Governor Cuomo’s Tax-Free Zones Scheme Is More Cost than Benefit

Earlier this summer, we tracked New York Governor Andrew Cuomo’s state-wide promotional tour where he touted the benefits of his beloved “START-UP New York” (originally called “Tax Free NY”) – a plan to turn college campuses throughout the state into enterprise zones where new businesses would be exempt from all state taxes. The Governor claimed this would be an innovative way to revitalize the up-state economy while costing the state nothing. We, however, found these claims unwarranted at best, showing they were only a call for more of the same unproven corporate tax breaks that would cost the state millions while putting existing local businesses at an extreme disadvantage.

Nonetheless, Governor Cuomo ignored our warning (and the warnings of others) and rapidly pushed the plan through the legislature where it was introduced, approved, and subsequently signed by him, all in the course of a few weeks in June.

Now, less than two months after its passage, a new analysis shows just how poorly conceived START-UP NY really is. This time, however, the analysis comes directly from the Governor’s own budget office – and its findings are in stark contrast to what the Governor promised during his promotional tour.

While Cuomo campaigned on the notion that his tax-free campus scheme wouldn’t cost the state a nickel, the budget office’s projections (PDF) show the plan will cost $323 million in lost revenue over its first three years alone (projections only go through Fiscal Year 2017, and show costs rapidly ballooning over this period of time).

And in a cartoonesque twist, this lost revenue is not from businesses that will move to New York because the START-UP program incentivized them to do so. According to the report, the $323 million in lost revenue is the result of companies that would have come to New York and paid full taxes anyway, but are now exempt thanks to the Governor’s tax-free program.

With projected budget gaps of $1.74 billion in FY 2015 and $2.9 billion in both FY 2016 and FY 2017, START-UP NY has exacerbated the state’s poor fiscal health – making it even more difficult to invest in government services that are proven to grow the economy, like education and infrastructure. Calling START-UP NY an overpriced gimmick, one assemblyman has announced his plan to repeal the program altogether – a move we think should be taken as soon as possible.

Our partner organization, the Institute on Taxation and Economic Policy (ITEP), has shown in detail how rolling back business and corporate taxes is not an effective economic development tool and that public investment in schools, transportation systems, public safety, etc. are the real keys to development. Even in practice, enterprise-zone programs like START-UP NY have demonstrably failed to create jobs while costing states billions.

Thus far, Governor Cuomo has demonstrated an unwillingness to listen to experts or look at the evidence. Will he also ignore his own budget team’s assessment and move forward with his plan? If so, it would be hard to conclude that his governing agenda is anything but reckless and self-serving.

Front page Photo via  Governor Andrew Cuomo Creative Commons Attribution License 2.0