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The Empire (Zone) strikes back


Some rules are meant to be broken.

            The state recently made an exception to one of its own policies and allowed the Brighton Town Board to expand the county's Empire Zone boundaries several months before schedule. The measure, which was approved during last week's town board meeting, redrew the zone's borders to include an abandoned office building whose prospective tenants were considering expansion outside of New York State.

            The property in question, a 59,000 square-foot office complex at 200 Canal View, will soon house two companies that will be entitled to all the perks available through the Empire Zone program, courtesy of the state.

            The annual revisions of the county Empire Zone's boundaries are not scheduled until at least July, but lobbyists convinced the state to make a special exemption for 200 Canal View. Incorporating the property as soon as possible, the building's owners said, was necessary to thwart a potential loss of business and revenue from the interested tenants.

            "Collectively, this made a lot of sense.... The state saw the value in this project," said Michael Palumbo, chief operating officer of Flaum Management, at a meeting with the town's public works committee last week. His company purchased the building, which had been vacant for four years, renovated it, and found two businesses interested in utilizing the office space.

            There was a catch, though. The companies that wanted to move in have offices in and out New York, and were being offered incentives to expand at their out-of-state locations.

            "Our preference would be to create jobs in Monroe County, and more specifically, in the Town of Brighton," said Mark Redding, president of Impact Technologies, an equipment management firm with 45 Rochester employees that wants to relocate to 200 Canal View. The company also has an office in Pennsylvania, which offered him $1 million in incentives to expand in the Keystone State.

An Empire Zone designation is a valuable marketing tool for a developer, Palumbo says, one that allows the building owners to be more competitive and, in turn, offers positive growth to the neighborhood.

            "You have people going out, eating, people buying homes, people spending money in your community," Palumbo said. "In addition to the creation of jobs, you have a creation of value."

            But some people wonder why the value is created in locations that do not need the help.

            "The Empire Zone program has deteriorated into a sham of its original purpose," said Jon Greenbaum, organizer of the nonprofit group Metro Justice, in a statement issued April 25 that asks the Governor to kill or reform the program.

            "How is it possible that our tax money is subsidizing an upscale office park in Pittsford when there is empty office space all over the county, especially in the city?"

            Since the median household income in Pittsford is $88,000, he says, it is not a community in dire need of financial assistance from the state.

            Critics say the program was intended to encourage businesses to move into economically depressed city neighborhoods that are designated Empire Zones. Instead, what is happening, the critics say, the boundaries of the Empire Zones are being moved to incorporate the businesses in upscale suburban office parks, bringing no benefit to the areas that need revitalization. In its April 25 statement, Metro Justice allied with the Green Party of Monroe County and the Sierra Club to denounce this use of the program.

            "The city of Rochester has the highest child poverty rate in the state and the Governor is okaying extremely deep tax discounts for Empire Zone development in the plushest of suburban office parks and in greenfields. That bares no relation to the original intent of the Empire Zone program except that it is the exact opposite of it," said Monroe County Green Party Chair David Atias. "Our number one priority needs to be the revitalization of the areas of the state that are truly characterized by pervasive poverty, high unemployment, and economic distress."

            The Sierra Club has raised environmental concerns, citing the destruction of open space and the proliferation of suburban sprawl as an unavoidable consequence of Empire Zone boundary expansion.

The Brighton Town Board voted to approve the resolution at 2 a.m. during a marathon public meeting that began Wednesday night and went through the early morning hours. The vote came seven hours after the start of the meeting because the majority of the time was spent on an unrelated issue on the agenda. The resolution's passage, along with the county's 28 to 1 approval last month, means the application can now be forwarded to the state, which must finalize the arrangement.

            Greenbaum and other critics, however, are growing vocal in their condemnation as the program's July 31 expiration date approaches. If Governor George Pataki intends to extend the program through 2009, as he has proposed, it should be reformed so public money is no longer used to finance incentives for wealthy suburban corporations, critics say.

            While members of county and municipal governments who support the program say it does not take a penny from local coffers, critics point out that, as state taxpayers, the residents of these communities are still financing the operation.

            "We're all New York State taxpayers, so we're all paying for this," said Ray Tierney, the only Brighton councilmember to vote against the resolution. "Brightonians are paying for this."

            Before casting his vote, Tierney praised the companies interested in moving to the location as exactly the type of businesses the program hopes to attract. His concern, he said, was that approval would create a rush of applications from other companies who want the same benefits at similarly desirable locations.

            "Suburban expansion was never what this was supposed to do.... The program was not designed to do that," Tierney said.

            Impact Technologies has had Empire Zone designation for the past two years at its current location in the Rochester Institute of Technology High Tech Incubator, but it has filled its space and no longer has room to grow. Impact Technologies has doubled its employee base in Rochester since 2002, and Redding estimates the addition of 10 new jobs a year.

            Unfortunately, he says, without the enticements presented by the Empire Zone program, and taking into account Pennsylvania's offer, it would make more sense from a business perspective to develop in Pennsylvania.

            That is a point even Tierney does not argue against. The program is set up in such a way, he says, that businesses can maximize incentive offerings by playing one state against another. He is considering the suggestion of federal regulation, since the program is involved in interstate commerce and competition, to prevent companies from relocating from state to state every time a new offer is made.

            "I think Empire Zones are an evolution, and I don't think you've got it yet, but there are some positives," Tierney said.

            E-chx Incorporated, the other company ready to move into 200 Canal View, employs 18 persons at its two Rochester offices, and wants to create an additional 30 positions. The alternative is to expand at its Atlanta location.

            "Right now, the company is at a crossroads," said executive vice president John Zimmer.

            Job growth is required for a company to receive full benefits of the program. It has been an issue, however, as the positions are not appearing as quickly as expected. A recent inquiry by State Comptroller Alan Hevesi shows that 70 percent of companies granted Empire Zone benefits failed to deliver on job projections.

            Another report, by State Assemblyman Richard Brodsky, a Democrat from Westchester County, says there is a correlation between the companies receiving benefits in Monroe County and their political contributions to the local Republican Party.

            In response to the concern about job creation, attorney Michael Townsend, who represents the joint interests of Flaum, E-chx, and Impact Technologies, said his clients have implemented a contract with the county that guarantees a certain amount of job growth within two years. If the projections are not met, the county can revoke the Empire Zone designations of E-chx and Impact Technologies, according to the contract.

In a joint statement issued by Metro Justice, the Monroe Greens, and the Sierra Club, a 10-point plan is offered to reform the Empire Zone program. Among the changes are a provision that would require each participating business to make a full, annual disclosure of the benefits received, and the jobs the company has created. Also, the plan calls for a halt to the current yearly boundary amendment provision that, the reformers feel, has opened the administration of the zones to "favoritism and corruption."

            Empire State Development chairman Charles Gargano, who is also a top advisor and close friend of Pataki, says the public should not be dismayed by the program's failure to deliver on its predicted job growth, as it is not the only criteria in considering success.

            "What we have to do is not discount companies that come in to a community and are unable to create jobs right away," Gargano said during a brief stop in Rochester last month. He looked forward to working with Hevesi to make necessary adjustments to the program, he says.

            "The whole idea is to energize these zones with business," Gargano said. This is done mainly through job creation, he says, but also through other means, including the general "economic activity that benefits the community."

            "It's not true that companies get benefits without creating jobs," he said. "Our mission is to keep these businesses alive during the difficult periods."

            As of 2002, Gargano said, 257,000 people were employed at zone businesses, and job growth in the state's Empire Zones outpaced the national average by 11 percent.

            Gargano is soliciting ideas and listening to concerns of economic development and business leaders throughout the state. Asked what kind of feedback he heard from local executives, Gargano said businesses seem to want more flexibility within the program.

            "Reforms are needed because the economy changes over time. A hard, fixed program will not work," Gargano said. "We have to meet the needs of the times."