Brooklyn's Progress
October 2001

Since the September 11 tragedy, the Brooklyn Chamber of Commerce has been speaking with federal, state and local officials about ways in which government can assist in the economic recovery of New York City. One topic of discussion has been the potential creation of business incentives targeted towards firms economically impacted by the World Trade Center disaster. Below are two suggestions for business incentives sent to the office of New York State Assembly Speaker Sheldon Silver: one targeted to companies currently looking for space and one aimed at recapturing firms that have temporarily relocated out of state. Also included are suggested modifications to the New York State Empire Zones Program. At press time, state officials were considering designating Lower Manhattan a New York State Empire Zone. Create a Relocation Grant for Companies Looking for Space Companies affected by the World Trade Center disaster need quick cash to get back into business. This is particularly true for small and medium-sized, privately owned firms that may not have the financial resources to quickly relocate and restart their businesses. While New York State, New York City and the Small Business Administration have made available emergency bridge loans to companies affected by the September 11 disaster, some small and medium sized businesses may not be in a position to incur further debt. Given the current economic conditions, New York State should consider creating a relocation grant program encouraging the retention of firms and jobs within New York City. One idea from Senator Charles Schumer’s office is a per employee cash grant for companies physically displaced by the World Trade Center disaster that choose to relocate within the five boroughs. The proposed incentive is a 10 year, $1,000 per employee cash grant for firms which relocate jobs within New York City. According to staff from the Senator’s office, this type of grant program may be eligible for reimbursement by federal funds. The Senator’s Office has provided the following description as to how this type of incentive can work: Company A had 200 employees on the morning of September 11. Now it has 108, no place to go, and mounting payroll costs but no revenue. Company A goes to Empire State Development with a prospective two-year lease for space in New York City and some certification of a payroll of 108. Empire State Development accepts it, hands them a check for $108,000 (108 employees times $1,000 incentive times one year) and tells them to come back in one year. Every subsequent year, New York State will review the employment reports of recipient companies and adjust the grant amount accordingly. Twelve months later, Company A gets its insurance payout, begins returning to the black, adds 35 employees and comes back with a new eight-year lease. Empire State gives them $1.064 million over the next eight years. (143 employees times $1,000 times 8 years) Benefits to tenant: Puts cash quickly in hand of tenant. Many tenants, especially small and medium-sized companies, are cash strapped and need cash immediately to rent space, make deposits on space and buy new furniture and equipment. Gives companies freedom of choice in relocating. As long as companies relocate within the five boroughs, they can determine the location and type of space that works best for them. Provides equal value to large and small firms. Benefits to State: 10 year term of incentive encourages long-term corporate and job retention in New York City. 10 year term of incentive allows program costs to be spread out over a longer period of time. Program is easy to administer. Requires little documentation aside from proof of company location within a destroyed/ damaged building before September 11 and documentation of number of active employees on payroll. The Senator’s Office estimates that this program would have a maximum cost of $800 million over 10 years (80,000 displaced employees times $1,000 per employee times 10 years). One potential revision to the proposal from the Senator’s office is the idea of front-loading the cash grant. Government assistance will be most needed in the first two years after the disaster. One suggestion is doubling the amount of the grant over the first two years of the program. This would result in a grant of $2,000 per employee and savings in operating costs of approximately $10 per square foot (assuming the industry standard of one employee per 200 square feet). These cost savings would put New York on more competitive ground with New Jersey and Connecticut. The monies added to the first years of the grant could be reflected in a lesser grant amount in the later years. Create an Incentive Program to Recapture Companies that Have Relocated out of New York State In addition to providing assistance to those companies currently looking to relocate, New York State must also work proactively to create incentives that will recapture firms and jobs that have already relocated out of state. Though many leases signed by corporations relocating outside of New York State have been short-term, the challenge of recapturing these firms upon conclusion of their leases will be substantial. Companies will be offered long-term leases by out of state landlords at rents significantly below New York City’s, courted by states and municipalities offering substantial incentives for long-term business retention and confronted by employees who are hesitant about returning to New York City. In order to remain competitive in its efforts to recapture companies that have temporarily relocated out of state, New York State must create aggressive incentives aimed at significantly reducing operating costs. One suggestion is that New York State create an incentive similar to New Jersey’s Business Employment Incentive Program (BEIP). BEIP offers grants totaling up to 80 percent of state personal income tax withholdings to companies that relocate jobs to New Jersey. Eligible companies can claim BEIP grants for up to 10 years. In recent years, BEIP has been a particularly effective tool for encouraging out-of-state companies to relocate to New Jersey. A grant program similar to BEIP would offer two advantages in recapturing companies forced to temporarily relocate out of New York State. First, the program would allow companies to dramatically reduce operating costs, thereby partially negating the rent differential between New York City and other locations. Second, as a program structured on personal income taxes, this incentive would encourage the return of upper level management jobs to New York City. If current economic conditions prohibit the state from administering cash grants, New York State could consider administering a similarly structured program offering benefits in the form of a corporate tax credit. Structuring the benefit as a tax credit would still be of value to larger companies with significant New York State tax burdens. Most of the companies that have already relocated outside of New York State fit within this category. One related concern for New York State is the long-term loss of back office jobs. Some companies that sign short-term leases outside of New York State may choose to relocate back to New York City, but leave some back office operations in an out of state location. To minimize the potential for this scenario, incentives targeted towards recapturing lost companies should require that companies returning to New York City must relocate a designated percentage of jobs that left New York State after the September 11 incident. Modify the New York State Empire Zones Program to Increase Its Accessibility in Lower Manhattan The Brooklyn Chamber understands that New York State is considering designating Lower Manhattan as a New York State Empire Zone. The New York State Empire Zones program has proved to be an effective tool in encouraging business attraction and job growth; however, the program requires some revision if it is to be truly effective in encouraging the retention of companies within New York City and stimulating the rebuilding of Lower Manhattan. Below are a few suggestions as to ways the Empire Zones Program could be modified in order to best serve Lower Manhattan and New York City. Predicate the Wage Tax Credit on the Retention of Jobs The current Empire Zones Wage Tax Credit is based on the creation of new jobs. To qualify for this credit, which offers up to $3,000 per targeted full-time employee or $1,500 per full-time job, firms must create jobs over and above the average of their employment base over the last four years. Unfortunately, companies affected by the World Trade Center disaster will not be creating new jobs. Rather, they will be struggling to maintain as many jobs as economically possible. To make the Wage Tax Credit applicable in this environment, New York State should consider restructuring the Wage Tax Credit to "incentivise" job retention. A tax credit based on the total amount of jobs retained would provide a significant incentive for affected firms looking to potentially remain within New York State. Extend the Wage Tax Credit to “Red Zone” Firms Relocating within New York State To encourage the retention of firms and jobs within New York City, New York should consider making the wage tax credit of the proposed Lower Manhattan Empire Zone available to companies relocating within the five boroughs. Some of the companies affected by the World Trade Center disaster will inevitably leave Lower Manhattan. The state’s challenge will be retaining those firms in New York City and New York State. In addition to making the Wage Tax Credit available to companies which retain jobs, New York State should consider making the incentive available to displaced firms which elect to relocate within New York State. One idea the state could explore would be to make a full credit available to firms relocating within the five boroughs, with a partial credit available to companies locating elsewhere within New York State. · Make the Investment Tax Credit Available to Lower Manhattan Landlords, Developers and Tenants At present, the qualification criteria of the Empire Zone’s Investment Tax Credit will prohibit nearly all Lower Manhattan firms from claiming this incentive. The credit currently totals up to 10 percent of investments made towards new construction and renovations. Currently, the credit is only available to manufacturers that own their own space. In order to be made applicable to Lower Manhattan, two amendments should be made to the proposed Lower Manhattan Empire Zone Investment Tax Credit. First, the credit must be made available to property owners and developers. To encourage the construction of new space and the renovation of existing space within Lower Manhattan, New York State should consider making the Investment Tax Credit available to landlords and developers. Second, the credit should be made available to displaced companies that renovate their space. Some displaced companies that elect to relocate within Lower Manhattan will make improvements to their “move-in” space. The potential availability of the investment tax credit would certainly incentives companies towards improving space within the proposed Empire Zone. · Make QEZE Benefits Available to Companies that Retain Jobs Within New York City and New York State Last year, New York State made the Empire Zones Program considerably more powerful through the creation of a set of three incentives available to Qualified Empire Zone Enterprises (QEZE). QEZE’s, or companies which create additional jobs within Empire Zones, are eligible for New York State sales tax exemption on business-related purchases, a refundable tax credit equal to a percentage of property taxes paid within a zone and a credit against state taxes paid within the zone. One challenge to the accessibility of QEZE benefits is that the incentives are now only accessible to companies that maintain or increase jobs within Empire Zones. As mentioned earlier, most companies relocating within New York City will not be creating new jobs, or even maintaining their employee base previous to September 11. New York State should considering loosening the qualification criteria for QEZE benefits. One suggestion would be to make the incentives available to firms that maintain a certain percentage of their employee base prior to September 11, 2001. · Make the QEZE Credit for Real Property Taxes Available to Landlords and Developers Like the Investment Tax Credit, the QEZE Real Property Tax Credit is only currently available to manufacturers that own their space. The incentive is a refundable credit against state business taxes equal to a percentage of property taxes paid within an Empire Zone. To encourage the redevelopment of Lower Manhattan, New York State should make the QEZE Credit available to landlords and developers who engage in new construction and the renovation of damaged space.