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Start-Up NY good for politicians, iffy for north country

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It’s been a long, cold, snowy winter, and we are all tired of lake-effect blizzards. You have probably seen a blizzard of television commercials touting the Start-Up NY program recently announced by Gov. Andrew M. Cuomo’s office. It sounds promising and is aimed at creating jobs and economic growth in the state. That would be nice.

Start-Up NY is aimed at encouraging entrepreneurship, linking employers to the higher-education community in the state (especially State University of New York campuses) and focusing on manufacturing and high-technology companies. Like the old Empire Zone program, it promises tax breaks to companies that qualify and locate in approved spaces (near SUNY campuses for the most part).

SUNY Potsdam and SUNY Canton already have submitted a plan for participating spaces, and a team of economic developers is working on a plan for Jefferson Community College. Clarkson University in Potsdam also is applying, although it is not part of the SUNY system. The odds are good that Clarkson will get into the program, if not on its own then in partnership with SUNY Potsdam.

For qualifying businesses, the deal looks sweet. Not only do they get substantial breaks on state taxes, but so do their employees. The idea is to attract innovative companies that employ innovative and productive workers — the kind who might not want to live in a place with winters like ours.

The offer is open only to high-technology and manufacturing companies that start in New York or choose to locate or expand here. Retail, hospitality and tourism, and some service industries are specifically excluded.

The targets are those companies that will create exports — goods and services that will leave the state and generate fresh cash inflows. Retailing, which is vital to a modern economy, tends to move money around within a community, rather than exporting value-added products. That is tough news for our hard-working retail and hospitality sectors here, but it does make some economic sense.

The initial guidance suggests that the plan is to avoid the kind of corporate “reflagging” that occurred under the older Empire Zone program, where existing local businesses renamed themselves, sometimes with a corporate reorganization and the cooperation of local economic developers, and located in Empire Zones to get the tax benefits. That plan certainly makes sense in Albany, where reflagging is seen as a net reduction in taxes for existing businesses that would otherwise pay the full tax rate into the state’s empty coffers.

Unfortunately, it means that locally we will have to deny benefits to our longtime manufacturers while lavishing them on new arrivals and startups. The existing businesses can reasonably wonder if we really value them for their contributions to our economy and whether we understand how difficult it can be to operate a profitable business in Northern New York.

Maybe it is time to relocate to a warmer climate with lower tax rates and lower costs for doing business? Certainly other states have similar programs to attract new producers, so why not go where we can be treated like the newbies in New York? Swords often cut both ways.

The program is open only in approved spaces on or within three miles of SUNY campuses. The thinking is to build a link between SUNY’s intellectual and educational resources and promising startups in emerging sectors. It is also, I suspect, part of the governor’s interest in getting some serious economic benefits in return for the state budget invested in the SUNY system.

SUNY Potsdam is hoping to attract entrepreneurs interested in its cultural products — music and the arts — as well as “green” industries that might be attracted by its life and environmental sciences programs. Clarkson is certainly interested in technology startups fueled by its strong engineering programs.

It is really not clear how much success either can expect in those endeavors, but they can at least let their alumni know that they can get some tax benefits if they return to the north country to launch a business.

The program at JCC is a bit more exciting, given the connection to local wineries and distilleries. Food processing, including making wine and liquor, counts as manufacturing and should easily fit into the program. That is a growth industry in our state and is one of the most promising economic opportunities before us, in my opinion. It also fits into our tourism industry and can generate increased revenues there, even if they don’t get a tax break.

High-visibility tax incentive programs to attract new business are popular in the economic development community and with the politicians who fund them. Properly managed, they have little direct cost to the state and can be credited with lots of new jobs, even if the relationship is sometimes a bit murky.

The targets of manufacturing, high-technology and “green” industries are enduringly popular for all the obvious reasons. Connections with higher education and entrepreneurship have been fashionable since the connection between Stanford University and Silicon Valley became the stuff of legend.

While Start-Up NY represents little in the way of new thinking and is probably not going to do much for most of us in the north country, it is worth trying. Years of working in economic development have left me skeptical but not cynical. Instead of flashy targeted programs to attract certain businesses, I would prefer broader tax reductions and reduced regulation that trim the burden on all businesses and their employees, but I’ll take what I can get.

Most successes from the program are likely to occur near larger SUNY research centers where there is already a well-established technology workforce and the availability of “angel” equity investors.

Up here, we will probably find that reduced taxes don’t often offset the challenges of recruiting and retaining a highly skilled and marketable workforce, the high costs of energy, transportation to distant markets and the lack of equity investments for young companies.

Still, if you have an idea for a new business that can draw on the talents and capacities of a local SUNY campus, now is as good a time to launch as any. Check out the Start-Up NY benefits and see what they do to your business plan.

Greg Gardner is an associate professor of business at SUNY Potsdam. Email him at ggardner@wdt.net.

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