Apples, oranges & anomalies

“Legoland needs to get their hands out of taxpayers’ pockets,” said James Skoufis last week in an angry statement issued jointly with fellow freshman state senator Jen Metzger of Rosendale. “Their audacity knows no bounds. Millions of dollars of so-called incentives and excessively generous property-tax breaks apparently aren’t enough. The Orange County Legislature should reject Legoland’s request for publicly funded advertisements and make them pay for their own marketing, like every other corporation.”

The $500-million Legoland theme park in Goshen has promised to employ 1200 people when it opens next week. The project has received $25 million in state grants for infrastructure, will pay a projected $89 million in property taxes, and has been granted a 20-year property-tax abatement worth $37 million from the Orange County Industrial Development Agency (IDA). Legoland now wants Orange County to contribute from $750,000 to a million dollars a year for a joint county tourism advertising campaign. 

What if you are uncomfortable with offering tax incentives to businesses to locate in your jurisdiction, worrying that the jobs you are competing for in exchange for those incentives might not be worth the losses in revenues to which you are agreeing? Worried about corporate welfare? What should we be doing differently to spur economic development? In Ulster County as elsewhere, the folks who give the tax breaks are pondering the answers to these questions.  

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The answers aren’t always obvious. Reactions to the withdrawal of Amazon from its proposed Long Island City HQ2 project, for instance, shows some experts very happy, others equally unhappy. The governor said on March 1 that Amazon wasn’t coming back.

Economist and social critic Richard Florida of the think tank CityLab detects a growing consensus that handing over taxpayer-funded incentives to large corporations is wasteful and ineffective. He has just offered a sensible six-point program to get economic development on a better track. Whether you agree with him about the value of big incentives in some situations or not, the last five points (the first is “Just say no to incentives”) are worth listening to. Here they are:

Invest in local clusters and ecosystems. Various cities, not just tech hubs or diverse metropolises, have been successful in leveraging clusters of industries.

Work closely with anchors. Working with local universities and anchor institutions, cities can invest in local placemaking, upgrade jobs and seek broad community improvement.

Leverage talent. Not only business but talent contributes to economic development. Talent-driven strategies should engage not only highly educated people but the entire workforce.

Foster quality of place for everybody. Place matters for attracting talent and business. Quality of place works best when it is inclusive, involving the less advantaged as much as the advantaged.

Make equity and inclusion a priority. Florida argues that players and stakeholders from all social levels must be included, leading the push to provide affordable housing and the boosting of blue-collar incomes.  

About 20 years ago, New York State established a uniform tax exemption policy, or UTEP, for local IDAs. Prior to financing development projects, industrial development agencies had to adopt guidelines for property-tax exemption policies. According to a 1998 13-page state assessor’s manual, the ten-item list of what the IDAs needed to consider was varied and vague, leaving the need for lots of local judgment. Items on the UTEP list included the number of permanent jobs, the amount of the tax break, a provision for non-performance (“clawback”), impact on other businesses and projects, amount of money invested, degree of public support, likelihood of successful conclusion, effect on the environment, effect on the need for public services, and provision of revenues for the taxing authorities.

Ulster County adopted its UTEP and a few years ago updated it. The UTEP awarded points for projects submitted to it, and adopted two schedules, one for graduated abatements over ten years and another diminishing in steps over 15 years. Though the formulae were bound to be imperfect, UTEP was better than its predecessor — which was nothing at all.

The major difficulty with the UTEP matrixes which the Ulster and other IDAs have been using to consider projects is that they mix apples and oranges. Their strict application creates anomalies — deviations from what is normal or expected. Can applicants game the system, taking advantage of its imprecise guidelines? If so, the IDA goal of providing appropriate public inducement for selective economic development gets lost in the shuffle. 

Suppose a project creates lots of jobs and has local support but causes severe damage to the environment or is out of scale in its neighborhood. Or suppose the opposite: it has no negative environmental or neighborhood consequences but creates few jobs and has local opposition. Counting points is beside the point. Though sometimes useful measuring tools, matrixes using point systems at present lack nuance.

Rick Jones of Kerhonkson, a retired banker and chair of the audit committee of the Ulster County IDA, points to a June 2017 inducement to Saugerties NY Hospitality LLC for a 53,000-square-foot hotel off Route 32 near the southbound Thruway entrance/exit in Saugerties. The applicant’s UTEP project score, twelve points or more, entitled it to a 15-year tax-exemption schedule (payment in lieu of taxes, or Pilot), of 100% the first five years, 75 percent for years six through eight, 50 percent through year ten, and then declining five percent a year thereafter until its expiration in 2032. The application for the project, an 86-room seven-million-dollar Holiday Inn, promised the equivalent of 11.43 full-time jobs. 

The IDA unanimously passed the inducement resolution, which with $1.506 million in property-tax exemptions, about $350,000 in sales-tax exemptions and $41,340  of mortgage-tax relief will provide total benefits to the developer of $1,896,926. Jones points out that’s about $166,000 in benefits per job. Many hotel jobs are notoriously ill-paying. (In the closing document, the number of jobs was raised to 14.)

The local jurisdictions — town, school district and county — signed off on the Saugerties NY Hospitality deal. Twenty-one months later, a standard four-story Holiday Inn is under construction, sited on a ten-acre parcel carved out of the eastern edge of Winston Farm. The property off Route 32 will be located next door to the Sunoco gas station about which the DEC had concerns about groundwater contamination and to the now-uninhabited centuries-old stone house of the Trumpbour family. Owner Bill Trumpbour, a well-known Saugertiesian, died last month. 

The Holiday Inn will probably be open for business in a few months. The 86-room lodging facility will be competing most directly against the nearby 83-room Howard Johnson by Wyndham and the 65-room Comfort Inn, both of which pay property taxes. 

Jones wants to know whether that tax abatement should be considered an anomaly. He, IDA chair Randall Leverette and other members are wondering about a 15-year Pilot for a project creating only that number of jobs. Jones is recommending the IDA form a committee to take a good look at whether the current UTEP needs revision. He thinks it does.

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