When Kathleen King of Tate's Bake Shop needed to expand a wholesale bakery in 2006, she turned to a surprising partner: New York State.
King ultimately struck a deal with state development officials that gave her tax credits and other benefits, in return for a promise to hire 50 workers by 2012. So far, she's hired 46; she expects to meet her deadline, but could lose tax credits if she fails.
As small-business owners face tight credit and qualms about expansion, state development aid can help. Such aid can "provide 'seed' support to help small firms get some stability through low-cost facilities and access to below-market financing," said Dave Flynn, professor of management at Hofstra University in Hempstead. But if job creation falls short, businesses can find themselves giving up tax breaks, potentially disrupting their finances.
King originally ran a retail bakery located in Southampton, which she retained after a prior business partnership went sour. As demand for her products grew, she expanded beyond her retail baking business and, by August 2001, started operating a wholesale division, Tate's Wholesale Bakery Llc. With gross sales increasing at about 30 percent a year, she needed more space.
Her business manager, Michael Naimy, told her about a business development program then offered by New York State. A manufacturer promising to create at least 50 jobs and agreeing to make physical improvements on a property could qualify for tax credits. (The Empire Zone program King used has been replaced by the Excelsior Jobs Program for high-tech, biotech, clean-tech and manufacturing industries that agree to hire between 10 and 300 people, depending on the industry.)
High prices took Southampton out of the running for her expansion, but King wanted to be less than an hour from the retail store there. She settled on an East Moriches property that included a 26,000-square-foot building on four acres, which she bought for $2.2 million.
While King won't disclose the amount of her credits, they include a refundable credit against business or income tax based on property taxes paid, as well as potential utility rate savings and credits or refunds on state sales taxes.
Now, revenues are $12 million to $14 million a year, King said, and the company is planning a 15,000-square-foot addition.
The wholesale bakery uses an estimated 10,500 pounds of butter, 9,500 pounds of flour, 14,500 pounds of sugar and 10,000 pounds of chocolate weekly, and produces 60 million cookies a year. Chocolate chip cookies are the top seller.
King said her experiences with the development aid have been favorable.
A representative for the Empire State Development Corp. in New York City said if King's company missed its 2012 target of creating 50 jobs, it could be decertified and lose its remaining tax credits. King said she is unconcerned because she has created 46 jobs thus far and plans to add 12 more in 2012.