Let's Make a Deal

New York's attitude toward business has changed so much that it wielded the largest incentive package in the state's history to land the IBM facility. Over the next 10 years, Big Blue will receive a total of $659.8 million for the new East Fishkill plant. Specifically, the state provided IBM with $475 million in increased Empire Zone incentives, $28.75 million in state grants and loans, and it is eligible for another $156 million in sales tax and local benefits and exemptions.
        "The appeal of the final negotiated package was the broad scope of coverage in the various areas, ranging from direct cash grants to tax abatement and exemptions," says Chris Andrews, program manager with IBM Microelectronics' media relations. "IBM operates in a very competitive industry, and our ability to be cost competitive will continue to drive site selection decisions."
        New York's push to win the new facility actually began in 1997 when it negotiated a payment-in-lieu-of-tax (PILOT) agreement with IBM. "The PILOT agreement, which provided relief from real property taxes, contemplated the possibility of the pilot facility evolving into a full semiconductor fab," says Charles Gargano, chairman of Empire State Development (www.empire.state.ny.us). "Thus, IBM will not realize additional real property taxes resulting from its decision to invest $2.5 billion in the East Fishkill site."
        IBM wanted to locate the new 300-mm chip fabrication facility near its existing Semiconductor Research and Development Center in East Fishkill to leverage the existing technical skills employed at that facility, which "makes for a faster, more efficient transfer of technology 'from the lab to the fab,' " says Andrew. "But having said that, the economics of choosing the East Fishkill site had to be competitive with the alternatives. All IBM investment decisions are made on a competitive basis. New York was one of many locations both in the United States and outside the U.S. that were considered for this investment. Given the positive economic impact an investment of this magnitude would have on a community, the competition was very strong. But the relationship IBM had developed with New York State and Empire State Development Corp., which resulted in the significant incentive package, played a major role in this competitive assessment."
        A key part of that incentive package came from Pataki's newly expanded enterprise zone program, which resulted in $475 million in incentives for IBM. In 2000, the governor enacted legislation to expand the Economic Development Zones program into the new Empire Zones. The new program established three additional tax credits, including the tax reduction tax credit, the real property tax credit, and sales tax exemption for tangible personal property and services. Other benefits carried over from the previous program include wage tax credits, investment tax credits and employment incentive credits. Under this new program such projects as IBM's new semiconductor plant have the ability to operate nearly tax free for up to 10 years.

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