Empire State Development
Performance of the Excelsior
Issued: July 07, 2016
Link to full audit report 2015-S-15
Link to 90-day response
To determine whether firms that were issued a Certificate of Tax Credit met the eligibility requirements for job growth and investments in their formal agreement before receiving tax credits. The audit covers from July 1, 2010 through September 30, 2015.
The Excelsior Jobs Program (Program), established in Chapter 59 of the Laws of 2010, provides refundable tax credits to firms in targeted industries. To receive the credits, over a 10-year period, the firms must create and maintain specific numbers of new jobs and/or make significant capital investments. Empire State Development (ESD) administers the Program and is responsible for determining whether businesses meet the eligibility requirements in the Program’s Regulations before certifying their eligibility to receive annual tax credits. As of March 31, 2015, the State has committed over $548 million in Program tax credits to 328 businesses. In return, these businesses have committed to invest nearly $5.8 billion and create 34,472 jobs in New York State.
- We sampled 25 companies for which, as of June 2015, ESD had authorized Program tax credits on 39 occasions totaling $4.84 million. Based on our testing, ESD could not support that the sampled companies met the agreed-upon job growth and investment benchmarks for 5 of the 39 instances (13 percent) where ESD authorized Program tax credits totaling $214,000. Furthermore, ESD could not support that any of the 25 sampled companies met all the eligibility requirements when initially approved for Program participation.
- In four separate instances, ESD adjusted the annual job creation requirements from the original agreement after the fact to align with the companies’ actual lower job creation totals. Had these adjustments not occurred, the three companies involved would have received $358,329 less in tax credits. For two of the four 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. A company involved in one of the other revisions subsequently closed operations after being authorized to receive $556,446 in tax credits.
- ESD generally authorizes tax credits based on the job numbers and investment costs that are self-reported by businesses without any additional corroborating support (e.g., invoices, receipts, tax documentation). In addition, ESD does not verify that new jobs meet the Program’s 35-hour weekly work requirement and that they have not merely been shifted from existing positions at affiliated companies.
- Obtain sufficient corroborating documentation to support that all Program participants met the eligibility requirements for job growth and investments in their formal agreement before receiving tax credits.
- Ensure that all tax credit calculations are correct before issuing a Certificate of Tax Credit.
OSC Response to Agency Comments to Draft Report
In responding to our draft audit report, ESD officials reiterated many of the positions they put forth during the audit’s fieldwork, disagreeing with our conclusions and asserting that our findings were based on misunderstandings of how the Program works and the relevant statutory requirements. We note, however, that ESD’s internal auditors reported similar findings more than three years ago, at which time officials pledged to take steps to correct the deficiencies found. Also, as detailed in this report, we found ESD’s request for changes to certain audit conclusions to be unwarranted. Its response included inaccuracies and in some cases false statements.
Further, although ESD asserts that it supports programs’ transparency and accountability, it continued a pattern we observed in recent audits, in which officials were far less than forthcoming in responding to auditors’ requests for meetings, project files, and other necessary information. Officials’ attempt to introduce new material as part of their response, ostensibly to address to the same issues and findings presented to them in preliminary observations over eight months ago, further demonstrates the pattern of actions to delay and impede our audit work. Finally, consistent with other recent Comptroller audits, ESD’s response avoids directly addressing the report’s recommendations. Considering the Program’s significance and the millions of public dollars devoted to it, ESD should take prompt steps to address our audit recommendations in a meaningful manner.
Other Related Audit/Report of Interest
Empire State Development: Marketing Service Performance Monitoring (2014-S-10)
State Government Accountability Contact Information:
Audit Manager: John Buyce
Phone: (518) 474-3271; Email: StateGovernmentAccountability@osc.state.ny.us
Address: Office of the State Comptroller; Division of State Government Accountability; 110 State Street, 11th Floor; Albany, NY 12236