FOR RELEASE:

Reports Find Poor Oversight, Mixed Job Growth Results
in Three New York City Empire Zones

South Jamaica Empire Zone a Success in Job Creation

Some Firms Don't Meet Goals but Still Receive Tax Breaks,
Poor Records Mean Total Costs and Benefits Are Unknown

Reports on three Empire Zones in New York City found that the Zones are poorly administered, keep inadequate records, and do not hold firms that receive tax breaks accountable for actually producing jobs, New York State Comptroller Alan G. Hevesi announced today. Auditors determined that individual Empire Zones have routinely failed to do the basic analysis needed to determine whether the tax breaks given to businesses are cost-effective or if businesses were reporting accurately about the number of jobs created.

The reports reviewed the operations of Empire Zones located in South Jamaica, Queens; East Harlem, Manhattan; and North Shore, Staten Island by examining self-reported job creation and tax credit information and other data.

These reports – which amplify findings from a similar report on Empire Zones in other areas of the state released last week – found that::

• In South Jamaica, 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. However, the businesses that did create jobs dramatically exceeded their targets, so overall job creation in the South Jamaica Empire Zone was strong.
• In East Harlem, 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, 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.
• Fewer businesses were successful in the City than in the rest of the State. In all three City zones, more than 40 percent of businesses added no jobs or lost jobs, compared to 23 percent in the eight zones outside the City.

“Giving companies tax breaks is giving away real money, and Empire Zone officials must ensure that the tax benefits actually create jobs and healthy companies,” Hevesi said. “There is no question that some companies that receive tax breaks are creating jobs and generating economic activity. But we should take a careful look at the ways that the program is not succeeding so that we can fix the Zones that are not working in order to create more jobs. This is essential information for the Assembly, Senate and Governor as they take up Empire Zone reauthorization legislation in the coming months.”

“Our analysis is based on the Business Annual Reports (BARs) that each business in the Zone submits annually to the local Zone Administrative Boards (ZABs),” Hevesi noted. “The State Department of Economic Development (DED) maintains that much of the responsibility to manage the Zones lies with these local boards, but local officials have told us that DED must improve its oversight of the program. The way it stands now, the end result is that we have no way of knowing whether the hundreds of millions of dollars in tax breaks businesses receive each year are actually creating the desired economic benefits.”

The audits also found the following:

• In general, the local Zones do not collect the data necessary to conduct cost-benefit analyses for most tax breaks. Auditors were able to complete a cost-benefit analysis for a small sample of businesses in the South Jamaica zone, and found that the benefits provided by these businesses exceeded the state and local tax breaks they received by over $2.5 million in 2002.

• Three other businesses in the South Jamaica zone reported that they lost jobs but were still claiming tax benefits totaling $40,000.

• One business in the East Harlem Zone reported receiving tax benefits of $527,500 in 2002 while creating just one full-time job and one part-time job that paid a total of $14,080 that year and reporting no other investment in the Zone.

• A cost-benefit analysis of four businesses in the North Shore Zone, found that increased payroll and investments surpassed state and local tax benefits by more than $19 million.

• Six other businesses in the North Shore zone reported that they lost jobs but were still claiming tax benefits totaling $15,600.

• In both the East Harlem and North Shore Zones, more than 80 percent of the jobs created were part-time, rather than full-time.

• Zone boards can work with DED to decertify Zone businesses for failure to meet job creation goals, but the East Harlem Zone coordinator had not considered such action, and the South Jamaica and North Shore coordinators said that they would not decertify a business for failing to meet its goals.

• Information in the BARs is self-reported by the businesses and not verified with data from any other sources by local Zone administrators. However, this information is used by the Zone boards to prepare the Zone Annual Report (ZAR) to the DED. Auditors identified inconsistencies in job creation results and other data included in ZARs from the three zones.

There are 72 Empire 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.

The legislation that established Empire Zones is scheduled to expire later this year.

Last week, the Comptroller released an audit of eight Empire Zones located in areas of the state other than New York City (Binghamton, Buffalo, Friendship [Allegany County], Islip, Rochester, Syracuse, Tonawanda and Yonkers), part of a comprehensive study of Empire Zones. Additional reports will be released when they are completed.

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Internet: http://www.osc.state.ny.us
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