The end is nigh for sputtering Start-Up NY

Put a stop to it: Gov. Andrew Cuomo wants to replace his underachieving Start-Up NY program with a new economic-development effort.
By GREGORY ZELLER //

While several components of Gov. Andrew Cuomo’s proposed FY2018 budget will probably meet resistance in Albany’s corridors of power, at least one is likely to sail straight to legislative approval: the end of the Start-Up NY program.

While not officially terminating Empire State Development’s underachieving economic-development effort, the governor’s spending plan purposefully rebrands it: Say hello to the Excelsior Business Program (but make it quick, because phonetic similarities to the existing Excelsior Jobs Program may force another quick rechristening).

Whatever you call it, the remade jobs-creation strategy changes a number of Start-Up NY’s qualification parameters – primarily, eliminating the program’s job-creation requirements.

The Excelsior Business Program is also limited to startups (incorporated fewer than five years) relocating from another state. Start-Up NY was open to, and frequently exploited by, New York-based startups that launched within – or relocated to – the program’s designated “tax-free zones,” which surround statewide colleges and universities.

The revamped program also reduces the number of years qualifying companies can reap the program’s tax benefits. Like Start-Up NY, Excelsior eliminates a company’s sales, property and income taxes – an economic-development strategy designed to attract out-of-state businesses and keep working capital in entrepreneurs’ hands – but does it for a maximum of five years, half the maximum 10 years afforded by Start-Up NY.

The Excelsior Business Program also looks to keep things small, imposing a 25-employee limit on applicants – a number often exceeded by Start-Up NY participants.

And observers might have to wait a little longer to find out if the restructured program is having a positive statistical effect: The proposed Excelsior Jobs Program legislation limits reporting requirements for state job-creation programs, meaning ESD – which would oversee Excelsior – would only issue annual updates, instead of quarterly.

Of all the proposed changes, insiders see the elimination of Start-Up NY’s sliding jobs-creation scale as the most significant. Excelsior Business Program participants will be required to create just one “net new job” during their first five years of operations, according to the governor’s proposal.

Existing Start-Up NY participants – more specifically, their agreed-upon tax benefits – will be grandfathered in, and the jobs-creation and economic-investment obligations they agreed to in exchange for their tax breaks will be “subject to the new rules under the proposed policy changes,” according to ESD.

Nada Anid: Adding “leniency” to tax-incentive programs.

After a promising start – ESD reported in July 2016 that the program ended 2015 with a healthy 4,140 new-job commitments from program participants – the sputtering Start-Up NY appeared headed for its worst year yet in calendar 2016. The Albany-based Empire Center for Public Policy Inc., a nonprofit, nonpartisan think tank dedicated to public-policy reform, reported in November that over the first 10 months of 2016, ESD’s effort was losing job-creation commitments faster than it was securing them.

On Long Island, Start-Up NY was its prototypical dysfunctional self – often met with enthusiasm by participating companies and the sponsors of freshly minted tax-free zones, but showing few tangible results.

Some observers of the Island’s Start-Up NY scene said the program flat-out wasn’t working – and the jobs-creation requirement was the main reason why.

Nada Anid, dean of the New York Institute of Technology’s School of Engineering and Computing Sciences, told Innovate LI in September that her Old Westbury campus’ designation as a Start-Up NY tax-free zone was “a leap for us.” Less than four months later, the dean acknowledged that program participants – and would-be participants – saw the employment commitments as “a deterrent.”

“From what we heard from the businesses, the number of employees that was required was too stringent,” Anid said.

Anid’s office had not been notified of the program changes by Wednesday afternoon, according to the dean, who said the Excelsior Business Program – as described in the governor’s budget proposal – seems to offer “more leniency” for participating companies.

“This is an economic-development initiative, so it will always be tied to jobs,” Anid noted. “And growth doesn’t only mean creating full-time jobs.”

Not every programmatic change sits well with the dean, who questioned the notion of limiting Excelsior Business Program benefits to out-of-state startups exclusively.

“We should also incentivize existing companies or companies that relocate from one area of the state to another,” she said. “But as long as there are programs for (existing) state companies, it’s fine.

“It will create an influx of new companies, which is good.”

Empire State Development spokesman Jason Conwall told Innovate LI by email Wednesday that the proposed amendments are designed to refocus the former Start-Up NY program on formative-stage companies in “strategic industries,” enhance the program’s performance-based tax benefits and “reduce complexities of the process” for participants.

The program’s new parameters are “based on feedback from businesses, which will help it reach its full potential,” Conwall added.

“We remain firmly committed to the model – innovative academia-business partnerships coupled with performance-based, tax-free incentives,” the spokesman said. “[This] was a brand-new concept when it began and has resulted in commitments for more than 4,000 high-paying jobs across New York State.”