PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:
Proposed Action:
Addition of Parts 190-196 to Title 5 NYCRR.
Statutory authority:
Economic Development Law, art. 17; L. 2010, ch. 59; and L. of 2011, ch. 61
Subject:
Excelsior Jobs program.
Purpose:
To create the process by which businesses may apply for and receive the tax credits provided by the Excelsior Jobs Program.
Substance of revised rule:
The regulation creates new Parts 190-196 in 5 NYCRR as follows:
1) The regulation adds the definitions relevant to the Excelsior Jobs Program (the "Program"). Key definitions include, but are not limited to, certificate of eligibility, certificate of tax credit, industry with significant potential for private sector growth and economic development in the State, preliminary schedule of benefits, regionally significant project and significant capital investment.
2) The regulation creates the application and review process for the Excelsior Jobs Program. In order to become a participant in the Program, an applicant must submit a complete application and agree to a variety of requirements, including, but not limited to, the following: (a) allowing the exchange of its tax information between Department of Taxation and Finance and Department of Economic Development (the "Department"); (b) allowing the exchange of its tax and employer information between the Department of Labor and the Department; (c) agreeing to be permanently decertified for empire zone benefits at any location or locations that qualify for excelsior jobs program benefits if admitted into the Excelsior Jobs Program for such location or locations; (d) providing, if requested by the Department, a plan outlining the schedule for meeting job and investment requirements as well as providing its tax returns, information concerning its projected investment, an estimate of the portion of the federal research and development tax credits attributable to its research and development activities in New York state, and employer identification or social security numbers for all related persons to the applicant.
3) Applicants must also certify that they are in substantial compliance with all environmental, worker protection and local, state and federal tax laws.
4) Upon receiving a complete application, the Commissioner of the Department shall review the application to ensure it meets eligibility criteria set forth in the statute (see 5 below). If it does not, the application shall not be accepted. If it does meet the eligibility criteria, the Commissioner may admit the applicant into the Program. If admitted into the Program, an applicant will receive a certificate of eligibility and a preliminary schedule of benefits. The preliminary schedule of benefits may be amended by the Commissioner provided he or she complies with the credit caps established in General Municipal Law section 359.
5) The regulation sets forth the eligibility criteria for the Program. The strategic industries are specifically delineated in the regulation as follows: (a) financial services data center or a financial services back office operation; (b) manufacturing; (c) software development; (d) scientific research and development; (e) agriculture; (f) back office operations in the state; (g) distribution center; or (h) in an industry with significant potential for private-sector economic growth and development in this state. Per recent statutory changes to the Program, when determining whether an applicant is operating predominantly in a strategic industry, or as a regionally significant project, the commissioner will examine the nature of the business activity at the location for the proposed project and will make eligibility determinations based on such activity. Per statutory change, participants may also begin to receive tax credits once the eligibility requirements are met and can continue to receive credits based on achieving interim milestones.
6) In addition, a business entity operating predominantly in manufacturing must create at least twenty-five net new jobs; a business entity operating predominately in agriculture must create at least ten net new jobs; a business entity operating predominantly as a financial service data center or financial services customer back office operation must create at least one hundred net new jobs; a business entity operating predominantly in scientific research and development must create at least ten net new jobs; a business entity operating predominantly in software development must create at least ten net new jobs; a business entity creating or expanding back office operations or a distribution center in the state must create at least one hundred fifty net new jobs; a business entity must be a Regionally Significant Project; or a business entity operating predominantly in one of the industries referenced above but which does not meet the job requirements must have at least fifty full-time job equivalents, and must demonstrate that its benefit-cost ratio is at least ten to one (10:1).
7) A business entity must be in substantial compliance with all worker protection and environmental laws and regulations and may not owe past due state or local taxes. Also, the regulation explicitly excludes: a not-for-profit business entity, a business entity whose primary function is the provision of services including personal services, business services, or the provision of utilities, and a business entity engaged predominantly in the retail or entertainment industry, and a company engaged in the generation or distribution of electricity, the distribution of natural gas, or the production of steam associated with the generation of electricity from eligibility for this program.
8) The regulation sets forth the evaluation standards that the Commissioner can utilize when determining whether to admit an applicant to the Program. These include, but are not limited to, the following: (1) whether the Applicant is proposing to substantially renovate contaminated, abandoned or underutilized facilities; or (2) whether the Applicant will use energy-efficient measures, including, but not limited to, the reduction of greenhouse gas and emissions and the Leadership in Energy and Environmental Design (LEED) green building rating system for the project identified in its application; or (3) the degree of economic distress in the area where the Applicant will locate the project identified in its application; or (4) the degree of Applicant's financial viability, strength of financials, readiness and likelihood of completion of the project identified in the application; or (5) the degree to which the project identified in the Application supports New York State's minority and women business enterprises; or (6) the degree to which the project identified in the Application supports the principles of Smart Growth; or (7) the estimated return on investment that the project identified in the Application will provide to the State; or (8) the overall economic impact that the project identified in the Application will have on a region, including the impact of any direct and indirect jobs that will be created; or (9) the degree to which other state or local incentive programs are available to the Applicant; or (10) the likelihood that the project identified in the Application would be located outside of New York State but for the availability of state or local incentives; or (11) the recommendation of the relevant regional economic development council or the commissioner's determination that the proposed project aligns with the regional strategic priorities of the respective region.
9) The regulation requires an applicant to submit evidence of achieving job and investment requirements stated in its application in order to become a participant in the Program. After such evidence is found sufficient, the Department will issue a certificate of tax credit to a participant. This certificate will specify the exact amount of the tax credit components a participant may claim and the taxable year in which the credit may be claimed.
10) A participant's increase in employment, qualified investment, or federal research and development tax credit attributable to research and development activities in New York state above its projections listed in its application shall not result in an increase in tax benefits under this article. However, if the participant's expenditures are less than the estimated amounts, the credit shall be less than the estimate.
11) The regulation next delineates the calculation of the tax credits as described in statute. Of note are the following changes made as a result of recent changes to the statute: the Excelsior Jobs Program Credit has been amended to be calculated as the product of gross wages and 6.85 percent. The Excelsior Research and Development Tax Credit has been increased from ten to fifty percent of the participant's federal research and development tax credit. The Excelsior Real Property Tax Credit is now based on the value of the property after improvements have been made. Under the amended program, a participant may claim both the Excelsior Investment Tax Credit and the investment tax credit for research and development property. In addition, the current tax benefit period for all credits has been lengthened from five years to ten years.
12) The tax credit components are refundable. If a participant fails to satisfy the eligibility criteria in any one year, it loses the ability to claim the credit for that year.
13) Pursuant to the amended statute, the regulation authorizes utilities to offer excelsior job program rates for gas or electric services to participants in the program for up to ten years.
14) The regulation requires participants to keep all relevant records for their duration of program participation plus three years.
15) The regulation requires a participant to submit a performance report annually and states that the Commissioner shall prepare a program report on a quarterly basis for posting on the Department's website.
16) The regulation calls for removal of a participant in the Program for failing to meet the application requirements or failing to meet the minimum job or investment requirements of the statute. Upon removal, a participant will be notified in writing and have the right to appeal such removal.
17) The regulation lays out the appeal process for participant's who have been removed from the Program. A participant will have thirty (30) days to appeal to the Department. An appeal officer will be appointed and shall evaluate the merits of the appeal and any response from the Department. The appeal officer will determine whether a hearing is necessary and the level of formality required. The appeal officer will prepare a report and make recommendations to the Commissioner. The Commissioner will then issue a final decision in the case.
The full text of the emergency rule is available at the Department's website at http://www.esd.ny.gov/BusinessPrograms/Excelsior.html.
Revised rule compared with proposed rule:
Substantial revisions were made in sections 191.1(b)(4), (d), 191.3(a)(11), 193.1(b)-(e), 190.2(t), (v), 191.2(h), 192.1(c), (e), 193.2(b) and 193.3.
Text of revised proposed rule and any required statements and analyses may be obtained from
Thomas P Regan, NYS Department of Economic Development, 30 S Pearl Street, Albany NY 12245, (518) 292-5123, email: tregan@empire.state.ny.us
Data, views or arguments may be submitted to:
Same as above.
Public comment will be received until:
30 days after publication of this notice.
Revised Regulatory Impact Statement
STATUTORY AUTHORITY:
Chapter 59 of the Laws of 2010 established Article 17 of the Economic Development Law, creating the Excelsior Jobs Program and authorizing the Commissioner of Economic Development to adopt, on an emergency basis, rules and regulations governing the Program. Chapter 61 of the Laws of 2011 recently amended the statute to strengthen the Program.
LEGISLATIVE OBJECTIVES:
The emergency rulemaking accords with the public policy objectives the Legislature sought to advance because they directly address the legislative findings and declarations that New York State needs, as a matter of public policy, to create competitive financial incentives for businesses to create jobs and invest in the new economy. The Excelsior Jobs Program is created to support the growth of the State's traditional economic pillars including the manufacturing and financial industries and to ensure that New York emerges as the leader in the knowledge, technology and innovation based economy. The Program will encourage the expansion in and relocation to New York of businesses in growth industries such as clean-tech, broadband, information systems, renewable energy and biotechnology.
The emergency rule is specifically authorized by the Legislature.
NEEDS AND BENEFITS:
The emergency rule is required in order to immediately implement the statute contained in Article 17 of the Economic Development Law, creating and recently amending the Excelsior Jobs Program. The statute directed the Commissioner of Economic Development to adopt regulations with respect to an application process and eligibility criteria and authorized the adoption of such regulations on an emergency basis notwithstanding any provisions to the contrary in the state administrative procedures act.
New York is in the midst of a national economic slowdown. The impact of the national financial crisis and resulting slowed economic growth was particularly devastating to New York State and is having severe consequences on New York's immediate fiscal health and could harm its economic future.
The Excelsior Jobs Program will be one of the State's key economic development tools for ensuring that businesses in the new economy choose to expand or locate in New York State. It is imperative that this Program be implemented immediately so that New York remains competitive with other States, regions, and even countries as businesses make their investment and location decisions. Helping existing New York businesses create new jobs and make significant capital investments with the financial incentives of the Excelsior Jobs Program is equally important and needs to happen now.
This rule will establish the process and procedures for launching this new Program in the most efficient and cost-effective manner while protecting all New York State taxpayers with rules to ensure accountability, performance and adherence to commitments by businesses choosing to participate in the Program. The rule implements the amendments to the statute which extend the current tax benefit period from five to ten years and offer an enriched package of tax credits. In addition, the rule adds the recommendation of the relevant regional council as an evaluation criterion for determining whether to admit an applicant into the Program.
COSTS:
A. Costs to private regulated parties: None. There are no regulated parties in the Excelsior Jobs Program, only voluntary participants.
B. Costs to the agency, the state, and local governments: The Department of Economic Development does not anticipate any significant costs with respect to implementation of this program. There is no additional cost to local governments.
C. Costs to the State government: None. There will be no additional costs to New York State as a result of the emergency rule making.
LOCAL GOVERNMENT MANDATES:
None. There are no mandates on local governments with respect to the Excelsior Jobs Program. This emergency rule does not impose any costs to local governments for administration of the Excelsior Jobs Program.
PAPERWORK:
The emergency rule requires businesses choosing to participate in the Excelsior Jobs Program to establish and maintain complete and accurate books relating to their participation in the Excelsior Jobs Program for a period of three years beyond their participation in the Program. However, this requirement does not impose significant additional paperwork burdens on businesses choosing to participate in the Program but instead simply requires that information currently established and maintained be shared with the Department in order to verify that the business has met its job creation and investment commitments.
DUPLICATION:
The emergency rule does not duplicate any state or federal statutes or regulations.
ALTERNATIVES:
No alternatives were considered with regard to amending the regulations in response to statutory revisions. The Department conducted outreach with respect to this rulemaking. Specifically, it contacted the Citizens Budget Commission, Partnership for New York City, the Buffalo Niagara Partnership and the New York State Economic Development Council and received comments from them. The Department carefully considered all comments made with respect to the regulation. Certain comments were incorporated into the rulemaking while others deemed inappropriate were not.
FEDERAL STANDARDS:
There are no federal standards in regard to the Excelsior Jobs Program. Therefore, the emergency rule does not exceed any Federal standard.
COMPLIANCE SCHEDULE:
The period of time the state needs to assure compliance is negligible, and the Department of Economic Development expects to be compliant immediately.
Revised Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement
Changes made to the last published rulemaking do not require an updated regulatory flexibility analysis, rural area flexibility analysis and job impact statement.
Assessment of Public Comment
The Department of Economic Development ("DED") received three letters commenting on the proposed regulations.
Below is a summary of the comments received along with DED's response.
1. Investment zones
Comments:
The Excelsior real property tax credit favors 48 areas of the State designated as "investment zones" as compared to 37 areas designated as "development zones" and that if a project qualifies for participation in the Program it should qualify for all credits without prejudice.
Investment zones should be delineated based on boundaries designated under General Municipal Law § 958(a)(i) and (d) and not based on an area that " …. was wholly contained within up to four distinct and separate contiguous areas …… as those areas existed on June 29, 2010." Contiguous areas that are not within the boundaries as designated under section 958(a)(i) and (d) do not need enhanced financial support and would lead to waste, inefficiency and the flouting of the clear purpose of section 958.
Response:
The "investment zones" are defined in the Excelsior Jobs Program Act and cannot be eliminated or changed via the proposed regulation. It should be noted that a business admitted into the Excelsior Jobs Program can be located anywhere in NYS and receive three of the four tax credit components. If a business also meets the criteria as a regionally significant project, it can receive the additional excelsior real property tax credit component that a business located in an "investment zone" can receive.
Investment zones are those areas designated pursuant to General Municipal Law Section 958(a)(i) and (d), which defines them as economically distressed areas, and section 957(d), which requires the zone be contained within up to four distinct and separate contiguous areas. The proposed regulation simply clarifies that, for purposes of the Excelsior Jobs Program, the "investment zones" are those areas that existed on June 29, 2010, the day before the Empire Zones Program expired. In other words, a snapshot of the former "investment zones" is taken and businesses located in those economically distressed areas and admitted into the Excelsior Jobs Program are eligible for the excelsior real property tax credit component.
2. Accountability
Comments:
A public hearing should be held before the Commissioner makes a finding of "extraordinary economic circumstances" allowing a business to receive tax credits without meeting its job or investment obligations. The hearing should be accompanied by a publicly disclosed report and if a finding of extraordinary circumstances occurs, the finding should be submitted to the Comptroller for comment.
Response: The proposed regulation will be revised to indicate that the justification for the Commissioner's finding will be in writing to the company. The justification would therefore be subject to public disclosure.
3. Eligibility criteria
Comments:
Include job quality language into the eligibility criteria, e.g. require a business to pay prevailing wages.
Remove from eligibility as a strategic industry "an industry with significant potential for private sector economic growth and development in the state" because it is undefined and would cause the program to lose its targeted sector based approach.
All businesses should have to meet a benefit-cost ratio of at least 10:1.
Response:
There is no prevailing wage requirement in the Excelsior Jobs Program Act. However, the formula in the statute for determining the excelsior jobs tax credit component is based on the value of wages, up to a maximum of $5,000 per job. Higher wage jobs qualify for a higher per job credit.
An "industry with significant potential for private sector growth" is an eligible industry per the statute and cannot be removed by regulation from the list of eligible industries. However, the proposed regulation would further define the eligibility criteria to require that any business deemed eligible under this broad definition create at least 300 net new jobs and make capital investments of at least $30 million.
The statute only requires a 10:1 benefit-cost standard be met with respect to projects that cannot meet the minimum job creation requirements but may involve significant job retention AND capital investment. The estimated return on investment that a project will provide to the State is one of several evaluation criteria [§ 191.3(7)] included in the proposed regulation.
4. Reporting
Comments:
The components of the performance report should be spelled out in the regulation to ensure standard and consistent reporting. It is recommended that the NYC Local law 48 reporting requirements be mirrored. The quarterly report by the Commissioner of Economic Development should also include participant information and the Commissioner should verify all self reported data.
Response:
The proposed regulation specifies that a participant submit a performance report demonstrating that it continues to satisfy the eligibility requirements. Such requirements are already defined in the statute and the proposed regulation. Further, the law and the proposed regulation require that an applicant agree to allow the Tax and Labor Department to share information with the Department of Economic Development and allow the Department of Economic Development access to its records to monitor compliance. The precise content of the performance report, the quarterly report and auditing procedures are best addressed administratively to provide sufficient flexibility to revise the report and procedures as needed.
5. Evaluation standards
Comments:
The evaluation standards should mandate that the Commissioner take into account whether: the application supports Smart Growth principles, the jobs created are quality jobs, the standards in the new national health care law are met, and the positions are full or part time.
Section 191.3(a)(10) of the proposed regulation should be deleted because it suggests that businesses should be able to hold taxpayers hostage by threatening to leave the State.
Response:
Evaluation standards in the proposed regulation cannot be mandated because the statute did not mandate them. There are mandated eligibility criteria in the statute and these standards were designed within the broad authority provided to the Commissioner for promulgating regulations to further guide decision-making and complement the mandated eligibility criteria.
Section 191.3(a)(10) addresses whether incentives are needed to encourage a business to locate or expand in the State. Businesses are often looking at multiple sites in several competing states to locate expansion projects. In these instances, the incentives of the Excelsior Jobs Program can make NYS more competitive in site selection and is an important consideration when evaluating applicants.
6. Calculation of the tax credits
Comments:
The Excelsior Jobs Program tax credits should be revised to shift emphasis towards the creation of jobs that pay at or above the prevailing wage for that industry and towards jobs that are full time and include health benefits.
Managerial and non-managerial wage rates in reporting and in calculating the tax credits should be separated in order to get a more accurate assessment of jobs created and a more nuanced calculation of the tax credits.
Response:
The calculation of the Excelsior Jobs Program tax credits are determined in statute and cannot be changed through regulation. There is no prevailing wage requirement in the Excelsior Jobs Program Act, nor is there a requirement to provide health insurance benefits. However, the formula in the statute for determining the excelsior jobs tax credit component is based on the value of wages, including fringe benefits, up to a maximum of $5,000 per job. Higher wage jobs providing health benefits qualify for a higher per job credit.
Section 191.2(b) of the proposed regulation indicates that evidence of job creation would include a business's NYS-45-MN Quarterly Combined Withholding, Wage Reporting, and Unemployment Insurance Returns filed with the Department of Labor (DOL). These official reports already require a business to provide a breakdown of wages for each employee on its payroll and provide sufficient information to assess the type and wage rate for each new job created.
