Understanding the Yahoo! Tax Breaks Deal

Aerial view of the Yahoo! center.

Facade of the Yahoo! Data center.

Regional President of Empire State Development Sam Hoyt will get to decide where Yahoo!'s $500,000 annual charitable contribution goes.

This Yahoo! server coop generates heat, which the cool temperatures of Niagara will help to offset.

Last week Yahoo! Inc.'s plan to expand their data and call center in the Town of Lockport was rewarded with a 20-year package of property and sales tax breaks by the Town of Lockport Industrial Development Agency.

The Town of Lockport IDA gave Yahoo! a deal that will include zero property taxes for 10 years and then, by two-year increments of 20 percent, 10 years of partial taxes.

All told, Yahoo! will get $30 million in county and state sales and property tax breaks, credits against state income taxes and 7,200 kilowatts of half-priced electricity from the New York Power Authority (NYPA).

Half-price electricity in New York means Yahoo! Inc. will pay the same rates for electricity that much of America pays without breaks.

According to Electric Power Monthly, New York State has the highest electrical rates for commercial and residential users in America, with the exception of Hawaii.

In the month of February, 2013, New Yorkers paid 18.89 cents per kilowatt hour for residential use and 15.50 for commercial.  The national average is 11.61 and 10.04.

Yahoo! Inc. uses substantial amounts of electricity and therein lies a hint to the problems facing western New York.

Despite the fact that 70 percent of the profits that NYPA makes come from low cost hydropower generated in Niagara County, Niagara county residents do not use locally produced hydro power. Neither do the businesses, unless the governor, who, in effect, controls the local hydropower by virtue of the fact that he appoints the board of directors at NYPA, decides when a business is worthy to get what he calls "low priced electricity" which is really just normal priced electricity anywhere else.

Without special intervention from the governor, new business cannot start here because of high electricity rates - and that is hard to fathom since this is where true, low-cost electricity is actually generated.

On top of high electrical rates, New York state residents pay the highest state taxes in the USA and, on top of that, Niagara County property owners pay the second highest property taxes in the U.S. in proportion to the value of their property, according to the Tax Foundation of Washington, D. C.

By giving Yahoo! $2 million off their state income tax, and 10 years of zero property taxes, the giant internet corporation will not pay the same high taxes that the average small business and homeowner will pay in the region.

This points out that unless New York government gives breaks to some, while taxing others to the hilt, no new start ups are possible here in this, compared to other states, unlevel playing field.

What the governor did was reduce taxes and electricity enough so that Yahoo! Inc will pay what they might expect to pay in other states without incentives.

In reality, the $30 million incentive deal will see Yahoo only net about $27 million.

Gov. Cuomo required Yahoo to  'tithe' back $3.5 million, to be paid at half-a-million a year over seven years, the spending of which will be overseen by Cuomo appointee Sam Hoyt, regional president of the governor’s Empire State Development authority.

The money will be funneled through the Community Foundation of Greater Buffalo. It struck some naïve people as being peculiar that, while Niagara County is making the tax gift, a Buffalo organization is getting the kickback from Yahoo! Inc.

In this case, it is not Buffalo, but Albany. The governor will control which "charities" get the money.

The secret of Yahoo!'s desire to expand here has much to do with cold weather. The Yahoo! center, with its reliance on heat generating computers, can take advantage of Niagara's normally cold climate.

"The use of outside air-cooling for approximately 98 percent of the year eliminates the need for expensive and energy-intensive chillers to keep the servers cool," Yahoo! said in a press release.

Yahoo officials said they will invest $170 million to expand its data center in the Town IDA Park, adding a new customer call center creating 115 more jobs. The center currently employs 77 people currently. About 40 percent live in Niagara County.

While some of the new jobs will be higher paying jobs, call center employment typically pays in the range of $8- $15 per hour.

Yahoo! expects to begin construction this year.