Local Firms May Lose Empire Zone Breaks: Dozens Informed By

May 29--ALBANY -- Dozens of companies in the Buffalo area -- including Rich Products, Chef's Restaurant and the downtown Hampton Inn -- are poised to lose their lucrative tax breaks under the state's evolving Empire Zone economic-development program.

But more than 6,000 others across the state, including the Buffalo Sabres, NRG Energy in Dunkirk and the sprawling GEICO facility in Amherst, will retain their benefits, which companies say have helped create or retain jobs in the region.

The program's 8,000 companies began receiving letters in the last week or so informing them whether changes to the Empire Zone benefits, as ordered in the new state budget approved last month, would let them remain in the program or have them lose their eligibility and, along with it, an assortment of hefty tax incentives.

In all, about 1,600 firms got letters informing them that either there are questions about whether they qualify or that it appears that they no longer are eligible to receive the benefits. Ending tax breaks for hundreds of companies is estimated to save the state $430 million in the next four years, including $90 million this year.

The 640 companies across the state getting the most ominous letter -- looming decertification from the program -- employ about 16,000 people, according to state economic-development officials. The vast majority are located upstate, including 56 in the Buffalo area; fewer than 80 are in New York City.

Critics, including business owners and economic-development officials, say that ousting the companies sends a dire message at the wrong time, considering the condition of New York's economy. Moreover, they say changing the rules after the companies already qualified under previous rules sends a dire message to firms that might consider locating in New York.

"Up to 1,600 New York businesses that did nothing wrong and played by the rules may get kicked out of the Empire Zones program by the state's lead economic-development agency," said Brian T. McMahon, director of the New York State Economic Development Council.

McMahon said the state will lose far more than it saves. "The loss of credibility that New York will suffer as a trusted partner in economic development will result in fewer investments and jobs made by businesses in our communities," he added.

At the popular Chef's Restaurant in Buffalo, owner Louis J. Billittier said Thursday that his looming removal from the Empire Zone program could force him to scale back a planned $1 million expansion of his restaurant. "I'm not happy about it," he said. The letter he received did not specify why his company appears to no longer qualify.

"It's going to be crushing for us," Billittier said. The restaurant's location in Buffalo's Empire Zone convinced him not to move to Clarence a couple of years ago. One benefit to help expand the restaurant is a break on state sales taxes for the construction work and equipment purchases involved in the expansion; that will all be gone if Chef's is removed from the program.

Senate Majority Leader Dean G. Skelos, a Long Island Republican, said, "The governor should not be taking any steps that would cause us to lose one job." Senate Republicans warned the Democrats when the budget was passed last month that the Empire Zone changes will drive companies from the state.

The administration of Gov. David A. Paterson defended the changes to a program that has been criticized over the years for giving away taxpayer money to companies that either didn't create promised jobs or would have expanded their operations even without the tax incentives.

The new state budget mandates decertification of companies that produce less than $1 in investments and wages for every $1 in state tax incentive they receive. Also decertified are "shirt-changers," which are firms that changed their names to boost benefits without any economic benefit. The entire program ends June 30, 2010, at which time it will presumably be replaced by a new effort.

The Paterson administration said that the more than 6,000 remaining companies employ 300,000 people. On the list of companies whose Empire Zone benefits are safe is auto insurer GEICO, which received $100 million in tax breaks in 2004 when it agreed to bring a new customer service center to Amherst with about 2,500 jobs. The company now has more than 1,200 local employees, more than double the 500 jobs GEICO promised to create within two years of opening.

Local economic-development officials had worried that GEICO might face the loss of its zone benefits under a stricter set of standards proposed last year by the Paterson administration.

The Buffalo News is also among the 6,400 companies notified that it can remain in the program; the paper and GEICO are both divisions of Berkshire Hathaway. Others getting the "safe" letters include Iskalo Electric Tower, which is the former Niagara Mohawk headquarters building, the owners of the Hyatt Regency Buffalo, and the Buffalo Club.

Companies getting the likely decertification letters include Computer Task Group, which was not available to comment, and Rich Products.

"Being part of the Empire Zone program has been and important level of support for us," said Dwight M. Gram, Rich Products' vice president of communications. "We are still operating as a certified business and remain confident of our qualification based on the new reforms."

There are 85 Empire Zone locations in the state, including 11 in Western New York; the local zones include two in Buffalo, as well as one each in Lackawanna, the Town of Tonawanda and Niagara Falls.

Buffalo developer Carl P. Paladino got all three letters affecting his various properties: Some qualify, some don't appear to, and others the state has questions about. But the outspoken critic of Albany said the move to decertify is illegal. "You can't, after the fact, go and change the rules," he said of firms that have qualified for 10 years in some cases that now face ousting from the program under the new rules. He said that companies made plans and banks lent money under the previous set of rules.

"Now these jerks think they can change the rules? As soon as somebody brings this to court, it's going to get blasted out of the water," Paladino said.

Besides those told that they likely will be losing Empire Zone status, about 1,000 firms statewide are in a holding status. They have been told that there are questions unresolved, the answers to which could result in their removal.

Those companies include HSBC Bank USA, a Paladino entity that owns Ellicott Square, Rigidized Metals of Buffalo, the Paul William Beltz law firm, the public relations firm Travers Collins & Co. and Buffalo Crushed Stone in Cattaraugus County.

Another informed of possible decertification is 257 West Genesee LLC, which is the address of the new BlueCross BlueShield of Western New York headquarters. The insurer's spokeswoman, Karen Merkel-Liberatore, referred calls to the building's owner. But she noted that the new headquarters of Health- Now brought more than 1,300 workers to the downtown location, which was vacant for more than 30 years.

Companies getting the possible decertification letter said the state's Empire State Development Corp. will notify them of a final decision by June 19. The companies can appeal to a state board.

tprecious@buffnews.com and drobinson@buffnews.com

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