Start-up pulls out of START-UP NY

Adirondack Operations, a business consulting firm near Watertown, was a staunch supporter of Gov. Andrew Cuomo’s highly touted START-UP NY program.

At the state fair last summer, employees from the small company staffed a START-UP NY booth and helped tout the state’s plan to create jobs through tax breaks and utilizing businesses resources in the state university system.

But Adirondack, one of only two North Country businesses listed with START-UP, recently quit the program.

In a withdrawal letter to the state, owner Mary Anne Kaputa said she supports the START-UP initiative and liked working with staff at SUNY Canton, an hour north of Watertown. But she said her company needs to hire interns and part-time employees, and couldn’t meet the program’s full-time hiring requirements to qualify for tax incentives.

The company’s exit from the program comes as the heavily funded initiative is facing fierce criticism from skeptics questioning its effectiveness.

In recent months, START-UP NY, a central part of Cuomo’s massive economic development arsenal, has been vilified by some state legislators and conservative think tanks after it was reported the program created just 408 jobs across the state since 2014, leading the critics to question whether the $53 million spent on advertising and marketing was worth it.

A Times Union analysis also found that some of the most economically struggling areas of the state are getting little from START-UP – a program originally intended to benefit upstate.

State records indicate 15 jobs were created in total across the North Country, Mohawk Valley, Central New York and Mid-Hudson regions between 2014 and 2015. The Capital Region, which includes eight counties, gained 32 jobs.

Buffalo has reported the most job creation in connection with the START-UP program. But critics say the 162 jobs were assisted by other incentives – including six START-UP companies that received cash awards through 43North, a part of the governor’s “Buffalo Billion” development program that is under investigation by the U.S. Justice Department. The Justice Department is examining the program’s lobbying ties and potential undisclosed conflicts of interest.

The START-UP program also came under fire during a legislative hearing last month in Albany. State Assemblyman Robin Schimminger, a Democrat from the Buffalo suburbs, questioned Empire State Development Corp. CEO and fellow western New Yorker Howard Zemsky about what the legislator has claimed is misleading reporting in the job-creation numbers.

ESD administers START-UP, as well as many of the state’s economic incentive programs. The legislative showdown was the latest in a series of attacks on the state’s economic development policies, which included a scathing report last month from the state comptroller’s office that said ESD couldn’t document whether companies met goals tied to tax cre dits provided through the Excelsior Jobs Program.

Zemsky has defended the START-UP funding, which Cuomo said earlier this year would lead to the creation of at least 4,175 jobs. Zemsky explained it’s just one of the state’s economic development tools and that it takes time for innovative business programs to take root.

But the lack of jobs in some regions, Schimminger said, may demonstrate that START-UP only works if the state is handpicking businesses and enriching them in other ways, including grants or other tax incentives.

“If you go back to the creation of the program in 2013, you would read every imaginative superlative being used – ‘game-changer,’ ‘transformative.’ It was a program wrapped in great expectations,” Schimminger said in an interview last month. “But the reality is something different.”

Zemsky counters that Buffalo’s higher participation is likely the result of the State University at Buffalo’s designation as one of the highest federally funded research institutions in the SUNY system – and a fuel for research-inspired businesses.

“The whole economic development portfolio we have is so dramatically larger than START-UP NY,” Zemsky told the Times Union. “But in the silly season of politics, this is what people want to focus on. I think if we can put the politics aside and just be patient and recognize the compelling virtues of creating a more fertile environment for industry and academia, and be patient with it, I think we’d all be better served.”

The state Legislature approved START-UP NY in 2013, allowing new or expanding businesses to be free of sales and income taxes for 10 years – provided companies are not on the long list of unauthorized uses like hotels, restaurants, retail and wholesale distribution centers. Businesses can apply for the program through 2020.

START-UP, which stands for SUNY Tax-free Areas to Revitalize and Transform Upstate New York, was originally designed to target upstate regions. But that changed when downstate legislators threatened to vote against it if their communities weren’t included.

The program also requires companies to locate on college campuses, or an approved building nearby, so they can benefit from tax-free leases, faculty knowledge, student interns and equipment. But the extent to which that’s happening is mixed.

ESD says 78 public and private schools have qualified to locate businesses through the program. But only a handful of campuses are housing multiple businesses – most notably University at Buffalo, Stony Brook in Long Island and SUNY Downstate Medical Center in New York City, according to an analysis of START-UP records.

Also, some regions remain START-UP NY deserts, despite the willingness of SUNY schools and local officials to participate.

There were four companies connected to SUNY Cobleskill that the governor’s office announced were joining START-UP in 2015, but three haven’t started and one withdrew from the program. The Mohawk Valley, where SUNY Cobleskill sits, reported one job created between 2014 and 2015 – from a Canadian aviation company that, according to Mohawk Valley Community College, set up in a trailer near one of their school buildings that is under construction in Rome, Oneida County.

The Times Union found the governor’s office touted 27 other companies in 2015 press releases as joining START-UP NY statewide. But all of those also have yet to locate, according to ESD officials.

Guilderland resident Gregory Wilhelm has the only active START-UP NY business that’s tied to SUNY Cobleskill. Wilhelm, a SUNY Cobleskill graduate who runs a wine business called Royal Meadery, renovated a building in Richmondville, Schoharie County, to make his product and offer tastings.

Still an engineer full-time, Wilhelm said his business has been slow to start because of the time it takes to make wine, so he has yet to hire an employee. While he supports START-UP NY, Wilhelm said he signed on not for the tax breaks but because of the opportunity to work with SUNY Cobleskill faculty who are part of a new fermentation science program.

“People say it’s a waste of taxpayer dollars. But we get nothing,” Wilhelm said, noting that incentives aren’t provided if jobs aren’t created. “It’s a new program. We need to stay the course and play it out.”

However, state Assemblyman Peter Lopez, a Republican who represents Schoharie County and voted for the START-UP legislation, said colleges have been provided little support or guidance from the state about how to integrate economic development into their educational mission.

“You created expectations without an organized structure,” Lopez said. “I look at these numbers, and they’re anemic for a reason.”

Zemsky said ESD spent a lot of time with colleges and universities, but “the more experience we get under our belt, the better advice we can give,” he said.

The Mid-Hudson region’s only business that claimed job creation by the end of 2015, Sustainable Waste Power Systems, has an office at the sprawling former IBM campus near Kingston and qualified for START-UP in part because Ulster Community College declared the IBM campus an offshoot of its institution.

But Sustainable, which is working on a system that turns animal or plant waste into fuel for power equipment, is doing all its construction and testing at space its leasing from a power tool company in Saugerties. Sustainable President Chris Gillespie said he’s done presentations at Ulster Community College. But he isn’t sure he’d be able to locate at the former IBM plant because Sustainable needs an area that is wide enough to hold 40-foot shipping containers.

Gillespie said he’s hoping his company, which has hired five people, can begin to sell the system soon to places like poultry farms and distilleries around the country. Tax breaks, however, do not provide all the elements needed to boost a business like his, which moved from Connecticut to New York to participate in START-UP. Sustainable has also applied for a grant from the state’s Regional Economic Development Council, another part of Cuomo’s economic development platform.

“Anything the state can do would help.” Gillespie said. “They aren’t very tolerant of failure. A venture capital firm has that type of appetite for risk, but I don’t think the state does.”

At the State University of New York at Binghamton, nine businesses have enrolled in START-UP NY, but only two reported creating jobs by the end of 2015. Per Stromhaug, assistant vice president for innovation and economic development at SUNY Binghamton, said while growth has been slow, three more companies have since hired new employees in 2016. Eight of the enrolled businesses said they’ll locate at a SUNY Binghamton research facility.

“Last year did not look as good as we were hoping for,” Stromhaug said. “But all these companies are still going, none of them have dropped out. I think we feel pretty optimistic about the numbers coming out of this year.”