FOR RELEASE:

Hevesi Empire Zones Reform Proposal Focuses on Stronger Administrative Role For DED

State Comptroller Alan G. Hevesi today called for more comprehensive reporting of benefits provided to companies through the State’s Empire Zones program, a stronger administrative role in the program for the State Department of Economic Development (DED) and additional reforms aimed at refocusing the Empire Zones program on its mission of creating jobs and attracting private investment to stimulate economic activity in struggling communities around the state.

Hevesi’s reform proposals were detailed in a report on the Empire Zones program that was issued today, along with an audit of DED’s administration of the program. The Comptroller’s proposed reforms include:

• Creating an Empire Zone Oversight and Designation Board to monitor and report on the overall effectiveness of the program, and to remove from the program businesses and Zones that consistently fail to meet their job creation and investment goals.
• Making DED responsible for the preparation of annual reports for each zone. Currently, each zone prepares its own Zone Annual Report (ZAR), and auditors found that the different zones do not calculate results and interpret information in the same way.
• Requiring DED to prepare an annual assessment of the program, including a cost-benefit analysis of the program and Zone specific performance data that would consider the range of economic factors influencing each area.
• Changing the Business Annual Report (BAR), prepared and submitted by every business in a Zone, to provide more information related to the cost and efficacy of the program, as well as its impact on communities and their residents.
• Stipulating that local Zone Administrative Boards review businesses in the Zone every two years and ensure that they are making progress toward job creation goals.
• Verifying reported data on tax benefits and job creation with the State Departments of Labor and Taxation and Finance, while protecting the confidentiality of important proprietary information about Zone businesses.

“The sunset of Empire Zone authorization legislation this summer is an historic opportunity to reform the program and to address one of its most significant flaws – the lack of reliable data on the cost of the program and the benefits it generates,” Hevesi said. “Based on our audits of Empire Zones around the state and of DED’s administration of the program, we have developed a reform plan that outlines strategies for improved oversight of the program and more comprehensive data collection from participating businesses and from the Zones themselves.”

The audit of DED’s administration of the Empire Zone program found that weaknesses in the BARs and ZARs make it difficult to assess the benefits and costs of the program to the State and participating localities. Auditors noted that the BARs do not include information on utility cost discounts, local benefits received, or the salaries of jobs created. Businesses report estimated state tax credits rather than actual credits claimed, further limiting the reliability of data.

Auditors analyzed a random sample of BARs from 2002 and found that 27 of 103 businesses – 26 percent – that were required to submit a BAR had not done so. Auditors compared business certification applications to BARs for 54 businesses and found that only 18 – 33 percent – had met their job creation goals.

Auditors also noted that DED has not put forth specific job creation and investment criteria for the designation of Empire Zones, and that DED officials are not obligated to document the reasons that they recommend particular areas for Zone designation.

Hevesi’s reform proposal would prevent DED employees from holding voting positions on the Zone Oversight and Designation Board, but would still allow DED to provide staff support. Under Hevesi’s plan, the Board would have four voting members, two appointed by the Governor and one each by the Senate Majority Leader and the Assembly Speaker. Other administration officials currently on the Board would continue to serve, but in an ex-officio capacity.

“Our proposed separation of roles on the Oversight and Designation Board is consistent with corporate governance principles we have advanced for private firms,” Hevesi said. “I’m encouraged that DED officials have been receptive to this and other proposals to strengthen the program and that they agreed with 14 of the 17 recommendations included in our audit.”

The Comptroller’s office released audits of 11 Empire Zones last month. One audit examined Zones located in Binghamton, Buffalo, Friendship (Allegany County), Islip, Rochester, Syracuse, Tonawanda and Yonkers and found that, while 30 percent of the businesses that received tax breaks met or exceeded their job creation targets, 47 percent created fewer jobs than they promised and 23 percent actually lost jobs.

Audits of three Zones in New York City found:

• In South Jamaica, Queens, 39 percent of businesses met or surpassed job growth targets, 16 percent created fewer jobs than projected and 45 percent added no jobs or lost jobs.
• In East Harlem, Manhattan, only 15 percent of businesses analyzed – just 2 establishments – met or surpassed job growth targets, while 38 percent created fewer jobs than they promised and 46 percent added no jobs or lost jobs.
• In North Shore Staten Island, 20 percent of businesses analyzed met or surpassed job growth targets, 34 percent created fewer jobs than they promised and 46 percent added no jobs or lost jobs.

The legislation that established Empire Zones is scheduled to expire later this year. There are 72 Zones throughout New York State, including ten in New York City. To be eligible to become an Empire Zone, local areas must meet certain criteria including measures of poverty, unemployment and economic hardship. Initially, Empire Zones were required to include part of the neediest census tracts in a given locality.

Businesses in the Zones – and, in some cases, residential property owners – can be eligible for tax benefits that include sales tax refunds on construction materials, real property tax abatement on property improvements, real property tax credits, wage tax credits, investment tax credits, sales tax exemptions and tax reduction credits.

While Hevesi’s proposed reforms focus on program weaknesses identified in his audits, other reform proposals from the Executive and the Legislature address broader issues including tax benefits and Zone boundaries.

Hevesi released his audit and policy report in conjunction with an Assembly hearing held today on the Empire Zones program.

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Click here for a copy of Comptroller's report on Reforms to Empire Zones Program

Click here for a copy of OSC audit of Department of Economic Development Administration of Empire Zones Program

Click here for a copy of Comptroller Hevesi's testimony at Assembly hearing April 26, 2004

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