Big Tax Breaks for Big Boxes

New York state program subsidizes chains, handicaps independent businesses

By Michelle Breidenbach and Mike McAndrew
First Published by the Syracuse Post Standard April 01, 2007

Jim Cronk runs the kind of hardware store that offers a good deal on rock salt because he bought it in bulk and divided it into empty kitty litter pails he picked up at a farmers market.

Cronk fuels a coal-burning stove in the Mallory Lumber & Steel showroom, where friends and customers discuss the news and exchange advice about the proper way to install a metal roof.

Cronk’s store in Hastings is halfway between the Lowe’s Home Center in Cicero and the one in Oswego. He just heard state taxpayers are giving the big-box retailer $3.6 million a year in Empire Zone tax breaks. The home improvement store will be reimbursed for its property taxes and will pay reduced state income taxes for at least 10 years.

“If they get free taxes, that’s just like free money,” Cronk said.

Cronk is not in the zone. Last year, he paid state income taxes, sales taxes and about $4,000 in local property taxes, he said.

He waved a colorful newspaper insert from Lowe’s and said he wished he had the extra money to advertise, to stock all the little gadgets people want and to employ a couple of people.

Raby’s Ace Home Center, family-owned in Oswego since 1916, is not in the Empire Zone program, either. That store suffered when Lowe’s moved in three miles away, Robert Raby said.

“It’s a little frustrating when you are, in a sense, subsidizing your own competition, ” Raby said. “We’re not anti-competition or anything like that. I guess we’re for fair competition.”

Until last month, New York state officials would not tell the public how much tax relief each of the 9,667 zone businesses expected. The Post-Standard won a lawsuit that forced the information into the light for the first time.

Around the fire at Mallory’s and elsewhere in the state, business owners who are not getting tax breaks are scanning the list of the ones who did.

In addition to Home Depot and Lowe’s, state taxpayers also subsidized Wal-Mart, Target, Price Chopper, Kinney Drugs and AutoZone stores. Those national chains alone drew an estimated $9 million in zone breaks in 2005.

The state’s taxpayers are underwriting a small number of fast-growing national chain stores that are headquartered out of state and already have the competitive advantage of bigness. The big-box deals highlight the inequity of the Empire Zone program: 2 percent of the state’s businesses are subsidized with the taxes paid by the rest of them.

Former Gov. George Pataki and state legislators intended the program as a tool to lure job-creating businesses into downtowns and impoverished neighborhoods. Clever lawyers and accountants quickly found ways to get themselves and their clients on the list — no matter that they were old companies, losing jobs or building in the suburbs.

Raby’s considered using an accounting gimmick to squeeze into the program. All the store had to do was change its name and the store would have qualified for tax breaks meant for a new company.

“But we’re an established business,” Raby said. “My understanding was that this was for new businesses. We didn’t want to do the name-change game. We didn’t feel that’s how the program was supposed to work.”

State Sen. Liz Krueger, D-Manhattan, called big-box stores “another bunch of minimum-wage, go-nowhere, no-benefit jobs” that undercut existing businesses.

“So the state of New York helped you put X number of people out of a job,” she said. “I don’t remember that ever being part of the discussion. I don’t remember anyone saying, ‘Let’s try to put Mom-and-Pop stores out of business.’ ”

Retailing giants cash in 
Krueger said it is difficult to argue for taxpayer help for Home Depot and Lowe’s.

The two largest home improvement retailers in the United States count their earnings in the billions. They are locked in fierce competition, and they open stores in New York with or without government help.

Home Depot has 2,147 stores worldwide, including 100 in New York. The company built two stores on Staten Island only six miles apart. Both won Empire Zone tax breaks.

Home Depot created 363 jobs at nine zone locations. Those stores paid workers an average of $9.63 an hour. Forty-one percent of the workers are part-timers, records show.

Lowe’s created 560 jobs at the seven stores where it gets Empire Zone credits. More than half are part-timers. The company paid an average of $10.98 per hour, records show.

At the same time, Lowe’s paid its chief executive officer $3.69 million, plus stock options. In January, Home Depot sent away its CEO with a $210 million severance package.

“We believe incentives create a win-win situation,” Lowe’s spokeswoman Karen Cobb said. “By bringing a Lowe’s store to the community, we are creating an average of 150-200 new jobs as well as generating tax revenue for the community.”

Home Depot had no comment.

All over the nation, local hardware stores are fighting government tax breaks for wealthy, out-of-state retailers. Maine and Minnesota are even thinking about imposing an extra tax on the big chains that either do not pay a living wage or have more than one-quarter of the employees working part time, according to the Institute for Local Self-Reliance, a national anti-sprawl group.

The group contends state government winds up paying Medicaid costs for uninsured workers and services associated with sprawling development. The group’s Web siteoffers studies showing that communities with big-box stores fare worse in terms of poverty rates, job loss and social and civic well-being.

The retail pie is only so big, experts say.

“Obviously, if you create a new store, you’re not creating new consumer spending,” said Stacy Mitchell, author of the book “Big-Box Swindle” and a senior researcher with the anti-sprawl group. “You can only do that if you grow the population or you increase people’s disposable income.

“My organization thinks that you should never give subsidies for retail development, except for maybe some low-income neighborhoods where you’ve got a distressed main street that’s so far gone that it’s hard to figure out how the market’s going to bring it back.

“For the most part, we don’t think you should give money to retail because you’re not generating any new economic activity. You’re just moving it around.”

Lowe’s in Oswego opened Dec. 8, 2004, with 170 employees.

Sixteen months later, an 84 Lumber store across the street closed. That company did not get Empire Zone money. Other small competitors met a similar fate. Cronk knows because he buys up their extra merchandise to sell at Mallory Lumber & Steel.

‘Our famous bureaucracy’ 
Cronk has read the laws that created the Empire Zone program. He has left telephone messages for his legislators – Sen. Jim Wright and Assemblyman David Townsend. He said they have not returned his calls.

If they did, he would tell them that he thinks bureaucracy is to blame for a system that allows a store on one side of the street to qualify for tax breaks while the store on the other side does not.

“It’s our famous bureaucracy. If you’re Jim Wright, you say, ‘This is one hell of a program. We’ve done a great job,’ ” Cronk said as he pulled on his sweatshirt collar to imitate Wright straightening his suit jacket. “But they didn’t take the next step and make sure the legislative intent is followed properly.”

The governor and the state Legislature created the program and then handed it off to a state agency to administer. That state agency relies on local economic development officials to select businesses for the program. At first, there were few rules about the kinds of businesses that could qualify.

“If you were in the zone and were creating a job, it was a straight certification. There wasn’t the scrutiny,” said Carol Bolam, deputy director of the state Empire Zone program.

Wright, a member of the Senate Economic Development Committee, said the state tried to make the program broad so local communities could bring in businesses that fit that area.

“In the absence of manufacturing, the big boxes have become the large employers the localities go after,” Wright said.

Local governments like retail stores because they generate local sales taxes. And it does not hurt the local tax base for the local officials to give businesses state money.

The program’s cost has grown from $30 million in 2000 to an estimated $558 million this year.

E.J. McMahon, a senior fellow at the fiscally conservative Manhattan Institute, said this is a classic example of local government officials being “very generous with other people’s money.”

“People all over the state are going to underwrite property taxes for a big-box store in Oswego,” McMahon said. He says the state should use the money to cut business taxes for everyone in New York .

The state does still consider retail stores for the program, but it encourages local zone coordinators not to focus on retail except in a depressed downtown.

“If you need to attract a retail business to a distressed area, then it’s much more acceptable than if it’s going to a natural market area in the suburbs and it doesn’t really need an incentive,” Bolam said.

Onondaga County allowed the Lowe’s store in fast-growing Cicero into the Empire Zone program in 2004, records show. Another Lowe’s in Camillus was approved in 2005.

Don Western, Onondaga County ‘s economic development director, said Lowe’s is in the program only because the county put three troubled old malls in the zone before they knew who the new tenants would be. If Lowe’s came to the county directly to ask for government help, Western said, it would likely not get it.

“I don’t understand why that kind of retail would be an acceptable use of the program in a county zone,” Western said.

The same is true in Watertown. Three years ago, Watertown added to its Empire Zone a new Home Depot just off an Interstate 81 exit. A year after Home Depot opened, Watertown ‘s Empire Zone board decided that it no longer wanted to add retailers to its zone unless they were downtown. But Home Depot will qualify for tax breaks for the next decade.

Pataki’s ‘global marketplace’ 
The city of Oswego is on an Empire Zone shopping spree that started with Wal-Mart. Its zone also includes Lowe’s, Price-Chopper, Kinney Drugs and others. Pataki announced in 2003 that the state had revised the boundaries of the zone in Oswego to bring in the Lowe’s store, Ruby Tuesday and Sunrise Nursing Home.

“By making these changes, more businesses will be able to create jobs and investment in New York and we can ensure that New Yorkers continue to have access to good jobs,” Pataki said in a news release. “In today’s global marketplace we are competing for each and every job.”

Retail fits the Lake Ontario tourism industry, said L. Michael Treadwell, executive director for Operation Oswego County , the county development office. He said the big-box boom along Route 104 has brought bank branches and other small retailers. The big boxes employ people, he said.

And now, customers are coming to shop at the Lowe’s in Oswego instead of the Lowe’s in Onondaga County, he said.

“If one went strictly by the argument that you don’t provide any assistance because there’s a competitive situation, then you wouldn’t provide any assistance to anybody, anywhere, at any time,” he said.

Treadwell said that Lowe’s gave Raby’s some competition, but he said they stood up to it and have survived.

“To the best of my knowledge, they’ve done very well since Lowe’s came to town,” Treadwell said.

But Lowe’s is getting free taxes and Raby’s is not.

Treadwell paused. “In my view, strictly in my view,” he said, “they should have put tighter restrictions on retail than they did. But they didn’t. The state didn’t do it.”

© 2007 Syracuse Post Standard

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