Enacts the corporate accountability for tax expenditures act

Summary of provisions

Creates the State Corporate Accountability for Tax Expenditures Act. Provides that State economic assistance provided by any state agency, public authority and/or public benefit corporation, as an incentive to a business organization must be based on the terms of a written incentive agreement between the department and the business organization. Every agreement must identify the specific State economic assistance to be provided to the business organization during the term of the agreement and lists terms the agreement must contain. Provides that State economic assistance incentive agreements must provide that if a business organ- ization either fails to make the requisite level of capital investment in the project or fails to create or retain the specified number of jobs within the specified time frame, as provided under the Act authorizing the State economic assistance, the business organization shall be deemed to no longer qualify for the State economic assistance. Provides that the full content of all written incentive agreements are to be published.

Existing law

None.

Justification

Every year, New York State spends billions of dollars on economic devel- opment incentives and subsidies, mostly for large businesses. These subsidies take many forms: corporate income tax credits, property tax abatements, low-interest loans, empire zone credits, rebates, utility rate reductions, deferrals on taxes that would other wise be paid, incentives to invest in research and development, training grants, land site preparation and infrastructure financing. In return, companies promise economic development, especially the creation of new jobs and/or promise assistance to lower income and or elderly New Yorkers.

There is currently no comprehensive system of standards or oversight for the distribution of economic development subsidies and incentives. Because these subsidies are usually offered through off-budget public authorities (of which there are more than 600 in New York State) or as

tax expenditures built in the State budget, but rarely approved as free- standing legislation, decisions about the allocation of economic incen- tives and evaluation of the economic benefits to residents of New York State provided by those incentives are not subject to significant public or legislative scrutiny or review. In fact, it is currently not possible for New York State to accurately calculate the cost effectiveness of these incentives, and once granted, measures initiated the name of economic development are seldom audited nor do they sunset, especially tax breaks.

The state's structural budget problems mean that we must ensure public transparency and ongoing review of expended dollars and lost State revenues. We need to evaluate whether these models are working, what benefits they are providing in comparison to other proposed uses of state funds and the impact of inequities in our tax policies due to the use industry specific tax expenditures. We also need to exercise due diligence through legislative and public oversight to make sure that programs are run efficiently and that the state gets the best return for the public for each state dollar. Dollars spent on economic development incentives and tax breaks should be reviewed with the same degree of scrutiny as dollars spent on all other government programs.

Many of the corporate tax expenditures were enacted for the purpose of encouraging investment and job creation in New York, however, the effi- cacy of the expenditures have yet to be analyzed and measured. By having the Tax Department submit a report on all the State's tax expenditures, credits, deductions, exclusions, exemptions or any other tax benefits to the Senate, Assembly and the Governor, informed decisions can be made based on the efficacy of the existing programs.

Absent this legislation, there are very real economic costs to the state of New York. All too frequently, the state has provided subsidies, loans and tax breaks to companies that then failed to create jobs as promised. Companies such as Kodak, General Electric, Nine West and Rubbermaid all laid off large numbers of employees after receiving state incentives through the Empire State Development corporation. Other major companies, such as Merrill Lynch and Bausch and Lomb, have significantly cut their workforce after taking incentives for increasing employment.

These cases are hardly unique - a 1997 study by former state Senator Franz Leichter discovered that companies receiving state economic incen- tives at that time actually had a net loss of 1,765 jobs during the previous year. More recent data indicates similar trends. According to the Empire State Development Corporation, companies receiving incentives for additional job creation suffered a net loss of 3,316 jobs in 2002. New York State simply cannot afford to be giving money to companies that are not providing real economic benefits to the state.

In addition to real job creation, companies should be expected to have a record of good corporate citizenship if they are going to receive public support. Currently there are no such standards. If subsidies are really going to benefit the people of New York, the businesses that receive

them should be required to pay living waves, avoid criminal activity, and work with the communities in which they are located.

Fiscal implications

Increase in cost for additional audit equipment.

Local fiscal implications

Increase in cost for additional audit equipment.

Effective date

This act shall take effect on the one hundred twentieth day after it shall have become a law.