By JAMES FINK
Business First

When it comes to the pipeline for economic-development projects, the unknown is driving Steve Carmina crazy.

As a small-business owner and entrepreneur, Carmina - head of the Buffalo architecture and engineering firm of Carmina Wood & Morris PC - is looking at a deep pool of variables that may affect his company.

The economy, to be sure, is wreaking havoc on private- and public-sector budgets. Here in New York state, Gov. David Paterson is projecting a $14 billion fiscal hole.

Paterson has proposed radical changes and cuts in his 2009 budget, including a dramatic revamping of the state-supported Empire Zone program, which has been praised for providing incentives for developers but also criticized for public-sector-supported loopholes.

The debate about the Empire Zone program is near the top of the list in Albany as both supporters and opponents lobby for change. Regardless, it's not likely to be resolved anytime soon. The just-passed $131.8 billion budget has economic-development officials still confused about what is or is not eligible under Empire Zone regulations.

Critics contend that the program is rife with abuse from projects that should have stood on their own, without the need for public-sector assistance.

For the most part, supporters say, the Buffalo area has been a model for the use of Empire Zone credits.

Carmina said some people voiced criticism when his firm decided to buy a vacant Main Street building in downtown Buffalo for offices. After the move, however, the firm went from 11 employees to 18.

"We'd never be here if it wasn't for the Empire Zone credits," Carmina said. "What people in Albany are forgetting is that small firms like ours, doing a project like this would not have been financially possible without the credits and incentives."

The Empire Zone debate continues as Albany wrestles with proposals to combine some industrial-development agencies. If that legislation becomes law, critics say it could cripple economic-development efforts for years to come.

"It's already impacting projects," Carmina said. "We're very concerned. There are a lot of potential projects that should be coming to the surface but aren't because of the new restrictions or threats of the new restrictions."

Paterson said the changes are needed to help New York cover its budget hole. Still, many feel the governor's actions may harm economic development, which would prevent new private investment that ultimately creates jobs, a larger tax base and more spinoff investment.

Paterson's proposal covers a range of Empire Zone issues, including increasing the cost-benefit ratio from 15:1 to 20:1. That means 20 jobs must be created or retained or new dollars invested for every dollar of public-sector support. Paterson also wants provisions that penalize companies for not reaching investment or job-creation levels.

Existing companies that received Empire Zone benefits are not impacted, it appears.

"I do really want to get rid of the waste that has come from the program," Paterson said. "But I also believe we can find something that is sustainable. I'm hearing those concerns and am willing to negotiate."

Others, however, are skeptical.

"I believe the governor is getting bad advice from the wrong quarters when it comes to Empire Zones," said Assemblyman Robin Schimminger, D-Tonawanda, longtime chairman of the Assembly Economic Development Committee. "The reforms, as proposed, will result in businesses leaving New York state, will result in litigation and only plummet New York's standing in economic-development circles."

The development community remains concerned.

"If this goes through, you could end up seeing a lot of deals not happening," said Paul Ciminelli, president of Ciminelli Development Cos.

He said Empire Zone credits and incentives are part of a mosaic that developers need to combat the high cost of doing projects in New York.

Empire Zone incentives can save a developer as much as 20 percent on a project's costs and play critical roles in redeveloping older buildings in downtown Buffalo.

"Empire Zone credits should be the last part of the puzzle," Ciminelli said. "They should be that one piece that drives a project over the goal line."

Acknowledging that some firms have abused the system - especially downstate - local developer Carl Paladino said a detailed look at the Empire Zone package is warranted.

"Are there parts of the law that could be rewritten? Sure," Paladino said. "But it does not have to be watered down. New York is still going to need subsidies to compete with other states."

Don Warrant, tax director with the Buffalo accounting firm Freed Maxick & Battaglia CPAs PC, said the proposed legislation, even if amended, is scaring the private sector.

Warrant said his firm has heard from clients who are concerned enough about the changes that they may scale back or drop some expansion or acquisition projects.

The uncertainty concerning incentives adds another level of angst on top of the current recession, Warrant said.

"I just don't think this is the right way to go," he said. "There should be other measurements when it comes to jobs and investment than what is being proposed."

The ripple effects of proposed Empire Zone changes have caught the eye of prominent real estate site selectors - and not in a good way, said Tom Kucharski, Buffalo Niagara Enterprise president and CEO.

"Right, it is very tough to sit down and give (site selectors) a sense of surety when it comes to Empire Zones," Kucharski said. "The irony is that the program has worked very well in this end of the state. The worst thing New York can do is send out a mixed message about incentives. If Empire Zones are not part of the equation, we will fall off a lot of lists."

Schimminger agrees that the Empire Zone issue needs to be resolved sooner rather than later or economic development marketing and outreach initiatives will go for naught.

"The longer they remain in the public domain, the longer they harm the state's and Western New York's economic-development picture," he said.