Hochul proposes remake of 'pay no taxes for 10 years' program
Codagenix Inc. in Farmingdale, a maker of vaccines from live viruses, left the Start-Up NY program in 2017. Credit: Newsday/John Paraskevas
A state program in which technology startups pay “no taxes for 10 years” if they locate on or near a college campus would be revamped under a proposal from Gov. Kathy Hochul.
The 10-year-old Start-Up NY program would be replaced by the Extended Prosperity and Innovation Campuses initiative. It would continue the offer of tax-free status to small tech firms with strong collegiate ties.
But the revamped program would be open to “a wider range of innovation businesses, be streamlined to remove barriers,” and provide them with more office and laboratory space, Hochul said in her 2023 State of the State policy book.
Hochul is the second governor to propose a remake of Start-Up NY since it launched in spring 2014. The program has struggled to attract and retain companies on Long Island and elsewhere despite the state spending $53 million in advertising in its first two years.
WHAT TO KNOW
- The Start-Up NY program, which exempts tech firms from state and local taxes for 10 years if they locate on or near a college campus, would be revamped under a Hochul proposal.
- The program has struggled to attract and retain firms, with the dropout rate on Long Island reaching 54%.
- Hochul would keep the tax breaks but broaden eligibility and drop the Start-Up NY name.
On the Island, the number of Start-Up NY participants has gone from 28 in its first years to 11 in 2020, the most recent available data from Empire State Development, the state’s primary business-aid agency.
Most of the startups that have dropped out or been decertified are still operating. The Island’s loss rate of 54% in 2017 was more than double the statewide rate of 24%, according to a Newsday data analysis at the time.
Hochul acknowledged Start-UP NY’s challenges, saying it “was hamstrung by its design,” in particular program requirements, tax benefits and eligibility criteria that differ between downstate and upstate.
Details about the replacement program won’t be revealed until Hochul presents her 2023-24 state budget proposal this month, said spokesman Justin Henry.
Executives of former Start-Up NY participants said the program requires too much paperwork annually for a business to qualify for not paying state and local taxes and for their employees to be exempt from the state income tax. The tax savings is for up to 10 years.
"The program did not provide much of a benefit" for startups that don't yet have sales, said Marc Alessi, CEO and co-founder of SynchroPET Inc. in Ronkonkoma.
The startup, which left the program, has come out with a scanning device based on technology from Brookhaven National Laboratory. The device can be used to monitor the reaction of mice and rats to drugs under development and also in human imaging.
Alessi, who also serves as executive director of the 115-member Business Incubator Association of New York State, said, “All of the incubators that worked within the Start-Up NY framework appreciated the goals” of attracting businesses to campuses and commercializing research. “But we all felt that it was a clunky program,” he said.
Three years after Start-Up NY was launched by then-Gov. Andrew M. Cuomo, he proposed to tighten the eligibility criteria, require fewer reports on the jobs created, and change the name to Excelsior Business Program. He also wanted to lower the number of jobs that a firm had to create to secure tax-free status, from at least one job for every year in the program to one job in the first five years.
The State Legislature only agreed to the fewer employment reports.
11 participants on LI
If Hochul’s proposal is adopted, it would likely affect the 11 Start-Up NY participants on Long Island, most of them at Stony Brook University.
Together, the tech firms had 40 employees and invested $262,954 in their operations in 2020. In return, the firms and their workers saved $210,365 in taxes.
Statewide, Start-Up NY had 200 participants in 2020 that invested a total of $28.2 million, employed 2,154 people and saved more than $15 million in taxes, state records show.
Before adopting Hochul’s proposal, lawmakers “should closely study the shortcomings in Start-Up NY, beginning with the inconsistent manner in which net new jobs are counted,” said Ken Girardin, an economic development and labor policy analyst at the Empire Center for Public Policy, a conservative think tank in Albany.
He and others questioned whether tech firms would have invested in their operations and created jobs even if they didn't receive tax breaks.
Lawmakers “need to look carefully at what is a new investment and new growth as opposed to simply being cannibalized from other places in New York” to qualify for the tax-free status, Girardin said.
James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.
