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NY’s Effort to Attract Tech Firms Is High-Profile but Narrowly Targeted

New York State economic-development officials are using a big national TV-advertising campaign to tout their tax-free START-UP NY program. But critics already are panning everything about it, including the strict limitations on the types of companies the effort is attempting to attract, where they can be located, the cost of running the advertisements and the potential political motivations of Democratic Gov. Andrew Cuomo in launching it.

Indeed, START-UP NY does raise some red flags for entrepreneurs and CEOs who may be intrigued by the prospect of locating or expanding in a New York that is depicted by the campaign as more business-friendly than its reputation. (New York ranks 49th—just ahead of California—in the 2014 survey of Best and Worst states for business.)

START-UP NY rose this year out of the same pot of state funds that earlier financed the “New York—Open for Business” marketing campaign. The idea of Startup NY is simple: It eliminates state income taxes on businesses and even their employees for 10 years if they relocate to specified zones, mostly surrounding State University of New York campuses.

Other areas that offer tax-free enterprise zones include Denver, Boston, Baltimore, San Diego, and parts of Indiana and New Jersey.

“A big part of New York’s program is trying to address the fact that, historically, the state has been a high-cost place to do business because of taxes,” Leslie Whatley, executive vice president of START-UP NY, part of Empire State Development Corp., told Chief Executive.

“The solution to the problem is to take away the taxes,” she said. START-UP NY “takes away a big part of the knot from setting up a business and barriers to entry. [That] is huge.” The organization is processing a number of applications from enthusiastic would-be participants, Whatley said.

One of them is Chroma NanoTech, a high-tech company born out of Binghamton University. The maker of plastics-enhancing materials will be given office and lab space on campus—one of eight participating campuses—under START-UP NY. “That will provide us more funding to pour into our research work to commercialize” the company’s technology, co-founder and BU research professor William Bernier told WBNG-TV.

But the tax-free program has drawn a lot of fire as well. For one thing, technology and advanced-manufacturing firms are its sole focus. The program pretty much precludes —and the TV ads don’t mention—the participation of startups in vast swaths of the economy, including wholesale and retail businesses, restaurants and medical services.

“START-UP NY is mostly baloney,” Jack Mozloom, director for the National Federation of Independent Businesses, of the region including New York, told Chief Executive. “To get tax relief, you have to locate where they want you to—a college town—and with a business they approve—high-tech—so it’s a narrowly targeted economic policy that benefits almost no one but gives [New York] the opportunity to brag on TV with slick advertising.

“Our members are saying, ‘Why can’t I get those kinds of tax breaks?’ The world needs low-tech companies too.” Meanwhile, Mozloom complained, Gov. Cuomo resides over high property taxes and is proposing to freeze them based on income. “Because small-business owners report their income as personal income, they most likely won’t get any relief under that.”

Also, some Republicans are criticizing the fact that Cuomo’s administration spent more than $15 million from December through last month on the TV ads. They say it’s mostly an effort to boost re-election chances for Cuomo in November’s ballot.


Enterprise zone websites:

Baltimore, Md. | http://bit.ly/1koH3l3

California | http://bit.ly/Ridqrp

Colorado | http://www.colorado.gov/cms/forms/dor-tax/General6.pdf

Evansville, Ind. | http://www.euea.org/

New Jersey | http://www.nj.gov/dca/affiliates/uez/

New York | http://startup.ny.gov/

San Diego, Calif. | http://www.sandiego.gov/sdrez/

South Boston, Mass. | http://bit.ly/1jEo1pJ

 

About Dale Buss

Dale Buss
Dale Buss is a long-time contributor to Chief Executive, Forbes, The Wall Street Journal and other top-flight business publications. He lives in Michigan.