Law Firm, CPAs Challenge New York

     ALBANY, N.Y. (CN) – Two Syracuse businesses claim New York cost them millions of dollars in tax credits by retroactively decertifying them from an economic development program, in a process that was “nothing more than a charade.”
     Dannible & McKee, CPAs, and Bond, Schoeneck & King, a century-old law firm, claim state officials acted arbitrarily in 2009 in deciding which firms qualified for recertification under the program and which ones did not.
     They claim the behavior continued in 2010 as the state fielded protests from decertified firms, and persisted this year when several dozen firms, including Dannible and Bond, were afforded special appeals hearings.
     “In sum, the initial appeal process … was never implemented and the [Empire Zones Designation Board] simply deferred to the secret determinations of the staff of the Department of Economic Development, which was the same body that rendered the decisions that were being appealed,” Dannible and Bond claim in similar but separate complaints in Albany County Supreme Court. “The second appeal … was futile.”
     Named as defendants are the state Department of Economic Development and the Empire Zones Designation Board, which oversaw certifications, as are Kenneth Adams, commissioner of economic development, and the state Department of Taxation and Finance and its commissioner Thomas Mattox.
     Dannible and Bond were among thousands of New York businesses that participated in an economic development program started in 1986 that offered tax incentives to businesses in economically distressed areas – often, blighted inner cities – that were designated Empire Zones. Businesses certified for the program had to submit annual reports detailing employment, capital investment and tax benefits.
     The program no longer accepts new applicants, according to a notice posted on the Department of Economic Development’s website. State tax credits now are offered under the Excelsior Program for “strategic businesses, such as high tech, bio-tech, clean-tech and manufacturing, that create jobs or make significant capital investments,” the website states.
     Bond received $1.5 million in annual tax credits for its offices in Empire Zones in Syracuse, Albany, Buffalo and Oswego, according the Syracuse Post-Standard; Dannible, also in a Syracuse Empire Zone, got $222,000.
     While state audits had cited some participating businesses for not keeping up their employment or investment numbers, calls to crack down on abusers began to grow as the costs of the Empire Zones program ballooned over the years to $600 million annually.
     When the state faced a $20 billion budget deficit in 2009, then-Gov. David Paterson saw an opportunity to raise the bar for the program and save money.
     The 2009 amendments went after two kinds of abusers, the Post-Standard reported: old businesses that misrepresented themselves as new ones (known as “shirt changers”) to get more tax credits, and businesses that failed to spend at least $1 in payroll and investment for every $1 they received in tax credits.
     Of the nearly 8,500 businesses in the program that year, 1,400 were alerted that they needed to supply more information to the state, and nearly 650 were warned that their certifications were in jeopardy, according to the Post-Standard.
     Dannible and Bond fell into the latter category, and in May 2009 received form letters indicating they did not appear to meet standards for continued certification. The next month, each received a letter from Randal Coburn, then-director of the Empire Zones program, revoking their certifications, retroactive to Jan. 1, 2008.
     The letters were “devoid of any reasons for decertification,” Dannible, says in its complaint, and both Dannible and Bond told the Empire Zones Designation Board that they planned to appeal.
     Dannible, which employs 80 people, claims “it has provided and continues to provide substantial economic and social benefits to the [downtown Syracuse] area which would not otherwise be available,” had it fled to the suburbs, as many other law and accounting firms did.
     Bond, with 240 employees in downtown Syracuse, says it “is a significant positive presence in each of its Empire Zone downtown locations,” and that it paid total compensation and benefits of $187 million and invested $5.7 million from 2002 to 2007.
     The 2009 amendments allowed the Empire Zones Designation Board to overrule a decertification if it found “any extraordinary circumstances occurred which would justify the continued certification of the business enterprise,” Bond says in its complaint.
     But Dannible and Bond say the criteria for meeting those “extraordinary circumstances” were not outlined until 14 months after written appeals to the revocation letters were due.
     “The EZDB relied on the commissioner and the staff of the Department of Economic Development, in particular Randal Coburn, for the development of this standard, rather than undertaking its own deliberations as required under the statute,” the complaints state.
     “The standard was adopted in secret, with no opportunity by the public to observe, much less to comment on, the proceedings.”
     In October 2010, the zones board upheld the Dannible and Bond decertifications – along with dozens of others – without explanation. The following February, Dannible and Bond filed separate Article 78 actions against the state in Albany County Supreme Court, challenging the decertifications.
     In mirror decisions in October 2011, Supreme Court Justice Patrick McGrath annulled the Empire Zones decision and sent the cases back for reconsideration because “the [EZDB’s] failure to explain the underlying reasons for its determination [precluded] meaningful review of the rationality of the decision.”
     A reconstituted Empire Zones board met in April this year to review nearly three dozen decertifications that had been challenged in court or were sent back under an agreement between a business and the state attorney general’s office.
     The complaints cite a Post-Standard article as describing the “secrecy and the suddenness of the reconstitution of the previously defunct EZDB.” Neither Bond nor Dannible was given an opportunity to speak to their decertification before the board, they say.
     Two days before the board reached a decision on any of the appeals, Gov. Andrew Cuomo suggested to a public radio reporter that the process was just a formality: “The court said that before the state can take back the credit, the business has a right to a hearing. And that’s what we’re doing now. We’re doing that so the businesses feel, and court agrees, that the businesses had due process before we removed the benefit,” the complaints state.
     Bond and Dannible call the board hearing “nothing more than a charade” and say the governor “provided the board with an implicit directive to uphold the decertification.”
     Both plaintiffs claim their retroactive decertification was “arbitrary and capricious, an unconstitutional deprivation of property without due process, and an unconstitutional impairment of contract under the New York and United States constitutions.”
     They ask the court to declare the retroactive decertifications unconstitutional; to vacate any decertification before June 29, 2009; and to annul the original decisions to decertify.
     Both complaints were filed by Jonathan Fellows, with Bond Schoeneck & King, in Syracuse.

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