The city’s largest subsidy program for commercial property will cost the city $512 million in 2008 in foregone tax revenues, a $100 million increase over last year.

The Industrial and Commercial Incentive Program, which has been widely seen as an inefficient form of city investment, has drawn further criticism from a new report issued yesterday by the city’s Independent Budget Office.

The report’s findings come amid growing anxiety about the fiscal fallout the city and state will suffer as a result of the national and local economic downturn. The city is facing billion-dollar budget gaps in upcoming years, which could widen further if Wall Street continues to slash jobs, financial sector bonuses dry up, and the city and state economies slow further. Mayor Bloomberg recently said the city is facing a $2.3 billion budget gap next year and budget gaps that top $5 billion each for the following two years.

The report details how efforts to substitute the ICIP with the new Industrial and Commercial Abatement Program — designed as a more efficient and vigilant subsidy program for industrial and commercial development — does not go far enough.

Because of the way the ICIP was structured, the city will be on the hook for tens of millions of dollars over the next several decades because of agreements it entered into under the old guidelines.

“The new Industrial and Commercial Abatement Program includes significant changes to eligibility and benefit schedules that should slow the growth in foregone tax revenue that would have occurred under ICIP. Because of the incremental nature of both the old and new programs it will take many years for the city to fully realize those savings,” the report said.

As of July 1, the state authorized the city to adopt the new, more restrictive ICAP guidelines, although the City Council has yet to act.

According to a research analyst for the subsidy watchdog group Good Jobs New York, Allison Lack, the new ICAP has succeeded in remedying some of the flaws of its predecessor program.

“We think that ICAP has made some strides in narrowing down the available commercial benefits for retail and it does, in Manhattan, lower the amount of time that commercial properties have access to the subsidies. But it still allows them the subsidy for 10 years, and many of these are large Midtown Manhattan commercial firms that don’t need the help. And these are substantial buildings that would otherwise contribute a large amount to the tax base,” Ms. Lack said.

The IBO report found that over the last 10 years the tax expenditure associated with ICIP grew more rapidly. The cost of the program to the city had more than tripled since 1998, increasing to $512 million in 2008 from $170 million in 1999, adjusted for inflation with an average annual growth rate of 13%.

A report commissioned last year by the city’s Economic Development Corp. found that a quarter of the projects rewarded by the ICIP project would have gone forward regardless of the program. A more recent criticism, leveled by the president of Manhattan, Scott Stringer, centered on the recipients of the program, many of which he said were at odds with the public interest, such as fast-food restaurants and gas stations.

“The next step is to make sure that when the new ICAP program comes up for reauthorization in 2011, we finish this job by barring all fast food restaurants, gas stations, and chain retail stores from access to the tax breaks,” Mr. Stringer said in a statement.