What's NYC doing to keep biz?
While the New York City administration is struggling to keep large companies within the five boroughs, one of the city's primary tools to retain businesses, is due to expire on Dec. 31. No one knows yet if the Industrial and Commercial Incentive Program, (ICIP) will be renewed in its present form, expanded, contracted or ended.
Deputy Mayor for Economic Development, Sally Pinero-Hernandez, has appointed a "blue ribbon" panel, headed by Arthur Levitt, Jr., to come up with long-term tax incentive plans, but Levitt is on vacation, the panel has not yet met and some critics feel it is too little too late.
Councilman Jerome X. O'Donovan, chairman of the Economic Development Committee, said they are not going to sit around and wait for the mayor to put forth a proposal. The Committee's counsel is currently drafting a measure tailored to input received by the committee and in particular, O'Donovan said, from the Rent Stabilization Association, the Real Estate Board of New York, and the building trades. "If it were up to me, I'd expand the ICIP and the limits and boundaries," O'Donovan said. "We are talking with industry and the only people we are not talking with is the Dinkins' administrations."
Steven Spinola, president of REBNY said they have been pushing the administration to come up with a series of incentive programs for the past 15 months. The appointment of Levitt, who is former chairman of the American Stock Exchange and current chairman of the Economic Development Corporation which replaced the Public Development Corporation earlier this year, has been taken as a "positive sign," Spinola said. But, he said, they are also concerned that it has taken so long.
"We hope the committee will make their recommendations sooner than later and that it will be some bold action to generate excitement," Spinola said.
The ICIP helps lessen the imposition of additional taxes when an owner is making an improvement. The business continues to pay the same taxes as before the renovation but those taxes caused by the new construction are mitigated by an abatement or deferral which could extend up to 22 years, depending on the location.
Committee To Work Long Term
Jeanne P. Nathan, a spokesperson for the Deputy Mayor, cautioned that that panel, whose members include developer Jerry Spyer Edward Lewis, publisher of Essence Magazine; and financier Louis Bernard, is being brought together to take a comprehensive look at tax incentives and policies with a view toward the long-term impact on the economy and not just to look at the immediate needs of the ICIP. Nathan said the group, which is really a sub-committee of the management task force, will review the tax policies and may contribute suggestions, but is not expected to come up with a comprehensive plan in a short period of time.
City officials say the ICIP and other tax incentives are being considered as part of a four-year budget plan which is scheduled to be announced in the beginning of October. The tax incentives will be considered within the context of other revenue sources such as the Municipal Assistance Corporation, labor unions and state and federal revenues.
The Deputy Mayor's office of Economic Development and Finance is also working on proposals for the renewal of the ICIP as well as the budget plan. "We will make the final recommendations to the Mayor, Nathan said.
"This is a controversial area," she added. "The process has been bumpy because there is little agreement about what the new ICIP plan should be. We've come up with four different proposals, none of which has been satisfactory for one or more of the major groups."
Nathan said Pinero has worked very hard to resolve this and so has the mayor. "He is really trying to figure this one out," she said.
Tom Butler, a spokesman for the City Council, said, "They say they are going to move on it but if it expires, it's dead." Butler said the renewal of the ICIP requires enabling legislation which would have to be passed in a special session of the state legislature before the end of the year.
State Senator Franz S. Leichter of Manhattan said he believes a special session will be called, but, he added, "If all they want to do is extend it for another year, I would oppose it." Leichter, who said the legislature has already given one extension of the program, has been a vocal critic of certain aspects of the ICIP. "The ICIP by and large is an efficient program and I'll wait and see what Arthur Levitt does with it," he said, "but I hope they will start on ground level and take a look at how New York City can spend money on economic development."
Leichter said he is "dubious" of as-of-right programs, such as the ICIP, which mean that any property within the boundaries is eligible. "I'd like the city to be more choosy about choosing locations or give more considerations as to job creation," he said. Leichter said he did not think what New York needs now is more commercial space. "Our aim has always been to bring more of this money into industrial and manufacturing," he said.
Companies Look to Move
Meanwhile, investment houses such as Goldman, Sachs & Co., Morgan Stanley, and Smith Barney Upham & Harris are threatening to move their headquarters, and an EDC spokesperson said they are currently working with at least 20 companies of all sizes who are considering moves.
Last month there was a sigh of relief when Mitsui decided to renew and expand at the Pan Am Building rather than opt for one of the alternatives it had explored.
MaryAnne Ronayne, assistant vice president for commercial development with the EDC, said some of these companies are more symbolically important, or small, manufacturing companies. "Every time you do a deal," she said, "one more company will find out the city is willing to listen."
The EDC must first address the concerns of the big companies, Ronayne explained, and then decide what options are available. Critics contend that companies just make noises about leaving to see what they can get from the city. "For some companies more than others, we know (the threat to move) is real because we know what the alternatives are," she said. "A lot of it is more like an art. You have to make a judgement.
"We understand exactly what the company is contributing to the economy and try to judge what it will cost," Ronayne explained. "We don't want the cost of the benefit to exceed the benefit they will bring to the city. If we did something it should be in some range below that."
"Sometimes its baloney," Leichter said. "Sometimes no matter how much money we give them they won't stay."
Richard Robinson, who administrates the ICIP for the city, said when the program was discretionary, companies often said they were investigating moves to other cities and would send a representative as a ploy. "It's a game of chicken," Robinson noted. "It's a tough one to call."
Michael Caretnay Bailkin a partner with Stadtmauer, Bailkin, Levine, & Masyr, who has worked on incentive proposals for clients such as Forest City Ratner's Metro Tech, said for the first time, these investment houses have lost money and must look at all their options. "I doubt that many will move," he said. "That particular industry would find it hard pressed to do business elsewhere."
Various Incentive Programs
Ronayne said there is no company too small for the EDC to work with and, in the outer boroughs there are areas in which the city wants to encourage development and which receive more generous incentives. "If you were to move to Brooklyn, you would get zero taxes, and a $500 credit against corporate taxes per employee," Ronayne said.
She said meetings are currently being held with city real estate brokers to make them aware that the city is willing to work with companies on a case-by-case basis.
Companies can be offered a variety of programs including subsidized energy, telephone discounts, relocation and employment credits or tax deferrals. "We offer a fairly comprehensive package of benefits and relocation grants to companies moving into the boroughs," Nathan said.
But, Bailkin noted, the city does not have as much money and deals are going to be harder to make. "New Jersey is offering sweeter deals and landlords are driving prices down further so it creates a wider gap between New York and New Jersey." Part of that gap is lessening, however, as New York properties also reduce their rents.
In Manhattan, the ICIP deferral program consists of a pay-back period. These are tenant-driven deals, Ronayne explained, and will not help a tenant in Manhattan unless they are taking a great deal of space. "It's difficult in Manhattan to do anything substantial," she added.
Low cost energy, called Fitzpatrick Power, has been given in Manhattan but there has to be a minimum requirement. There is also a limited amount available so, Ronayne said, it cannot be used up.
Another discretionary program, the Industrial Development Agency bonds, is used extensively in Manhattan and to finance construction costs but is due to expire at the end of December. Last year a 15-month extension was granted (retroactive to last Oct. 1), and according to John Doherty, director of the program for the city, the feeling this year is that Congress may take even longer to agree on a proposal.
The administration is also trying retain not-for-profit organizations and recently convinced the Girl Scouts that they were vital to the city. Ronayne said a Request For Proposals was put out to create an association center for non-profits in a vacant building.
When Bear Stearns moves back-office employees to Metro Tech they will be receiving, among other things, $11.5 million in sales tax abatements for equipment purchases, but must use some of the money to set up and fund employment training either at area schools or in-house for existing or future employees. Bear Stearns will be the first to take advantage of this latest trick in the Deputy Mayor's arsenal.
But keeping front offices will he harder, and, Bailkin noted, quality-of-life issues and the quality of business will be far more important. "The things these companies really need," he said, "are changes in the corporate and unincorporated business tax structure the income taxes they pay on their earnings."
Improvements for Incentives
"As a practitioner," Bailkin said, "I believe the ICIP has worked well and it would be a shame if it was not kept in place." His suggestion to the administration, since it is so late in the year, would be not to tamper with the ICIP right now. "Simply extend it, unless they slightly expand it," he said.
Spinola said the best incentive would be for the city to freeze all tax rates for the next five years so that businesses will know what their costs are.
O'Donovan agrees there should be a freeze on real estate taxes as well as a slow lifting of rental regulations. If somebody should die or move, he said, the rent should be brought up to full market value.
Spinola said REBNY will be making suggestions for the residential community alter this fall but meanwhile, he believes the ICIP program needs to be improved. "They should eliminate the payback program and made it available anywhere in New York City," he said. Benefits below 96th Street are now limited to deferrals of taxes but only on the West Side and not east of Sixth Avenue. "We're looking for those changes, as well as a more favorable program of incentives including lease incentives for signing for more than 10 years," he said.
The Deputy Major has also suggested limiting benefits below 59 Street to the renovation of older office buildings, primarily below 33rd Street, and also deepening incentives in poor areas.
Leichter, in testimony before the City Council, said he would support such moves "in conjunction with other cost cutting measures."
Spinola was concerned that there should be no "magic line" and that with financing so hard to get for a ny kind of renovation, no part of the city should be kept out of the ICIP.
Something has to be done for the obsolete buildings, Bailkin agreed. "Maybe some consideration should be given to change them to residential downtown," he said.
Leichter, however, does not believe the city needs more buildings converted to residences which, he claims, caused the demise of much light manufacturing space to being with.
"There is a realization," O'Donovan said, "that businesses are fueling this economy and businesses are in a depression and we must do every thing to ensure that the industries are guaranteed incentives to stay and build in this city."
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|Publication:||Real Estate Weekly|
|Date:||Aug 28, 1991|
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