November 30, 2009 State starts borrowing to pay for GlobalFoundries package
By DREW KERR, dkerr@poststar.com
MALTA -- State officials have moved over the last month to begin raising cash to make good on a hefty incentive package used to lure computer chip maker GlobalFoundries to Saratoga County.
The Empire State Development Corp., which oversees economic development in New York, sold nearly $1.5 billion worth of government bonds on Wall Street in November with the intention of putting a portion of the proceeds toward GlobalFoundries.
Of that total, $400 million will go to GlobalFoundries to cover the state's obligation through the end of 2010, officials said.
The computer chip maker, which broke ground at the Luther Forest Technology Campus in July, is paying up front for construction costs associated with the $4.2 billion project but is eligible to receive up to $650 million in direct reimbursements from the state.
Mike Russo, GlobalFoundries' U.S. government relations and regulatory affairs manager, said Monday that the company will seek reimbursements on a quarterly basis for approval by the state.
The first such submission could be made as early as this week, he said.
The capital outlay was approved by state lawmakers in 2006, when Advanced Micro Devices - now a partner in GlobalFoundries - was considering building in New York.
Lisa Willner, a spokeswoman for the ESDC, said the remaining $250 million in cash promised to GlobalFoundries will also be raised through bond sales.
"It would have been unwise to sell all $650 million at the start, since the additional funds will not be needed for some time," she said on Monday.
Bonds sold to make payments to GlobalFoundries are part of the new "Build America Bond" program, passed as part of the federal stimulus package.
The program allows the state to receive federal subsidy payments that will cover up to 35 percent of the total interest paid to investors.
New York will make its first payments on the bonds in 2024 and will continue doing so for the following 15 years, according to ESDC.
On the combined $1.5 billion that is being borrowed, New York will pay roughly $900 million in interest, according to the state's bond counsel.
State income tax revenues are expected to pay for the principal and interest costs.
GlobalFoundries' incentive package also makes the firm eligible to receive up to $700 million in tax breaks through the state's Empire Zone program, but Willner said the company had not yet claimed any of those benefits.
Though the Empire Zone program is slowly being phased out, provisions are in place that will allow GlobalFoundries to continue receiving the tax benefits, provided it meets certain investment benchmarks.
