Are COMIDA tax breaks necessary?
The County of Monroe Industrial Development Agency may be called that because it is charged with spurring job creation and business investment locally via tax breaks and other incentives. But most projects in our area that benefit from taxpayer largesse don't involve industry or manufacturing.
And the projects create relatively few jobs per dollar in tax breaks awarded.
The government agency — whose appointed, volunteer board has a reputation for unanimously approving every project that comes before its members — offers development incentives to businesses in the form of tax-exempt bonds, and sales, property and mortgage tax breaks. But analysis of COMIDA's recent work shows the bulk of enterprises benefiting from those breaks is in the service, retail, finance, insurance and real estate sectors.
Critics say the agency isn't selective enough, that it offers up too many assists for projects that would likely have moved forward even without the incentives, letting developers pad their pockets on the taxpayers' dime.
"Some of the things COMIDA does are just great, but some others are just throwing money away," said County Legislator Paul Haney, D-Rochester. "Job location is an incredibly competitive business, and you're in competition with every county and every state. There are things that can just be placed anywhere and there is no question communities have to do what COMIDA does. But there's another class of projects where the location decision is very limited and depends on where the market is."
But supporters say given New York's overall tax climate, all businesses need the leg up COMIDA incentives provide.
"IDAs are a necessary reality, particularly upstate," said Greg Biryla, executive director of business lobbying group Unshackle Upstate. "Because of our tax rates, we do not have a competitive climate and we need IDAs to attract new companies, to allow existing companies to expand and to grow our economy and improve our quality of life."
Still, a look at COMIDA's work paints a picture of an agency with a potentially unfocused mission, in which some of the biggest tax exemptions are granted to seemingly thriving enterprises for the promised return of few created jobs, and others are provided for projects that promised no new jobs at all.
According to state Comptroller Thomas DiNapoli's office, COMIDA is not alone in seeing projects involving services, construction, finance, insurance and real estate surpass other purpose categories. Statewide in 2013, manufacturing and services each comprised about a quarter of projects receiving benefits.
There's a move afoot in Albany for IDA reform; legislation passed both houses of the Legislature in June that would require applicants to provide more precise information to allow for better cost-benefit analysis and require the agencies to come up with agreements that include recapture of benefits if job creation goals are not met.
What the data show
The Democrat and Chronicle reviewed data related to 539 active projects receiving tax breaks and other incentives for the three-year period of 2012, 2013 and 2014.
Overall, the total value of the projects was $4.1 billion, including the total value of the property and improvements receiving aid, as well as components that may not have been up for assistance.
In some cases, projects on the list were still receiving aid from multiyear benefit packages approved years ago. Often, the agency grants long-term property tax packages whereby the increased value of a site following development or renovations is phased in over time, with the benefiting company making an annual payment-in-lieu-of-taxes that increases incrementally each year until a pre-set termination date.
Here are some findings from the analysis:
Nearly a quarter of the projects projected no new jobs and 30 percent estimated creating one new job each. The greatest number of projected jobs for a single project was 350, associated with sales tax exemptions given for renovations for a new call center at a Xerox Corp. building in Webster.
Total net tax exemptions over the three-year period studied totaled more than $68.4 million. Overall job growth for all projects clocked in at 16,809, with an average of $1,558 in net exemptions granted per job gained.
Overall, the projects estimated creating 3,250 new jobs with an average minimum salary of $25,000. But, the projects also estimated retaining more than 49,500 jobs. And, 5,560 full-time equivalent construction jobs were associated with the projects over the three-year period.
Nearly a third of the projects had a stated purpose of "services," compared with 27 percent of projects proposed for manufacturing enterprises.
Over the three-year period, more than $39.3 million in PILOT payments were collected from developers of 228 different projects for the benefit of the county, towns, villages and area school districts.
Amit Batabyal, an economics professor at Rochester Institute of Technology, said what is underpinning agencies like COMIDA is the hope that incentives will not only draw in and retain new businesses, thus directly creating new jobs, but that each new project will also have a "multiplier effect," indirectly bringing in even more jobs.
"The question is, 'does this multiplier effect work?' and the evidence I'm aware of is mixed," he said. "It is hard for administrators to determine in advance which businesses will create these spillovers. Sometimes they get it right, but it's very much a mixed bag in terms of success, but the objective is always to get a bigger bang for the buck in terms of the raw number of exemptions granted."
As far as whether offering tax breaks for businesses is a necessary evil, Batabyal said "almost."
"Especially in depressed areas, and those areas where there is an outmigration of workers and jobs and when that is due to taxes as it is in New York, in that environment it becomes almost necessary," he said. "But I say 'almost' because of the uncertainty that offering incentives will bring the spillover administrators hope for."
Millions for malls
Two projects receiving the largest recent tax exemptions from COMIDA are renovations and redevelopment at The Mall at Greece Ridge and The Marketplace Mall in Henrietta. The departure of the Bon-Ton department stores left significant vacant space in both structures. In Greece, the mall has filled the spots in with newly built restaurants and retail, and in Henrietta, most of the empty space now houses Pole Position Raceway and the soon-to-come Dave & Buster's restaurant. A new Field & Stream sporting goods store in Henrietta is also covered by the Marketplace PILOT agreement.
Dennis Wilmot, senior vice president of mall owner Wilmorite Properties Inc., said the tax incentive agreements allowed the developers to have certainty about their tax burden for the next 20 years, which leads to better long-term planning regarding leases and financing.
As malls face increasing market pressure from customers buying goods and services online, economic assistance is becoming a more important factor for developers looking to fill vacant spaces, he said.
"Both the malls are vital to tax receipts for the town and the county, not only with property taxes but sales tax receipts," he said. "There are a lot of moving pieces for malls, and if you're not able to backfill these vacancies with good vibrant retailers and restaurants, there can be a ripple effect that degrades the surrounding retail and can snowball into a demise."
He pointed to the defunct Medley Centre, formerly Irondequoit Mall, as a cautionary tale. Once on a downward slide, that mall was unable to recover and despite tens of millions of dollars in exemptions granted to the site, there has been no redevelopment. That property is still among the list of COMIDA's top exemption-getting properties during the past three years, but COMIDA did move in 2014 to yank that site's tax breaks for failure to produce. The property remains in limbo now as a foreclosure action against owners Bersin Properties LLC and a lawsuit filed by Bersin against COMIDA make their way through the courts.
Wilmot pointed out that his company's Greece and Henrietta mall projects have met or exceeded all the estimates for job creation included in their tax break agreements. Both projects were to create a combined 150 jobs.
"You know, the public has a misunderstanding about these agreements too," he said. "Our taxes were not reduced, in fact, they increased and have annual increases for the term of the PILOT agreement. But it did provide us with tax certainty, not a tax discount."
Generally speaking, the state prohibits industrial development agencies from offering incentives for retailers, but there are still numerous available exemptions, particularly for projects that are in "highly distressed" areas, offer goods and services that are not already available in the municipality where they are located and are potential tourism destinations.
Top projects
The College Town development on Mt. Hope Boulevard near University of Rochester is also among the top 10 exemption-receiving projects of the past three years, as are renovations made by law firm Nixon Peabody LLC to the Clinton Square building downtown, the ESL headquarters project on Chestnut Street and ongoing work at what is now known as Alexander Park, the former Genesee Hospital on Alexander Street. Rochester Tech Park in Gates is a top-ranked beneficiary, as well as the Park Point development near Rochester Institute of Technology in Henrietta and the Southpoint Cove waterfront living complex in Penfield.
Over the time period analyzed, the top 10 projects received a total of $38 million in exemptions and made $17.6 million in PILOT payments. The projects promised an estimated 286 new jobs.
Paul Johnson, acting executive director of COMIDA said the companies making applications for incentives reflect the larger trend in Rochester's job market.
"If you take that macro view, you can see the area economy drifting away from a manufacturing economy to a service economy," he said. "It's not a Kodak town anymore, it's about things like University of Rochester/Strong, medical, services and research. We don't turn away any eligible applicants; we just react to what's going on."
But Ray Tierney, a former Brighton Town Board member and frequent COMIDA critic said that shows a lack of focus.
"There's a smart way of doing things, and then there's the way they fall into doing things," he said. "They've never sat down and said 'We're going to put more focus on what we do and this is the sector we're going to focus on.' I've always thought there should be more critical thinking."
Bill Moehle, Brighton town supervisor, said he'd like to see COMIDA give more scrutiny to potential consequences of projects before giving approvals.
"I have a hard time understanding why you'd give COMIDA deals to allow a Tops to move down the street so they can put in a gas station," he said, referring to two recent deals in which the grocery chain moved to new locations within Irondequoit and Henrietta, while leaving their former stores vacant. "I just don't think gas stations are on the list of what COMIDA ought to be funding. Or hotels. With that, all you're doing is taking room nights out of one facility and moving them to another. Something like that may create 17 jobs, but what good is it if those come at the expense of 17 jobs somewhere else?"
Small-business growth
Many of the projects getting tax breaks, however, are from small, locally owned enterprises. They predict no or very few new jobs, and estimate retaining small numbers of positions. These companies include JCS Process & Control Systems Engineering in Rochester, Flower City Printing and Tile Wholesalers of Rochester.
"What we're usually assisting with are minor renovations to space or equipment purchases, and that could be for office furniture, specialized equipment or upgrades of systems that are out-of-date and need to be modernized," said Johnson.
And it's those tax breaks that help pave the way for small companies to get bigger, proponents of IDAs say.
Just before the COMIDA board voted last month to provide his company with a package of sales tax exemptions, ConServe Chief Financial Officer Rich Klein lauded the agency's work. The accounts receivable company headquartered in Fairport was looking to expand with an additional 20,000 square feet in Henrietta and was seeking sales tax exemptions on the purchase of $970,000 in equipment, computers and furniture. The company expects to create 20 new jobs in the coming year.
"We're at 537 employees, and 12 years ago when we first stood here we were at 75 employees," he said. "So these programs have really helped us grow. It enables us to be able to hire more people early on and so that we can perform on our contracts for our clients so that we can gain additional business and keep on growing."
Sharper teeth
In its history, COMIDA has terminated tax abatement agreements with only two entities: Bersin Properties' Medley Centre and a deal with builder Neil J. Bauman for a renovation along East Main Street in Webster that never fully materialized. In both instances, developers blamed the recession of 2008 for a cascade of misfortunes that bogged down their dreams. While COMIDA canceled tax deals with both, the agency also took the rare step in 2014 of filing suit against Ebaum's Webster Ventures to recoup payments the company failed to make under the agreement.
County officials said they could not comment on the pending litigation.
But giving IDA's enforcement power to claw back tax breaks given to developers who don't live up to their agreements is top on the reformers' agenda.
"I'd really like to see some kind of automatic snap-back to recover these benefits when projects fail," said Thomas Bantle, a resident of Fairport who attended a COMIDA meeting in July. "I think the program is just not well thought out."
Tierney said that's one of his top complaints.
"In my experience, when you want some kind of benefit like this or a loan or money from someone, the first question is 'What collateral do you have?' " he said. "I don't understand why a business organization like COMIDA is not acting like a business and protecting the taxpayers by asking for collateral."
In response to legislation that passed the Assembly and Senate in June that would put some reins on IDAs, state Comptroller Thomas DiNapoli said the importance of economic development in the state requires better ways to evaluate IDAs and the projects that benefit from them.
The law would require greater transparency by making IDA applications consistent across the state, provide public access to the applications and require clawback provisions in tax break contracts.
"By increasing scrutiny of IDA project applications and requiring project agreements to include the recapture of benefits if job creation goals are not met, we can address many of the concerns raised in audits by my office over the years," DiNapoli said. "Equally important, these new oversight and accountability measures will also help improve the efficiency and transparency of the operations of our IDAs."
MCDERMOT@DemocratandChronicle.com
Findings
Aid: During 2012, 2013 and 2014, 539 projects benefited from incentives provided by the County of Monroe Industrial Agency.
Changing focus: Nearly a third of the projects had a stated purpose of "services," compared with 27 percent of projects proposed for manufacturing enterprises.
Tax breaks: During those years, the agency provided net tax exemptions of more than $68 million, but nearly a quarter of the projects expected to create no new jobs and 30 percent estimated creating one new job each.
New law: The state Legislature passed IDA reform legislation in June that would increase transparency and require agencies to make provisions to claw back benefits given to businesses that don't follow through on their promises
D&C deal
In the interests of transparency, the Democrat and Chronicle and Gannett Co. Inc. have been the beneficiaries of COMIDA property and sales tax exemptions for two expansion projects — our new downtown building and our production facility at Canal Ponds in Greece.