Location and other government incentives boost business

Real Estate Weekly, May 4, 2005 by Richard V. Imprescia

More and more real estate and business owners are converting business expansion and relocation from a cost to a benefit. Working with specialists who understand government economic development incentives, they are developing a strategic tax policy that creates tangible bottom-line benefits while simultaneously addressing location and labor issues.

A recent example was a business which moved their business to Sullivan County, New York, from a neighboring state and gained hundreds of thousands of dollars in benefits stemming from wage tax credits; investment tax credits for production equipment and facilities; real property tax credits based on new jobs created; income tax credits and employee incentive tax credits as well as a state sales tax exemption. The investment tax credit and employee incentive tax credits for increasing headcount together will effectively reduce his cost of the facility by nearly 20%. Because they are new to New York State, they are entitled to claim a refund of up to 50% of certain unused tax credits. Some of these benefits extend for as long as fourteen years.

Federal, state and municipal governments offer businesses incentives to invest and create jobs, usually in areas where unemployment and poverty levels are higher than average. These same areas typically offer a ready job force and lower cost occupancy costs. The government's ultimate goal is to increase its tax revenues, which is achieved through the creation of employment opportunities and business profits. They see economic development as the "rising tide that lifts all boats." Ironically, the government incentives serve to remove the burden of government from the business to some degree, at least temporarily, to accelerate economic growth and its multiplying effect.

Many government business incentive programs are location-driven. New York State, for example, has 72 "Empire Zones" where businesses expanding or moving into these designated areas qualify for numerous tax incentives. New York State's Environmental Zones or "EnZones" deliver enhanced tax benefits for Brownfield redevelopment. Federally designated "Empowerment Zones" offer a host of attractions that can sometimes be enhanced by overlapping state programs. Liberty Zones were created as part of post-9/11 reconstruction efforts to combine federal; state and city incentive programs to attract businesses back to lower Manhattan. New York City also offers the Relocation Employment Assistance Program (REAP) that delivers a tax credit of up to $3000 per employee for manufacturers who locate or expand in parts of the city that have been designated as manufacturing areas.

In addition to these location-based programs, New York State offers the Linked Deposit Program, where companies can borrow up to $1 million at reduced interest rates from participating financial institutions. New York State deposits funds with these institutions and effectively defers a portion of its interest income to subsidize these loans to qualifying businesses. A business that can create a combination of a Linked Deposit loan, a federally subsidized Small Business Administration loan, or an Industrial Development Authority financing through New York State can generate substantial and inexpensive financing for many types of business expansion.

Other aspects of government-sponsored economic development programs include energy discounts and skills training for employees. Virtually all states and even many counties use combinations of these different types of incentives in their competition to attract business to their locations.

For the business owner, these programs collectively create a complex maze requiring carefully guided navigation to avoid common pitfalls and yield optimum results. Few company executives have the time or understanding of the process to collect all the information and assemble the best package of benefits for their business. As a result, millions of dollars of benefits go unclaimed each year.

The first step is to identify your business goals and the resources required to achieve them in terms of space, people and funding. A strategic tax policy is best developed in this context. The second step of information gathering typically requires assistance from a professional who knows the workings of these programs from state to state, county to county, and city to city. People with past experience working with government economic development programs have the most informed perspective.

Guidance is also needed through the third step, implementation, because in some cases one wrong move can permanently disqualify a business. For example, some programs have clauses that require the government program to be essential to the project. If a business has taken steps to get assistance or funding elsewhere, implying that the project will move forward with or without government help, it can forfeit its eligibility.

Furthermore, the application processes are typically long, paper-intensive, cumbersome and confusing for the uninitiated. An attorney can help review the loan documents and lease agreements, an accountant can assist in preparing the financial information, but an economic development specialist who knows the right person to contact and the best ways to cut through the red tape is an indispensable quarterback of the team.