Lawmakers and governor say move would help budget; businesses say deferral would be devastating.
John Kelly, with Housing Visions Unlimited Inc., works on kitchen cabinets in an apartment at Hamilton Homes in Oswego, N.Y. Housing Visions officials say plans to renovate 57 other apartments at the complex could be in jeopardy if the state Legislature approves a plan to defer many business tax credits for three years. Syracuse, NY - A plan by state lawmakers and Gov. David Paterson to delay tax credits already earned by companies and investors has state and local business communities up in arms.
It sends the wrong message to companies thinking about investing in the state, business groups say.
“It’s very bad economic development policy to make promises and then take back those promises,” said Randy Wolken, president of the Manufacturers Association of Central New York.
Frank Mauro, executive director of the labor-backed Fiscal Policy Institute, is unconvinced by the business community’s complaints.
Companies, especially big ones, have many ways to avoid paying state income taxes, and that won’t change even with the three-year tax deferrals, he said.
The plan, which stands a good chance of passage because it is backed by leaders of both houses of the Legislature and by Paterson, would impose a three-year delay on the tax credits that could be claimed under 32 state programs.
The state Business Council, which represents the business community, estimates that businesses and investors would pay $1.4 billion more in taxes over the next three years as a result of the change. They would be able to get that money back in three years, without interest. Critics say that amounts to forcing businesses to give the state an interest-free loan.
Erik Kriss, a spokesman for the state Division of Budget, said the plan would affect about 50 companies and approximately 100 personal income tax payers.
Proponents say recent changes in the plan will lessen its impact on small companies. But Robert Simpson, president and CEO of Syracuse-based CenterState Corporation for Economic Opportunity, said many more companies would be affected by the change, because it would effectively cut off a vital funding stream for many local development projects led by small companies and developers.
“We’re afraid if those tax credit deferrals pass, people are going to put their shovels down,” he said.
The Assembly approved legislation containing the deferrals on Thursday. The Senate’s budget bill, which contains the exact same deferrals, is awaiting the Senate’s vote. Paterson included the same changes in his budget proposal.
The changes would apply to tax credits for well-known incentive programs, such as the Empire Zone and the Brownfield Cleanup Program, and for lesser-known ones that promote the rehabilitation of historic buildings, the construction of low-income housing and the purchase of solar energy equipment.
It’s all part of an effort by lawmakers and Paterson to close a $9 billion budget gap. More than businesses would feel the pinch. Included in proposed budget bills are a cut of millions of dollars in aid to school districts and increased taxes on clothing purchases.
The deferrals presumably would have an impact on the Carousel Center shopping mall in Syracuse, one of the largest recipients of Empire Zone tax credits in the state. Carousel Center Co. reported plans to claim $9.87 million in zone credits in 2007, the last year for which data is publicly available. An affiliated company, Destiny USA, has applied for what could total $54 million in brownfield cleanup credits. A spokesman for the mall’s owner, Robert Congel, declined to comment.
The first $2 million in tax credits that a company or investor can claim for all of the 32 incentive programs would be untouched by the deferral plan, but any remaining credits could not be claimed for three years. Paterson initially proposed delaying 50 percent of all tax credits earned under the 32 programs.
The change was meant to lessen the impact on small businesses, since they generally do not claim more than $2 million in credits.
But Simpson said many small developers finance their projects by selling their tax credits to banks and other large investors who have bigger tax liabilities and can take better advantage of the tax credits. Those investors will now buy fewer credits, he said.
John “Skip” Cerio, president of CRS Cos., a Buffalo-area real estate development firm, said the tax credit deferral would hurt his plans to build 14 upscale apartments and retail space in the former Hurbson office furniture building at 215 W. Fayette St. in Armory Square.
Cerio said he planned to raise $1 million for the $5.25 million project through the sale of historic preservation tax credits. The building in Armory Square is 120 years old.
Cerio said he had a bank lined up to buy the credits, but now he’s not sure if the sale will go through.
“Everything is so new, they don’t know how to react yet,” he said. “It just makes you think, next time around, do I really want to do business with the state again?”
Housing Visions Unlimited Inc., a Syracuse nonprofit group that builds housing for low-income families, said its plan to complete extensive renovations to the Hamilton Homes development in Oswego might have to be put on hold.
Betsy Dunlap, executive vice president of Housing Visions, said the organization planned to raise $2 million of the $15 million it needs to renovate 57 apartments by selling low-income housing tax credits to a bank. Now, it might not be possible because of the limits that would be imposed on the buyers, she said.
“Investors are going to pick and choose what projects they want to take credits on,” she said.
Work on the 57 apartments was expected to start this winter. The organization is currently completing work on 58 units in nine other buildings in the complex. That work will not be affected by the change because its financing is already in place, Dunlap said.
Roland Beck, president and CEO of Tessy Plastics Corp., said the credit deferrals also could affect his company. Tessy has told the state it planned to claim slightly more than $2 million in Empire Zone tax credits on expansions in Elbridge.
“I would be unhappy with that,” he said of the plans to defer some of those credits. “It’s kind of odd to have an agreement in writing, agreeing to expand in New York, and then the state changes it after you do the expansion.”
He said Tessy has created 323 jobs in Elbridge, increasing its work force to 700 people, since it joined the Empire Zone program in 2003. Tessy is investing $20 million this year alone on facilities and equipment in Elbridge, he said.
Other local companies receiving more than $2 million in Empire Zone credits include:
• Nucor Steel, in Auburn. It reported plans to claim $5.8 million in zone credits for 2007.
• SRCTec Inc., in Cicero, the manufacturing arm of Syracuse Research Corp. SRCTec reported plans to claim $5.2 million in zone credits for 2007.
• New Process Gear Inc., in DeWitt. The auto parts manufacturer reported plans to claim $4.8 million in zone credits for 2007.
• Lockheed Martin Corp., in Salina. The defense contractor reported plans to claim $3.08 million in zone credits for 2007.
Critics of the plan see it hurting Upstate more than Downstate because many of the biggest Empire Zone recipients are in Upstate.
They also point out that the same legislation containing the tax deferrals for 32 economic development programs contains a provision for a $420 million increase in tax credits available annually to companies that make movies and television shows in the state. That’s on top of the $85 million in credits already available. That helps New York City almost exclusively.
The increase in credits for movie companies would total an additional $2.1 billion over five years, money that would mainly go into the pockets of out-of-state companies in an already-thriving industry.
The Fiscal Policy Institute, the union-backed research group, isn't feeling sympathy for the business community, however. It released a report in April that said one of the reasons for the state’s fiscal woes was that tax revenues from Wall Street are down — and not because Wall Street firms are hurting for profits.
Wall Street made $61.4 billion last year, nearly triple its previous record in 2000, largely because of a taxpayer-funded bailout, the institute said.
Mauro, the group’s executive director, said Wall Street firms have been able to avoid paying taxes on much of those profits because the state allows companies to use losses in previous years to reduce their tax liability in future years. So Wall Street is using losses from 2007 and 2008 to shield its current high profits from taxes, he said.
“It’s an ordinary part of the game,” he said. “They’re well-accustomed to carrying losses forward and back, so I don’t think this will be devastating to them.”
Contact Rick Moriarty at rmoriarty@syracuse.com or 470-3148.