On June 24, 2013, NY State Governor Andrew Cuomo signed into law legislation that allows for the creation of zones where businesses can operate free of any local property taxes, county taxes or state corporate income taxes for ten years. Employees of these businesses are also exempt from state income taxes for ten years. Under the legislation any state university or community college can apply to become a tax-free zone.
There are a few specific requirements for businesses to move into these zones, such as:
- Certain businesses such as retail, restaurants or hotels are not eligible.
- Businesses must be a new start-up company, a company from out-of-state that is relocating to New York State or be an expansion of an existing New York State company.
- Businesses that may compete unfairly with other local businesses outside the tax-free area are excluded.
- The business’s final eligibility is determined by a 3 member Start Up NY Board, appointed by the Governor, and leaders of the State Assembly and Senate.
Will it work?
It’s difficult for anyone to predict the impact this program will have, but it’s hard to ignore the amount of tax savings a business could stand to gain from this. This is a bold initiative and I’d be surprised if we didn’t see some success stories come out of this. However, it’s far from proven that tax cuts alone are enough to improve overall employment and economic growth.
For instance, the state of Nevada (which has no state income tax) is ranked #3 in the nation by The Tax Foundation for it’s overall business tax climate. However, it ranks last in the nation in both GDP growth and level of unemployment.
Wyoming was rated #1 for business tax climate, has the seventh best unemployment rate in the nation but ranks #42 in the nation for GDP growth.
So statistically speaking, results are mixed. I think there are obviously a lot more factors to economic growth than just low taxes such as overall cost of living, quality of life, education level of workforce, quality of infrastructure, etc.
What about existing businesses and home owners?
If you are a long-time NY State business owner or homeowner looking for tax relief, you are out of luck as far as this program goes. Your property tax money is going to provide public services for these new start ups and out-of-state businesses moving in. It will be 10 years until these businesses will have to start paying property taxes. This begs a few other questions: could the additional services these non tax paying businesses use cause an increase to local taxes? And once the 10 year period is over, how many businesses will stay and start actually contributing to the tax base?
FMCC’s tax free zone
Property values are the one area that the tax-free zones may be able to help local communities in a more immediate way. It stands to reason that businesses that create jobs will bring in more people needing housing. Any residential area within a reasonable driving distance of tax-free zone could benefit.
However, FMCC recently announced plans to build housing on campus that will be made available to both students and non-students. So if this plan comes to fruition, it could easily siphon off customers who would otherwise rent or buy in some other locality.
Interestingly, a property doesn’t need to be owned by a college in order to be part of it’s tax-free zone. Currently, the old Tryon school property is listed as a “proposed” part of FMCC’s zone.
So it’s also possible that other areas in Fulton/Montgomery county could be added to FMCC’s tax-free zone.
Is this the right path?
The overriding problem I have with the whole idea can be illustrated like this: If you have two states with equal positive attributes, and one state offers low property taxes and has no corporate or individual income tax for anyone, and the other offers a comparable tax structure, but only to those approved by a 3-person committee and which expires after ten years, which do you think is going to win more business?
I believe that we would have a much more “business friendly” tax climate if taxes were lowered across the board rather than for a selected few. This year’s state budget has a large surplus. I think a far better plan would be to use this surplus as well as funds allocated as incentives for shared services and consolidation to reduce state income taxes or to help localities lower their property taxes by providing increased aid or additional funding through the Regional Council structure.
Additionally, we should still expect Cuomo to follow through on his campaign promise to reduce unfunded mandates, especially our expensive Medicaid program. These mandates make up a large chunk of our county and school property taxes and so far there has been little progress in reducing them.
However, Cuomo’s initiatives have enjoyed widespread bi-partisan support and his personal approval rating have been high. Quite simply, he will be difficult to beat in this year’s gubernatorial election and it’s very possible these policies will affect NY State for years to come.
I think Fulton and Montgomery county communities, who contribute 3 million dollars per year to fund FMCC, need to make sure that they are positioned to take advantage of the benefit new businesses moving into FMCC’s tax-free zones will bring. Local cities, villages and towns need to be ready to market their communities to the employees moving to the area and should not have to worry about competing with the college. Only then will these tax-free zones stand a chance of truly improving the local economy and reducing the tax burden for everyone.