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Dossier 25: EZ Pinate Party Hearty!
May 6, 2004: EZ Pinate Party Hearty!
Where: New York State
When: Now & Forever

Ahora cats & kittens! Charles Gargano, Chairman of the Empire State Development Corporation is tossing a theme bash. Grab a stick and take a swing at the Empire Zones pinate. A program shaped like a helping hand; chock full of tax credits for any corporation starting up, moving into, or expanding in blighted sections of New York State. Thereby providing jobs jobs jobs. Ones for transitioning welfare recipients and dislocated workers. Tax credits range up to $3000 per created job. Hitting the pinata dead on can bring credits of up to 30% on purchases of property and equipment. Plus state and local sales tax credits for building materials. And never forget property tax abatements! 100% freedom from increased assessment for 7 years, then a looong cool phase out. Some lucky companies can even carry forward unused credits indefinitely. Toss in goodies like utility rate reductions, below-market interest rate loans and investor tax credits and it's easy to see why there are 72 EZ zones across New York State (including in wealthy suburbs) and why the last few counties that don't have em, want em. Party-goers lined up beneath the EZ pinate have a stick in one hand, eligibility qualifications in the other. Or is it wish in one hand, fudge in the other?

As the program comes down the home stretch for renewal by the New York State Legislature, extensive testimony was heard in late April by the Assembly's Corporations Authorities and Commissions Committee which described EZ as marred by meager results, cronyism and the poor oversight of Charles Gargano. Some say the criticisms are overstated and partisan. But while it's true Gargano is Governor George Pataki's boy and Democrats naturally enjoy busting Republican hump, most Dems are pro Empire Zone. And perhaps what some object to is who gets to be a crony-- since in states with Democratic governors, similar tax credit programs are rife with similar problems. None the less, partisanship dosn't nullify criticism. Indeed it's the mechanism by which our political system is supposed to correct itself.

At the hearings New York State Comptroller Alan Hevesi testified EZ creates few jobs and jobs that do get created carry outsize price tags. He also said he was the 3rd state comptroller to point out EZ oversight deficiencies. Other testimony suggested poor oversight allows cronyism, plus fudged eligibility. An example being 25 empty-- hence jobless-- buildings granted EZ status in a suburban section of Monroe County. The buildings are owned by a major contributor to the local Republican Party. The vice chair of which is Joseph Rulison, who's also chairman of the County of Monroe Industrial Development Agency. The agency that administers the area's EZ program. And according to State Assemblyman Richard Brodsky (D-White Plains) some businesses were granted EZ benefits based on claims of expansions-- but had in fact, only reincorporated and had not listed any job increases. His examples included HSBC Bank's Buffalo headquarters and the Albany financial advisory firm of Urbach Kahn & Werlin P.C.

In early 2002, Urbach Kahn & Werlin P.C. finalized a split between their financial consulting services, and their auditing and accounting related services. Into two respective entities: UKW Advisors and UKW LLP. UKW Advisors became the subsidiary of a Chicago company that owns similar firms around the country. UKW LLP remained locally owned. UKW, in both incarnations, serve clients who are middle-market businesses, non-profit organizations, or government entities. The business profile of UKW Advisors states they provide financial, tax and business consulting services. And that "...Urbach Kahn & Werlin wants to make sure your back is covered". Plenty of UKW style clients can be found in Albany, the seat of state government. Where the non profit sector of the economy is second only to that of New York City. Both incarnations of UKW are also much more than Albany active. In a 04/12/02 interview in The Business Review, UKW's then just promoted chairman and CEO, Richard Kotlow called UKW "..one of the top three or four firms that serve the federal government. We do the U.S. Mint, Immigration and Naturalization Service [and] the Department of Defense."

In the same interview Kotlow addressed the issue of why UKW had reorganized. Around 2002, many prominent auditing firms were doing likewise. Conflict of interest issues re Arthur Anderson and Enron were in the air. But according to Kotlow, the UKW reorganization had been in the works since 2000 and was due to the sale of UKW Advisors: "We spent a year and a half working on this model." Did this lengthy reorganization and its related reincorporation, result in the EZ designation of UKW P.C. as an expanding company that Assemblyman Brodsky referenced? If so, who made the designation? When questioned on April 26th by New York State lawmakers about lax oversight of EZ eligibility, Chairman Charles Gargano said don't look at me. Saying the Empire State Development agency has deferred to local economic development officials. As Gargano was quoted in the 04/27/04 Albany Times Union "We do not interfere with what they want." And in the 04/27/04 Rochester Democrat and Chronicle "The program is basically run by local jurisdictions."

Speaking of local jurisdictions and local economic development, in 2002 Steven Fisher, president of Urbach Kahn & Werlin P.C. for 17 years, was an Executive Committee Member on the City of Albany's Economic Development Strategy Team. Along with Mayor Gerald D. Jennings, reps from the Albany Local Development Corporation and other assorted worthies. In the same year, Mayor Jennings assembled an Albany Convention Center Task Force of 11 members, one of whom was Richard Kotlow, of Urbach Kahn & Werlin, LLP. The proposed Convention Center, to be built in any one of 3 downtown Albany locations (all within an Empire Zone) is a project dear to Mayor Jennings' heart. A bill allowing the creation of an authority to oversee the project was just cleared by the State Assembly, despite opposition from many Capital District hotels and motels. The convention center is not dear to their hearts. Maybe because the Assembly also doubled the Albany County hotel tax to help pay for the project. And some of the taxed motels and hotels have their own convention facilities. The hospitality industry typically operates on a fairly slim profit margin and no child wants to be left behind-- or help finance-- someone else's edge. As well as being boosted by its rivals and partaking of EZ benefits, the Albany Convention Center could receive a 40 year state lease to help pay back bonds issued by the convention center authority. Now that's free enterprise. For some people.

In general, selective tax break programs like Empire Zone, which are aimed at lifting business in struggling areas cause every area and every business, no matter how upscale, to jockey for a place beneath the pinata. The political atmosphere becomes one in which eligibility dodges, cronyism and play-for-play practices thrive. Plus, putting the power to lift taxes in the unelected hands of local development officials (as Charles Gargano testified he's done in New York State) is a form of taxation without representation. Since the taxes some businesses don't pay, wind up being paid by someone else. Meanwhile the property tax bill in New York State grows. Selectively. And after umpteen years of Empire Zone revitalization, travel the urban boulevard that runs through upstate's beautiful but staggering cities. It passes from tight little downtown clumps of corporate, non profit and government cronyism, through shrinking middle class neighborhoods, to expanding underclass ghettos of black and white. Making you wonder-- should everyone just reincorporate?

Carola Von Hoffmannstahl-Solomonoff

"We hired you to be the gatekeeper," Assemb. Richard Brodsky (D-Westchester) told Gargano, "and the gate wasn't kept."

A bonanza or a boondoggle? James T. Madore, Newsday.com, 04/27/04

"If there is any wrongdoing, law enforcement agencies should take action," Gargano said during nearly three hours of testimony.

A bonanza or a boondoggle? James T. Madore, Newsday.com, 04/27/04

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Copyright (c) 2004 by Carola Von Hoffmannstahl-Solomonoff. This material may be freely distributed subject to the terms and conditions set forth in the Open Publication License. This license relieves the author of any liability or implication of warranty, grants others permission to use the Content in whole or in part, and insures that the original author will be properly credited when Content is used. It also grants others permission to modify and redistribute the Content if they clearly mark what changes have been made, when they were made, and who made them. Finally, the license insures that if someone else bases a work on this Content, that the resultant work will be made available under the Open Publication License as well.

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