Barclay Damon
Barclay Damon

Legal Alert

Update on New York State Economic Development Proposals – 2011-2012 New York State Budget Negotiations

On February 1, 2011, Governor Andrew M. Cuomo released his proposed $132.9 billion 2011-2012 Executive Budget. The Governor’s Executive Budget seeks to reduce state spending levels overall, but contains a number of new and enhanced incentives for existing and new employers in New York State.

During the week of March 14, 2011, the New York State Senate and Assembly passed resolutions adopting their respective proposed changes to the Governor’s Executive Budget. With respect to economic development incentives, the Assembly largely adopted the Governor’s proposals, while the Senate proposed even greater enhancements to existing and new programs.

Set forth below is a brief summary of key components of the proposed Executive Budget pertaining to economic development programs and initiatives, with a discussion of the Legislature’s positions on those provisions.

Enhancements to the Recently-Enacted Excelsior Jobs Program
The Excelsior Jobs Program Act was enacted into law during 2010 as a replacement for the expiring Empire Zones Program. The Excelsior Jobs Program currently offers a package of refundable tax credits for five years to eligible businesses in targeted industries, including: financial services data centers, manufacturers, software development, scientific research and development, and industries showing great potential for private-sector economic development.

Governor Cuomo’s Executive Budget proposes to enhance these existing benefits by, among other things:

  • extending the Excelsior Jobs Program’s tax benefit period from five to ten years;
  • calculating of the Excelsior Real Property Tax Credit (RPTC) based on the value of real property after improvements, rather than prior to investment;
  • increasing the Excelsior Research & Development Tax Credit to be equal to 50% of the taxpayer’s actual Federal research and development credit; and
  • modifying the Excelsior Jobs Tax Credit criteria to include the projected income tax receipts for each new job, rather than up to $5,000 per new job.

The Assembly’s resolution adopts these enhancements. The Senate resolution, however, rejects the proposed amendments to the Excelsior Jobs Programs, notes the Excelsior Jobs Program’s inherent weaknesses, and states that the Senate “is exploring the creation of a more comprehensive economic development plan.”

Given the Senate’s statements, it is possible that even further enhancements to the Excelsior Jobs Program will be enacted, or that an entirely new program will be crafted to replace the existing benefits.

Regional Economic Development Councils

Significantly, the Governor’s budget proposal refocuses economic development efforts through the creation of ten Regional Economic Development Councils to be created by Executive order. These regional councils shall be overseen and coordinated by Lieutenant Governor Robert Duffy, and shall compete for approximately $130 million in existing economic development funds and an additional $70 million in tax credits available under the enhanced Excelsior Jobs Program described above.

Although the Executive Budget includes an allocation of funds for this effort, no specific details on the proposed councils and their intended operations are set forth.

The Assembly’s resolution adopts this proposal. The Senate resolution, however, rejects the proposal, reportedly due to the lack of details contained in the proposal.

Permanent Power for Jobs Program – “Recharge New York”

The Recharge New York program was proposed by the Governor in a freestanding bill comprising part of the Executive Budget. This bill would extend the Power for Jobs Program until June 30, 2012, and create the new “Recharge New York” program taking effect thereafter. The new program will provide reduced electricity rates for employers accepted for participation, and will require that those employers meet certain criteria (focused on the creation and preservation of employment) and undergo an energy efficiency audit.

The Senate passed this bill unanimously on March 8, 2011. The Assembly has not yet acted on this proposal.

Economic Transformation Program

The Executive Budget proposes the closure of several, yet to be identified, correctional and youth facilities. To offset the economic impact of these closures the Executive Budget allocates $100 million to those communities adversely impacted by such closures because the facilities were a significant source of employment and economic sustainability. These funds would be allocated by the Regional Economic Development Councils to create jobs and support development initiatives in these adversely affected communities.

The Assembly’s resolution accepts the Executive Budget’s provisions in this regard. The Senate rejects the allocation of funds to the Economic Transformation Program and notes that it would replace this proposal with a tax incentive program. The Senate’s resolution provides that the package would include tax incentives for job creation and capital investments, but does not provide any further details.

Removal of the Historic Rehabilitation Tax Credit From Deferred Credits List

The Senate’s resolution includes a proposal to remove the historic properties rehabilitation tax credit from the list of deferred tax credits above $2 million, which was put in place during 2010. The Senate report goes on to state that: “The deferral of credits enacted as part of last year’s budget has had a deleterious effect on economic development projects in New York State, including luring projects with the promise of tax credits, only to then make them unavailable once the project was in motion. While the immediate restoration of these many worthy credits is impossible in this fiscal year, the Senate will continue to explore opportunities to eliminate or refund the deferred credits.”

No similar exclusion is included in the Executive Budget or the Assembly’s resolution.

Excelsior Linked Deposit Program

The Executive Budget proposes an increase of low-interest loan limits under the Excelsior Linked Deposit Program from $1 million to $2 million, and provides a four-year program extension. The Assembly and the Senate resolutions adopt this proposal.

Status of Empire Zones Program

The Empire Zones Program expired on June 30, 2010, and all existing certified businesses (at least 7,500 entities) remain eligible to receive Empire Zone benefits through the remainder of their approved tax benefit period. The Executive Budget provides continued authority of the Department of Economic Development and the Empire State Development Corporation (ESDC) to monitor Empire Zones Program compliance and to decertify non-complying program participants after July 1, 2010. The Assembly resolution adopts this proposal. The Senate resolution, however, rejects this provision as unnecessary given the current statutory language.

We are continuing to monitor developments relating to the various economic development components of the 2011-2012 New York State budget, and will issue further legal alerts as any significant developments occur.

If you would like further information on the proposed Executive Budget and its impact on your organization, please contact any of the Economic & Project Development Practice Area members.