Education Supplement: Launch Sequence

Gov. Cuomo's plan to give tax breaks to startups on college campuses faces high costs, uncertain outcomes

When companies that got their start on college campuses come to mind, the universities in question are typically the big-name schools that bespeak tech royalty: Stanford spawned Google, Harvard launched Facebook, MIT begat Dropbox. Locally, NYU has been the big name in incubating new businesses (Foursquare, Audible), recently opening an Entrepreneurial Institute to encourage students and faculty to start their own ventures.

It's an idea that was destined to trickle down to the more aspirational members of the higher education world, and it's now done so with a vengeance: Under START-UP NY, a program proposed last fall by Gov. Andrew Cuomo and officially launched on January 1, one CUNY school in each borough — Bronx Community College, City College of New York, York College, Medgar Evers College, and the College of Staten Island — will be designated startup development zones, with new businesses exempted from all state income, sales, and property taxes for their first ten years of operation. (Upstate SUNY schools and private colleges will be eligible as well.) Entrepreneurs will also get space on (or near) campus, and access to academic resources; students will get — in theory, anyway — access to training and jobs.

"We hear an awful lot of talk about jobs going unfilled in certain sectors, mostly in the technology sector," notes Bronx Community College president Carole Berotte Joseph. Partly in response to this, BCC now offers a degree program in biotechnology, she says, "and yet we don't have a lot of biotech companies in the Bronx. We have students who are going through this program who will need internships, who will need jobs, so it would be an excellent match."

At Medgar Evers, which was picked as Brooklyn's representative because the surrounding Crown Heights neighborhood was judged to be "an area of economic distress," interim vice president of administration and finance David Taylor says START-UP NY is in line with new Medgar Evers president (and former Giuliani schools chancellor) Rudy Crew's vision of aiding the surrounding community. "We want to create a pipeline of students coming from our middle schools and high schools" through Medgar Evers, says Taylor, "where they think, 'I don't have to stay in central Brooklyn — I can go regional, national, overseas.' "

It's an ambitious vision, and not entirely unprecedented: Innovation Fund America, based on a trial project at Lorain County Community College in Ohio, has created startup incubators at community colleges in Long Beach, California and Hickory, North Carolina. "The fundamental of the knowledge economy is a partnership between business and academia," says Leslie Whatley, the former Morgan Stanley real estate exec who Cuomo appointed to head START-UP NY in October. By joining campuses and startup together on business development and research, she says, "it's a very powerful economic engine."

Praise for the plan is significantly scantier from the economic development world, where experts from the left and right have both assailed the plan as a waste of state tax dollars that could be better spent on projects that provide more bang for the buck. The governor's office itself has estimated that the state will lose $323 million over the next three years thanks to companies that would have located in New York anyway, but which will now take advantage of the new tax-free zones.

Originally dubbed Tax-Free New York, Cuomo's plan got a late rebranding last summer after local business owners griped about giving preferential treatment to startups. It's a legitimate concern, says Ron Deutsch of the progressive tax reform group New Yorkers for Fiscal Fairness: "You could have a local business that's not expanding, but doing okay; then you have a competitor coming in from another state setting up a similar business. And not only do you now have to compete with someone who's not paying any taxes, but you as an existing business are subsidizing them to pay no taxes."

Deutsch's bigger concern, though, is all that tax money that the state will be forgoing. "It's the smokestack-chasing that all states do," he says, noting that New York state has a long record of trying to lure business with tax breaks, with Enterprise Zones turning into Economic Development Zones, then Empire Zones, and finally the Excelsior Program. Deutsch points out that the state tax reform commission headed by Carl McCall and Peter Solomon, in its final report issued in November, indicated that the state has little way of knowing whether such tax credits are effective, concluding that they "may not result in a good return on investment" for the state.

"We're spending anywhere from 4 to 7 billion dollars a year on these programs," charges Deutsch, "when in reality we would probably be better off investing that in education and in job training and in preparing a skilled workforce for employers."

Whatley counters that the governor's office hopes the program will create 10,000 new jobs per year, though she readily acknowledges that's only an estimate. "We are taking land and space that is currently underutilized and trying to put business in it. So what we're counting on is that we're going to create an economic multiplier with excess capacity that's in the system that creates a net positive."

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