Guest Spot: Play money for politicians, but hard cash from taxpayers

10/17/2015 6:00 AM |

PBMC IDA

For ordinary citizens concerned with rising taxes, last week’s supervisor debate brought breathtaking explanations from incumbents about the Industrial Development Agency and its impact.

As moderator, I asked why — since the IDA ignored the wishes of all or most Town Board members that awards be made only downtown — they hadn’t considered replacing IDA members. Unlike the Zoning Board of Appeals, where appointees serve long terms and can only be removed for cause, all IDA members can be replaced at the drop of a hat.

I also said IDA analyses are “anything but rigorous … and don’t quantify any benefit to the town,” thereby costing taxpayers many millions. I stand by these observations.

Money myth

Ms. Giglio replied: ”The IDA does not cost the taxpayers any money.” She’s wrong. In the best case, taxpayers invest to reap economic growth benefits down the road. In the worst, taxpayers fund unneeded incentives with money that’s never paid back.

Ms. Giglio relies on the theory that projects receiving IDA awards wouldn’t have happened without them. Because tax abatements are only for improvements, these properties generate at least as much tax during the abatement term as if the project didn’t go forward.

An example will help. In 2014, her Summerwind project paid $25,418 in taxes (including PILOT), as if it weren’t yet built. Without abatements, it would have paid $111,556. Taxpayers subsidized the owners by paying the remaining $86,138 of the project’s tax burden.

Remember — this project is occupied, and owners receive rent from commercial and residential tenants … who actually use all the things our taxes fund (Town Hall salaries, highway department, fire and library districts, and, of course, parking). 

Every dollar in IDA abatements is a dollar that must instead be paid — today — by all other taxpayers. 

Helping the 1%

IDA incentives make sense only if essential to make a project happen. Would Summerwind have been built anyway? In a market starved for the type of housing they offer, I think so. 

The Marriott is a better example; it received a big IDA subsidy … after scoring a $2.8 million transfer of development rights reduction when the Town Board decided “hallways, bathrooms and closets don’t count.”

Mr. Walter and I disagree about helping hotels. My logic is simple: If Riverhead needs more rooms — which I dispute — that represents business opportunity and we can simply let developers build. That’s free-market economics. (Isn’t this a core Republican value?)

Beyond questionable need, poor IDA judgment was obvious. The Marriott owner said his “bank won’t finance the project unless he secures tax breaks.” I was at the hearing and that statement is unbelievable … yet the absence of evidence didn’t slow the IDA board down one bit.

Vice chair Lou Kalogeras said: “I’m of the opinion we should pull the trigger now.” Before that, I addressed the board and asked the value of the benefits package; incredibly, neither the IDA executive director, attorney, or any board member could answer the simple question: “How much money are we talking about?” Yet that didn’t diminish their enthusiasm or eagerness to “pull the trigger.” It’s a sad, revealing statement … but consistent with their other actions.

The oncology center on Route 58 got a big IDA award after the multi-national corporation bought the site and began construction. They’d already committed to Riverhead, and the incentives were wasted. Now, new owners are proceeding with the medical suites plan. They knew the abatement wouldn’t transfer … but the IDA intends to subsidize them anyway.

There are many more such examples than there is space in this column.

Yes … It’s really millions

Incentives sometimes make sense: a movie theater would be justifiable, as was the aquarium (the original abatement). But solid evidence that subsidies are needed is imperative … and usually lacking. 

At the debate, Mr. Walter said, “It’s not many millions of dollars in tax breaks.” He’s wrong. The Marriott alone totaled $1.5 million. Other awards are smaller, but add up. Over 30 projects — essentially every one that had a public hearing — have been approved in the last decade.   

Millions of dollars have been given away as incentives to attract businesses that were going to be here anyway. If these IDA abatements were not awarded, town coffers would be fatter by those same millions, and our tax bills would be lower.

No quantified benefits

No benefit to the town is quantified in any IDA packages I’ve examined, though a “cost/benefit analysis” is prepared for each project. This typically means benefits and costs of an action are separately tallied: a net gain justifies the action.

At the IDA, only costs are analyzed; we know in great detail what subsidies will be given to the business. The Marriott property, sales, and mortgage tax abatements total $1,462.928.75.

On the “benefits” side, Marriott told the IDA 45 employees, but the owner said a year earlier there will be 60. There’s little support for either figure … and almost half these jobs pay less than $25,000 per year. There were no questions or challenges from IDA members (e.g. which jobs will be shared with the owner’s adjacent hotel for efficiency). 

Tools exist to estimate the worth of a job to the town, and to calculate long-term benefits. They’re just not used by this agency.

As for benefits from the actual construction work, it’s worse. The Marriott analysis claims “250 indirect construction jobs.” That’s it. There’s no consideration as to whether labor is skilled or unskilled, and workers’ actual time on the project is ignored. The value of these “jobs” to Riverhead is anyone’s guess.

This is not the kind of analysis and justification we expect when the town is spending millions.

Conflict of interest

Any discussion of IDA activity must include a reminder that the agency is “self-funded.” The phrase is appealing, but it represents an inherent conflict of interest. If the IDA doesn’t issue tax abatements, it collects no fees, and thus can’t pay its politically appointed director’s salary or its counsel. 

The Marriott paid IDA application fees of $107,000, pays another $3,000 each year for “compliance” and separately paid many thousands in assorted legal fees to IDA counsel. Deals like this pay the bills.

The degree to which this influences IDA analysis, advice and decisions cannot be known.

Anyone telling voters that IDA grants “don’t cost anything” is practicing voodoo economics. It’s just not true. Whether candidates are saying what voters want to hear, or don’t actually understand the economic impact of IDA decisions, the results are equally damaging.

The IDA has operated with so little scrutiny or oversight for so long that the members and staff appear to feel no sense of accountability at all. It’s time for a major overhaul … or to shut it down.

Larry Simms owns a home in South Jamesport and is a director of savemainroad.org, an advocacy group dedicated to preserving the character of the Main Road corridor and surrounding areas.

Photo caption: Riverhead IDA officials (right) at a meeting in March. (Credit: Tim Gannon)

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