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NEWS from the Office of the New York State Comptroller
Contact: Press Office 518-474-4015

State Falls Short in Verifying if Companies Qualify for Tax Breaks Under Excelsior Program

July 7, 2016

Empire State Development Corp. (ESD), the entity in charge of doling out millions of dollars in tax credits to companies that pledge to expand in New York state, could not verify that many of the companies participating in the Excelsior Jobs Program met their obligations or even justify giving the businesses tax breaks in the first place, according to an audit released today by State Comptroller Thomas P. DiNapoli.

DiNapoli’s auditors found a range of problems from lowering job creation goals after companies did not meet expectations to not verifying if jobs were full-time or part-time. ESD also could not produce evidence that several companies actually created jobs and did not simply shift jobs.

“New York state gives away millions of dollars each year in tax breaks for companies that are supposed to create jobs and expand under the Excelsior program, but ESD’s oversight leaves a lot to be desired,” DiNapoli said. “ESD needs to stop lowering the bar and giving companies a pass when they fall short of promises. ESD needs to ensure these businesses are not taking advantage of state taxpayers.” 

The Excelsior Jobs Program, established in 2010, provides refundable tax credits to businesses in targeted industries in exchange for creating and maintaining specific numbers of new jobs or making significant capital investments. The program replaced the Empire Zone Program and was aimed at bringing greater accountability to the companies’ for their economic development commitments.

ESD requires companies to submit an annual performance report to account for their annual job creation and investment totals, as well as other supporting documentation such as tax reports and invoice receipts for qualified investments. Companies need to meet at least 75 percent of the agreed-upon commitments to receive any benefits.

According to ESD reports, 1,152 businesses applied to participate in the program from September 2010 through March 2015. Of these, the state accepted 328 businesses (29 percent), and committed over $548 million in tax credits to them in exchange for their commitment to invest nearly $5.8 billion and create 34,472 new jobs in New York.

Not Holding Companies to Promises

Auditors examined 25 companies that, as of June 2015, were authorized to receive 39 tax credits totaling $4.84 million.

Specifically, DiNapoli’s auditors found ESD failed to exercise due diligence when approving any of the 25 sampled companies for participation in the program and does not follow its own protocol for scrutiny of applications. ESD did not provide auditors with documentation to verify that the 25 companies met all of the eligibility requirements before being officially admitted into the program and could not verify the companies met the agreed-upon job growth and investment benchmarks for five of the 39 (13 percent) tax credits totaling $214,000.

For 34 of the 39 issued tax credits totaling $4.6 million, ESD provided auditors with worksheets that staff used to compile data to support their tax credit calculations. However, although ESD steadfastly maintains it gave the auditors all the information it had, most of the files lacked the documentation to support that ESD had actually exercised due diligence and taken steps to verify the reported amounts. 

For example, on 31 of the worksheets provided, ESD workers made notations indicating they had compared their data with information contained on corroborating state tax forms. Yet, those forms were present for only a very few companies.  In one case where information was available, auditors found ESD used a higher wage amount than was actually paid according to the tax forms. This resulted in at least $187,062 in excess tax credits being authorized to this company for 2012.

In addition, 11 of the worksheets were for credits based on promised investments and each indicated that ESD staff had reviewed company invoices to support investments made. However, ESD provided auditors with complete corroborating support for only eight of the 39 tax credits, accounting for just $417,000 (less than 9 percent) of the $4.84 million.

Lowering Targets

For four of the 34 tax credits for which ESD provided supporting worksheets, auditors found that ESD adjusted the original annual job creation commitment numbers after the fact to align with the lower job creation totals that the companies had actually attained. As a result, the three companies involved received a total of $358,329 in tax credits to which they would otherwise not have been entitled.

For two of the revisions, ESD could not provide evidence from the company justifying the need for the revision – including one company whose 2012 job commitment was reduced from 600 to 363 for no apparent reason. Another company subsequently closed operations after being authorized to receive $556,446 in tax credits.

Auditors also found no evidence that ESD took steps to determine whether companies shifted employees from related companies and counted them as new jobs to the state.

DiNapoli’s auditors found that ESD does not require companies to provide evidence that new jobs met the 35-hour work week criterion, nor does it even collect this data. Instead, ESD accepts companies’ annual performance report certification that the reported employees worked at least 35 hours a week as sufficient validation.

Auditors visited four companies and reviewed various records. At one company, two of the seven new employees – the chief executive officer and the chief financial officer – did not work 35 hours per week in 2013 and 2014. At the second company, a range of 33 to 40 employees, whom the company listed as new hires, actually worked part-time in 2012 and 2013 and did not meet the 35-hour per week work criterion.

DiNapoli recommended ESD:

  • Obtain sufficient corroborating documentation to support that all program participants meet the eligibility requirements for job growth and investments before receiving tax credits;M
  • Ensure that all tax credit calculations are correct before issuing any credits;
  • Limit modifications to annual job growth and investment requirements to only unforeseen justifiable circumstances; 
  • Ensure project files contain all required documentation to support that companies met eligibility requirements before being accepted into the program;
  • Establish and use specific, objective and quantifiable criteria for ranking program applications; and
  • Increase program transparency by including complete and accurate information in quarterly reports.

DiNapoli’s auditors noted that ESD officials were not forthcoming in responding to requests for project files and for other information related to the sampled companies and the program in general.

ESD officials disagreed with the audit’s findings. Their full response is contained in the audit. DiNapoli’s auditors noted that ESD officials did not respond to some of the preliminary findings, addressing certain specific findings and ignoring others. They also avoided addressing the audit’s overall conclusions.

Read the report Performance of the Excelsior Jobs Program, or go to:

DiNapoli has cited numerous concerns that ESD provides limited public reporting on the results of economic development programs and often cannot verify if programs are achieving desired results.

In May 2015, DiNapoli released an audit of ESD’s $211 million campaign to promote economic development and tourism in the state and found it delivered no tangible results. His office has also released a series of audits on the state’s minority- and women-owned business enterprises that found inaccurate and significantly inflated reporting.