Fortunately, all economic development initiatives are not run like New York State’s Empire Zones program. A 2004 report of The Office of the New York State Comptroller titled The Effectiveness of Empire Zones found that none of the zones investigated conducted an accurate cost-benefit analysis. The comptroller did estimate that in 2004 the Empire Zones program would cost the state $291 million dollars in lost revenue.
Proponents of the program could argue that an annual price tag of $291 million is adequate given the benefits yielded by the program. But the program has failed to deliver on its promise of economic vitality in distressed areas.
The Comptrollers report claims that:
• Less than one third of businesses met or exceeded their projected job creation goals.
• Thirty-two businesses admitted receiving benefits that exceeded the benefits bestowed upon the community by the existence of the business. The surplus is estimated at $112,500 per business.
• Businesses are only required to provide projected job creation numbers, and there is not an effective way in which to collect actual data of created jobs.
• The creation of Empire Zones is an incredibly political process, and thus zones are often created in non-blighted areas as political favors.
Recently there have been changes to the program. In April 2008 the state mandated that businesses receiving benefits must re-register to ensure that all those with a reduced tax burden deserve the lightened load. At a time when New York is facing massive budget cuts, it is important to investigate the effectiveness of the Empire Zones program. It is imperative to assess the costs and the benefits, and to assess how much of a firms locational decision is based upon such tax incentives. After all, if many states around the nation are offering similar economic benefits, which they are, then this undercuts the benefits offered by New York, and may merely amount to millions of dollars in lost tax revenue. Promises of ‘job creation’ and ‘localized economic vitality’ must be critically examined with sound data in order to better gauge the effects of this expensive economic development strategy.
The official blog for the Economic Development Division of the American Planning Association.
The 2004 report is available from the New York State Library Digital Image Project at http://www.nysl.nysed.gov/scandoclinks/ocm60812138.htm
ReplyDeleteA follow up report dated 2007 and entitled The Effectiveness of Empire Zones: Follow-up Report is available from the Office of the State Comptroller at
http://www.osc.state.ny.us/localgov/audits/swr/empirezones.pdf
The 2007 update refers to the 2004 report, makes note of legislative changes in 2005, including the requirement “that [Empire] Zones adopt a Development Plan and perform a cost-benefit analysis on each business prior to certification…” and presents the results of follow up investigation - which highlights that “Zone officials need to continue making improvements to verify that their Programs are creating jobs and improving the local economy. Otherwise, Zone officials cannot demonstrate that local taxpayers – the intended beneficiaries of this Program – have received any tangible benefits from the tax breaks provided to Zone-certified businesses.”
Other useful Empire Zone program information can be accessed from the State Department of Tax and Finance at http://www.tax.state.ny.us/sbc/empire_zone.htm
The Times Union, the local paper in Albany, NY recently ran an article addressing that the Empire Zones program is to sunset in 2010. The state is looking into similar programs for best practices to incorporate into a new and improved program. Here is the link to the article:
ReplyDeletehttp://www.timesunion.com/AspStories/story.asp?storyID=838285&category=BUSINESS