to businesses in upscale suburban office parks. Some of them won't create a single job and haven't said they ever will.

            State Assemblymember Richard Brodsky, a Democrat from WestchesterCounty, brought the practice into the light late last month, in a scathing attack on MonroeCounty's administration of the state's Empire Zone program.

            More than half of the properties named in the Brodsky report are owned by developers who are Republican Party contributors. For the news media and in part for Brodsky, that's been the big story. Party and county officials, as well as the developers themselves, insist that political contributions do not influence the awarding of Empire Zone status. It's not likely that anyone could come up with proof, one way or another. And developers often donate to both parties, giving more to the party in power. But the issue and the problems are much bigger than that.

            First, a bit of clarification about Empire Zones and the lucrative goodies they bring. The goodies are lucrative indeed, particularly in MonroeCounty. They can include wage tax credits, investment tax credits, property-tax abatements and credits, sales tax exemptions, utility bill discounts.

            But with one exception, it's not the real-estate developers, who own the properties, who get the goodies; it's the businesses who are tenants in those properties. The one exception: the developers might qualify for sales-tax exemption on materials used in renovation or construction, but that savings alone wouldn't be enough to warrant their investment.

            Even the property-tax abatements and credits go to the tenants. The developer pays the property tax, and the state reimburses the tenants. The amount of the reimbursement is based on the amount of property tax and the number of new jobs created in that particular Empire Zone. No new jobs created? No property tax reimbursement.

            But according to the MonroeCounty website, you can get some of the incentives --- including wage tax credits, investment tax credits, and utility rate reductions --- even if you don't create a single new job. You can become eligible for those benefits by simply moving your business out of a non-zoned building into a zoned building, keeping the same number of employees. The rationale, apparently: You're "retaining" jobs. And job retention is one of the criteria for Empire Zone status.

            (Neither the county's Empire Zone certification officer, Rocco DiGiovanni, nor Joseph Rulison, chair of the county's Industrial Development Agency and vice chair of the county's Empire Zone board, returned City's phone calls requesting comments.)

            The benefits aren't automatic; businesses that locate in an Empire Zone or zoned building must apply for them, to the county's Empire Zone board. And the Empire Zone status must be recertified every year. The state also oversees the application approvals.

            Because the property owners continue to pay the property taxes, towns and villages love Empire Zones. No money comes out of their pockets. It's the state that pays the property tax credit. And it's the state that loses revenue for such benefits as wage tax credits. New York taxpayers are paying for the incentives, regardless, of course.

            (Businesses can own their own property and qualify for Empire incentives, but it's the developer-owned properties that have grabbed the recent headlines.)

Why do developers want Empire Zone status? All those goodies for the Empire Zone tenants --- tax credits, tax abatements --- make a developer's property a very attractive location.

            "It's a very generous incentive," says Kent Gardner, Director of Economic Analysis at the Center for Governmental Research. "And it does influence where business locates."

            But if it brings new business and new jobs to the zone, what's the problem?

            There is the question of whether businesses should get taxpayer-financed incentives of any kind. But even if you believe incentives are necessary (the Upstate economy is bad, states and regions around us are offering incentives, New York has an anti-business reputation, New York's taxes are too high, etc.), there are plenty of reasons to be concerned about Empire Zones.

            The incentives aren't free. The state pays for some of them, such as the property tax credits and wage tax credits --- which means taxpayers pay for them. Empire Zones, the Democrat and Chronicle reported recently, "are expected to cost the state $291 million this year":This in a state with major budget problems.

            Some Empire Zone businesses get sales-tax credits and exemptions, which reduces the amount of sales tax that the state and the county take in. Taxpayers will either pay more taxes or get fewer services as a result. (And the county, like the state, is scrambling to make ends meet.)

            Everyone who pays a utility bill chips in as well, since an important Empire Zone benefit is a reduction in utility bills on increased utility usage. RG&E (which, according to Sunday's Democrat and Chronicle, gave rate cuts to 114 Empire Zone businesses) has been seeking a substantial rate hike.

            Empire Zone incentives were created to spur economic development in depressed areas: urban areas like inner-city Rochester, for instance. But the focus has been loosened. Cities with Empire Zones can modify the boundaries of their zone, letting businesses outside the city get the benefits. Eastview Mall, owned by giant developer Wilmorite, is in part of the City of Geneva's Empire Zone.

            And in addition to the City of Rochester, MonroeCounty has been awarded its own Empire Zone. The Empire Zone legislation requires that areas eligible for zone status "must be characterized by pervasive poverty, high unemployment, and general economic distress." But "in lieu of" those provisions, the legislation also lists "seven other less onerous sets of criteria." Among them "a county that loses (or is likely to lose) 8000 jobs from one employer or industry."

            And so, citing the loss of jobs at Kodak, MonroeCounty got its zone and is now approving Empire status for properties around the county --- including some of the region's most upscale office parks in the county's highest-income towns.

If the original intent was to aid highly depressed areas, how'd this happen? While the Empire Zone and similar programs began with a "noble idea," says Gardner, they didn't work. "Tax breaks are usually not enough to get businesses to locate in difficult neighborhoods," he says.

            And so you set up the program, set up the bureaucracy, put in the infrastructure, "and nobody applies," says Gardner. "There's only so much you can do with public policy to address that."

            "There's not anybody to blame here," says Gardner. "It's kind of a nice idea, a good intention. But it is just hard to get results in neighborhoods that are in serious trouble."

            "And so the programs, over time, morph," says Gardner. "Everybody's in favor of the morphing. Legislators and administrators want the program to succeed. The program becomes looser and looser, and the outcome is what we have in the Empire Zone. And now most major projects can manage to get zone status, one way or another."

That leaves, of course, the issue of which businesses and which developers get Empire Zone status --- and whether this loosening of the Empire restrictions is a good idea.

            This is not a growing region, economically. We have job losses, not gains. And presumably, not every empty building in the county will get Empire Zone status. If that were to happen, it would magnify the tax loss we've already committed to. So Empire Zoned buildings have an enormous competitive advantage over the others. Particularly for new businesses and those planning to expand, there's a "tremendous" incentive to locate in the zones, says CGR's Kent Gardner. "If you increase your employment by 100 percent," says Gardner, "your property and income taxes pretty much disappear."

            But even for existing, non-growth businesses, Empire Zone status offers a reason to move. Says Gardner: "I've been told by developers that the incentives are so good that very little development happens outside a zone these days."

            As for providing tax breaks to a company that simply moves from a non-zoned building to a zoned building and merely "retains" jobs rather than increasing them: This encourages competition among municipalities. It hurts property owners who don't own zoned buildings. And unless the county plans to offer zone incentives to every existing company that changes location within MonroeCounty, it gives enormous competitive advantage to businesses that snare a zone location. Because they get wage-tax benefits and lower utility bills, they can lower their prices or increase profits. Or both.

            Is the Monroe County Empire Zone board handing out favors to Republican contributors? Or is it just coincidence that many of the real-estate developers who got zone status also contribute to the Republican Party?

            You'd be crazy to be a developer in this county and not contribute to whichever party was in power. County government has control over some major contract awards. But clearly, the Empire Zone subsidies result in unfair competition among businesses. The bigger issue may be whether the county administration has any strategy for its role in that unfair competition. Whether it has any vision of where development ought to be encouraged with public funds. And whether the administration and its Empire Zone board feel any responsibility for declining properties and neighborhoods in other parts of the county: existing ones, and the ones that will be created when businesses relocate.

            MonroeCounty has plenty of empty and underutilized commercial and industrial space. We can blame that on the poor Upstate economy, but that's not the only cause. In the case of office space, we simply have too much. We have overbuilt, and we continue to build more. And we are offering benefits to the owners and tenants of some of that office space --- at taxpayers' expense.

            We are encouraging, and paying for, development further and further out in the suburbs, making older commercial and industrial areas less attractive to developers. As we do that, we are using a state program intended to spur economic development in the inner city.

            We are paying for road construction and other public improvements and services to cope with the increased demands of the new development.

            We are losing valuable open space.

            And we are not generating growth. We are simply transferring it from one part of the county to another. This may be good for developers and construction workers. But every taxpayer in MonroeCounty --- including every construction worker --- is paying for it through higher taxes and higher utility bills.

            And in the end, all of this is doing what businesses and government officials say is the problem with New York in the first place: raising taxes.

Brighton Empire

On March 23, members of the Brighton town board received a request to approve a revision to the Monroe County Empire Zone boundaries, covering 12 properties in the town. Board members were to vote the next day.

            The properties consist of office parks scattered around the town, including some of the town's most upscale commercial properties. Some are currently completely occupied, some are empty or partially empty. One is still under construction. The 12:

            • 200 Canal View Boulevard;

            • Part of The Park at AllensCreek on Allens Creek Road;

            • Three buildings in Meridian Centre;

            • 172 Metro Park;

            • 70 and 80 LindenOaksOffice Park;

            • Two properties on Hagen Drive;

            • 2440 and 2452 West Henrietta Road.

            Town board members wanted more information, so no action was taken that night. The next day, Assemblymember Richard Brodsky's criticism of Monroe County Empire Zones was front-page news.

            The Brighton town board members find themselves in a dilemma, and not just because of the controversy in the news. The properties won't get Empire Zone status without the board's approval, and if the board members deny it, they'll be portrayed as being anti-business.

            This isn't Brighton's first Empire Zone request. For the first one, about two years ago, says Town Board member Ray Tierney III, the county "pitched it as: It would only be used to create jobs and to help distressed areas."

            And because county officials pointed out that the state, not towns, take the hit on tax incentives, "it went through," says Tierney. "I voted for it."

            In 2003, however, the county sent a request for the addition of more properties. Tierney, concerned that upscale office parks were getting benefits, voted no. His was the sole dissenting vote.

            And Tierney is fighting the county's new request. "SoutheastMonroeCounty is the healthiest office market in the county," says Tierney. "They're coming to the classiest areas in MonroeCounty and asking us to sign up."

            "Everybody," says Tierney, "ought to be outraged."

            But Brighton's decision won't be easy. "If we say no," asks Tierney, "does that eliminate the Empire Zone from Brighton?" If so, Brighton will find itself in a severe competitive disadvantage with other towns.

            The Brighton Town Board hasn't yet scheduled a vote on the new Empire requests. Tierney says that at the board's meeting tonight (Wednesday, April 7), he'll ask the board to schedule a public hearing.