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New York Hocks Its Future

While the federal government is putting money into stimulating the economy, the state of New York is taking money out.

Strapped for cash, the state is sucking money out of its own industrial development agencies (IDAs). Industrial development agencies are local government-sponsored entities that work to promote commerce by providing assistance to businesses in their region.

IDAs are tax-exempt, but that didn’t stop the New York Legislature from making a grab at their funds. The state passed a “cost recovery” bill allowing it to assess IDAs for “central governmental services” provided to them by the state.

The bill specified that the total amount “recovered” from IDAs could not exceed $5 million annually. So state budget officials divided up the $5 million maximum assessment, arriving at a formula that requires each IDA to pay 4.7 percent of its 2008 revenue.

The bill was passed last year and was included in the state’s 2009-2010 budget, but many IDAs heard nothing about it until they received their assessment notices in February - three months after they had been required to file their own annual budgets. The checks are due March 31. Yonkers IDA President and CEO Ellen Lynch told the Westchester County Business Journal that she had “absolutely no idea” that she would be getting the $86,000 bill from the state.

IDAs will now have to pull money from program budgets. “It’s $120,758 less that you have to spur economic development,” Orange County IDA Executive Director James O’ Donnell said. “The impact on local economic development is very, very significant,” said Brian McMahon, executive director of the New York State Economic Development Council.

Some IDAs may simply be unable to pay, McMahon pointed out in a letter to the state budget division’s director. The assessment is a proportion of revenue, but, for most IDAs, whatever money they took in in 2008 is long gone. The funds have already been reinvested in local economies.

In many cases, the assessments are disproportionately large. When the state calculated IDAs’ revenue, it included pass-through funds that were never really income. If I hand an envelope with $100 in it to a messenger, the income goes to my intended recipient, not to the person who happens to hold the money while it’s in transit. Even when IDAs acted as little more than couriers, the state counted the money they received towards their revenue. “They’re taxing revenues that are not even ours,” said Lynch.

But even if the state had given ample notice and used a more rational method of calculating how much to charge each IDA, the assessments would still be senseless. IDAs contribute to the state’s long-term financial well-being. A start-up business that succeeds as a result of help from an IDA will hire employees who will pay taxes and will use their salaries to buy goods and services, helping other businesses in the area succeed as well. That’s the way to climb out of a recession and get an economy back on track.

The Legislature’s desperate move to squeeze $5 million out of the development agencies reflects Albany’s pitiful inability to get the state’s spending under control. IDAs are tax-exempt for good reason. Taking money from them is the political equivalent of visiting a payday loan office or a pawn shop.

IDAs and their allies in local governments and in the business community are working to get the assessment bill repealed. But even if they don’t succeed, the Department of Taxation and Finance may be in for a surprise on March 31. “I don’t think anybody’s sending them a check,” O’ Donnell said.?

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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