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New law calls for increased IDA oversight across New York

02/05/2016 12:00 PM |

Should a business that has received tax abatements pay back the public if it doesn’t meet its projected goals?

That’s what Comptroller Thomas DiNapoli has been arguing for years. And it’s something that New York State implemented in full late last year, requiring Industrial Development Agencies — which dole out the breaks, several of which have been controversial here in Riverhead Town — to keep a closer eye on businesses that pay less in taxes in return for opening in a given area.

The new state law, which was signed in mid-December and takes effect in mid-June, requires IDAs to develop so-called “clawback” policies mandating that tax abatements be paid back if an applicant doesn’t live up to promises about job creation or other goals.

The measure comes in the wake of a May 2015 report from Mr. DiNapoli, which found that the total amount of tax exemptions granted by the state’s 109 IDAs rose from $555 million to $660 million between 2012 and 2013.

Meanwhile, according to the report, the number of new jobs generated by businesses that received IDA exemptions fell from 222,645 in 2012 to 199,943 in 2013.

“Current law does not spell out an orderly procedure by which an individual or entity may request financial assistance from an IDA, or by which an IDA grants such assistance or monitors projects after assistance if provided,” the new law states. “Instead, audits conducted by [the Comptroller] have shown that the process is too often ad hoc and inconsistent from IDA to IDA, and even from project to project within an individual IDA.”

In Riverhead, the granting of tax abatements by the town IDA — which has a paid executive director and members appointed by the Town Board — has often been controversial, though several anchor entities in town have received the benefits. Just last month, the IDA board granted Atlantis Holdings a third set of 10-year tax abatements, despite public opposition to the application.

That approval became so contentious that South Jamesport resident Larry Simms, a frequent critic of the IDA, ended up in a face-to-face argument with Atlantis co-founder Joe Petrocelli. Atlantis officials had previously stated that the abatements were necessary for the survival of the business because attendance at the aquarium hasn’t lived up to expectations.

But Atlantis is just one of many IDA beneficiaries, which also include the renovated downtown Woolworth building, the Summerwind complex and The All Star bowling alley.

In 2013, according to a state report, 32 active projects in Riverhead, representing $181 million in total construction costs, received IDA tax abatements.

Together, those projects received $3.3 million in tax exemptions but paid $1.4 million in payments in lieu of taxes, putting their net exemptions at $1.9 million.

The report says those projects were expected to create 1,064 new jobs in 2013, but generated only 379. The previous year, the 29 Riverhead IDA projects that received tax abatements created just 614 of the 900 jobs that were anticipated, according to the report.

Riverhead IDA projects estimated a net gain of 6,064 jobs over the seven years from 2007 to 2013, while the actual net gain was 2,922, or 48 percent, according to statistics in the comptroller’s IDA reports for each of those years.

Statewide during those same seven years, 1,819,455 new jobs were projected by IDA projects, and 1,439,584 — or 79 percent — actually materialized, according to the comptroller reports.

Tracy Stark-James, executive director of Riverhead’s IDA, said she believes the comptroller’s reports are inaccurate, a view shared by the New York State Economic Development Council, which represents IDAs and other economic development organizations across the state.

The NYSEDC found that IDAs are given conflicting information from different state offices on how to complete the local reports that are used in the comptroller’s annual report. For instance, some IDAs were told to report only full-time employees and others were told to include part-time employees as well, counting two half-time employees as one full-timer. There have also been discrepancies in reporting real estate tax payments and PILOTs, sometimes resulting in an overstatement of total reported exemptions, according to the NYSEDC.

Both Ms. Stark-James and IDA chairman Tom Cruso said they believe the Riverhead IDA already does much of what the new state law requires, although they say it will increase paperwork.

Current IDA applications already list the estimated number of jobs the project will create, as well as other information. Additional data that will not be required under the new legislation includes the amount of private sector investment generated or likely to be generated by the proposed project, the likelihood of accomplishing the proposed project in a timely fashion and the extent to which the proposed project will provide additional sources of revenue for municipalities and school districts.

“We’ve had clawback provisions for at least eight years that I can think of,” said Richard Ehlers, the IDA’s attorney, in an interview.

However, he added, “we’ve never had a default that required it.”

The Riverhead IDA’s current clawback agreements allow the IDA to recapture benefits based on the sale or closure of the facility; a significant change in the use of the facility to one that doesn’t qualify for IDA abatements; and a significant reduction in employment at a business with IDA benefit, according to that clause, which is posted on the Riverhead IDA website.

If any of these changes occur within two years of the abatements being granted, the IDA can recapture 100 percent of the benefit, according to the policy. If it happens within three years, they can reclaim 50 percent of the abatement. After four years, they can recapture 25 percent.

Beyond four years, they cannot recapture any of the tax abatements, according to the IDA policy.

Companies receiving IDA benefits are already required to submit annual reports showing capital investment made, salaries, employee count, exemptions received and PILOT payments made, and the IDA must also submit annual reports to the state.

“However, even with these reporting requirements, the Office of the State Comptroller was finding that the data reported was often incomplete and inconsistent, and did not reflect the actual performance of IDAs and their projects,” Mr. DiNapoli said in the report issued last May.

As for the new state law, it requires each IDA to develop a standard form to be used for all IDA applications and to develop policies for the suspension or discontinuation of IDA financial assistance in cases where an applicant has not lived up to promises.

The law requires IDAs to assess the progress of each project toward achieving the investment, job creation, job retention or other objectives its application indicated it would meet.

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