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Give tax breaks only after recipients create jobs

For those who abhor haggling over price, a

For those who abhor haggling over price, a new service from AARP lets consumers shop for a car online. Above, a car dealership in Moline, Illinois, on Friday, Oct. 26, 2012. Credit: Bloomberg / Daniel Acker

Deep in the agreement between developer Bruce Ratner and Nassau County to redevelop the Nassau Coliseum site is a daunting clause. The lease indicates Ratner doesn't believe he can pursue the project without the help of the Nassau County Industrial Development Agency. If one of the most valuable properties on Long Island can't be developed in a way that allows it to pay its full share of taxes, something is very wrong.

IDAs arrange breaks on taxes and can provide tax-free financing. In theory, they do so only to facilitate new jobs or keep companies in the area. But when business owners say they need the discounts to stay afloat, expand or resist an offer to move, it's almost impossible to tell whether they really must have them to succeed.

Supposedly breaks are given according to strict rules, but on April 7, South Shore Honda in Valley Stream became the fourth Nassau car dealership in the recent past to receive IDA breaks. It was granted a $43,000 sales-tax exemption and a 12-year property tax discount. But a 2013 state law bans retail businesses from getting such deals. The Nassau IDA gets around the rule by granting a tourism exemption, saying the dealerships draw business from outside the county.

In theory, tax breaks should be clawed back when companies don't live up to their promises. But the rules are often fudged and money isn't returned. In 2007, the Nassau IDA provided tax breaks and tax-exempt bond financing to Johnson & Hoffman, a Carle Place metal-stamping business, for the promise that it would add 20 jobs to its 79-worker force. The jobs were never added. The money was never recouped. Incredibly, Johnson & Hoffman is asking the IDA to transfer its property-tax break for the final two years of a 10-year agreement to a prospective buyer of the company.

The entire IDA system is a mess, particularly on Long Island. There are eight IDAs -- that's too many -- and they often compete. The IDAs are funded by the fees of those who apply for breaks, so the agencies have a vested interest in granting them. Too often the IDAs seem to bend the rules to grant the breaks, which shifts a greater burden to homeowners and other taxpayers who get no breaks. And the fact that applications so often come from politically connected business owners and lawyers throws more doubt on the process.

Gov. Andrew M. Cuomo wants to reform the system by requiring that New York's Empire State Development agency approve any deal that discounts the state's 4 percent sales tax or its mortage-recording tax. He's gotten pushback from the IDAs and the State Legislature. He's right, though, and he should persist -- and push for another change. Rather than granting businesses discounts based on promises of future job creation, why not allow IDAs to grant tax rebates only when promises are kept, or hold the money in escrow until benchmarks are met? It's easier to withhold money than to get it back.

Practically every state and region grants tax breaks to lure or keep businesses. Unilaterally disarming here by ending the IDA system won't work. But making companies live up to their promises and IDAs follow the letter and spirit of the rules in granting them should work.