Proposed changes to how New York State and local governments award tax breaks to businesses are gaining support on Long Island and elsewhere as more homeowners become alarmed by their ever-larger tax bills.
Reining in the activities of industrial development agencies, which grant tax incentives on behalf of counties, towns and cities, and Empire State Development, the state’s primary business-aid agency, is a priority for Democrats, who now control both houses of the State Legislature for the first time in nine years.
State lawmakers are expected to consider bills that would increase public participation in the awarding of tax incentives and provide new tools to evaluate their effectiveness at creating jobs.
Lawmakers are responding to taxpayer anger, which, they said, is fueled by three factors: 1) smaller federal income tax refunds this year because of a new $10,000 cap on the deductibility of state and local taxes, or SALT; 2) projected higher property taxes for more than half of Nassau County homeowners after the first property reassessment in almost decade; 3) $2.8 billion in tax breaks promised to Amazon in exchange for putting a $2.5 billion second headquarters in Long Island City, Queens, in the hope that the online retailer will boost the local tech economy.
“Homeowners are fed up with tax breaks for businesses because we have to pick up the tab for the lost revenue, we have to pay more … It doesn’t seem fair,” said Laura Schultz, president of the 200-member civic group Residents for a More Beautiful Syosset.
She has watched the Nassau County Industrial Development Agency for 20 years give millions of dollars in tax breaks to building projects and growing companies. She’s testified at the agency's public hearings and board of directors’ meetings.
“IDAs need to reach out to the community that is affected by the tax breaks before a deal is negotiated … We want a seat at the table,” Schultz said.
She and others are calling for IDA public hearings on proposed incentives to be publicized beyond the required newspaper advertisement. They want the hearings to be held in the evening, so more people can participate. The reformers also want IDA board meetings to be held after work and school hours.
IDAs are public authorities run by appointed boards that operate independent of local government. Their mission, under a 1969 state law, is to grow the economy by granting tax incentives to expanding businesses that retain and create jobs.
Statewide, there are more than 100 IDAs, including eight on Long Island. Besides the Nassau IDA, there are agencies for Suffolk County, the City of Glen Cove and the towns of Babylon, Brookhaven, Islip, Hempstead and Riverhead.
The Island's IDAs, as a group, saved companies $153 million in taxes in 2017, according to a Newsday analysis of state filings. IDAs offer reductions in property, sales and mortgage recording taxes for 10, 20, and in a couple of instances, 40 years.
The IDA aid in 2017 was spread among 809 projects in Nassau and Suffolk counties, which together created 43,637 jobs. The analysis showed that aid recipients, on average, saved $3,509 in taxes for each job they created.
In addition, Empire State Development, which offers grants and loans as well as tax breaks, gave more than $15 million to Long Island businesses in fiscal 2017-18.
Recipients of the biggest incentive packages from IDAs and Empire State Development in recent years include camera and imaging giant Canon U.S.A. in Melville, drugmakers Amneal Pharmaceuticals in South Yaphank and Contract Pharmacal in Hauppauge, and Dealertrack, a North Hills developer of software used by automobile dealerships.
Critiques of IDAs are far harsher than those of ESD, at least locally.
“In the past few years IDAs have gotten such a bad name with residents,” said State Sen. Todd Kaminsky (D-Long Beach). “Developers know that if they ask for IDA benefits, the public will rise up against their project.”
Two recent controversies in Kaminsky’s Senate district angered homeowners: multiple aid requests from the developer of waterfront apartments on Long Beach’s Super Block parcel, which were rejected by the Nassau IDA after contentious public hearings; and increases of up to 14.24 percent in homeowners’ tax bills because of a budgeting error by a Valley Stream school district over tax breaks that the Hempstead IDA granted to Green Acres Mall and the adjacent Green Acres Commons shopping center.
Kaminsky said he wants IDAs to livestream their meetings over the internet, to provide more information to school districts and other affected groups about the impact of potential tax deals before they are approved, and to stop paying elected officials and political party leaders for legal work and other services.
Kaminsky said he is optimistic his proposals will win legislative passage this year because of Long Islanders’ anger about rising property taxes and the Amazon HQ2 deal, which the Senate’s No. 2 Democrat, Michael Gianaris of Astoria, Queens, has said he will try to derail. The Amazon incentives were negotiated by Gov. Andrew M. Cuomo and Mayor Bill de Blasio.
Some of Kaminsky's proposed changes may not be practical, said IDA lobbyist Ryan M. Silva, executive director of the New York State Economic Development Council, which represents IDAs in Albany.
He said he would be uncomfortable with a state requirement that all IDAs livestream their meetings. He said some already do so, “but my biggest concern is the capacity of every IDA to do that and the value it would play” for citizens.
Silva added, “IDAs mitigate the growth of taxes for businesses over time in return for those businesses making investments, hiring people and creating net new wealth in the community. IDAs create a higher quality of life within the community.”
Tax breaks rarely neutralize the full effect of Long Island’s high costs compared with those of other U.S. regions, particularly in the South and West.
“Even with our tax incentives, it’s still not a level playing field,” said Anthony J. Catapano, executive director of the Suffolk IDA.
Projects supported by the Suffolk IDA created the most jobs among Long Island's eight IDAs in 2017: 15,836. That's almost double the 8,658 jobs created by projects backed by the Nassau IDA, which ranked second.
However, the tax savings for businesses helped by the Suffolk IDA were the lowest, at $756 per job, according to the Newsday analysis. Nassau IDA clients saved $5,687 in taxes per job, while companies aided by the Glen Cove IDA saved the most, $23,978 per job.
Some IDAs, responding to taxpayer criticism, are changing their ways.
Last year the Nassau IDA began holding informational meetings for the public every three months and prominently posting a board meeting schedule on its website. The agency now is looking to boost participation at public hearings and change the fees charged to applicants.
“While we are following all the legal requirements, I think there may be an opportunity to go beyond that,” said Richard Kessel, Nassau IDA executive director.
Separately, state Comptroller Thomas DiNapoli has resumed auditing IDAs after a hiatus given them to implement 2016 reforms that he pushed for. The reforms include a requirement that IDAs claw back tax benefits when companies fail to keep their employment promises.
Good-government groups are calling for more disclosure of incentives by IDAs, Empire State Development and others. They want ESD to create a “database of deals,” which would serve as a clearinghouse for every government incentive given to every business.
“The only way to know whether these programs are effective in creating jobs is to first collect and report the data, and then to have it evaluated independently” from the agency granting the tax breaks, said Riley Edwards, an incentives expert at the Citizens Budget Commission, an influential fiscal watchdog in Manhattan.
She said she hopes the controversy over the size of the Amazon HQ2 incentives will spur adoption of a state law establishing the deals database.
ESD CEO Howard Zemsky disputed the need for further disclosure, saying more information is released now “than at any time in the state’s history.”
ESD's website has data on 6,000 projects, an annual report of agency activities and quarterly reports on high-profile programs. “It would be hard to imagine digesting more information than what we provide at the moment,” he said.
Schultz, the Syosset civic leader, said she hopes that state leaders take a critical look at economic development programs. In the meantime, she will continue to question the usefulness of IDAs.
Last month Schultz implored the Nassau IDA not to grant an additional 10 years of tax breaks to Southern Glazer’s Wine & Spirits, a liquor distributor that plans to expand its 467,000-square-foot complex on Underhill Boulevard in Syosset.
Without the tax-break extension, valued at $18 million, Southern executives said the company would expand in New Jersey. The Miami-based business employs 1,060 people locally and has annual sales of more than $20 billion, according to its attorney.
Less than a half-hour after listening to Schultz’s concerns, the Nassau IDA board voted unanimously to approve Southern’s new tax incentive package.
Days later, Schultz said, “We’re being held hostage. It’s a no-win situation for the residential taxpayer, and we’re tired of it . . . We’re mad as hell, and we’re not going to take it any more,” she said, quoting the angry television anchor in the movie and Broadway show “Network.”
CHANGING ECONOMIC DEVELOPMENT
State lawmakers, good-government groups and civic associations have proposed changes to how tax breaks are awarded to expanding businesses by local industrial development agencies and Empire State Development, the state's primary business-aid agency. They include:
* Schedule public hearings and IDA board meeting in the evening so more people can attend.
* Prohibit elected officials and political party leaders from receiving compensation from IDAs.
* Estimate the fiscal impact for school districts and other taxing jurisdictions of tax incentive packages before they are approved.
* Create a statewide database of all IDA deals that can be used to independently evaluate their performance.
* Restrict IDAs to one per county.
* Require all benefits to be awarded based on a company's record of creating jobs and investing, and use the same criteria for all programs.
* Create a statewide database — including all ESD and IDA projects and their incentives — that can be used regularly to independently evaluate their effectiveness.
* End tax breaks for film and television production and postproduction activity and for technology startups that move to college campuses.
* Reduce discretionary capital grants.
* Make fewer but larger funding awards via the annual Regional Economic Development Councils' competition.
* Devote more attention to effective employee training, particularly programs for the poor.
— Compiled by James T. Madore
SOURCES: The Pew Charitable Trusts, Citizens Budget Commission, NYS Legislature