Groups Urge Lawmakers to Make Industrial Development Agencies More Accountable, More Transparent and Less Corrupt

June 15, 2005. Group press release, plus eight simple ways to reform IDAs:

Industrial Development Agencies Law Due to Sunset on June 30, 2005

Groups Call Upon Legislature and Governor to Make Real Changes That Will Make The Program More Accountable, More Transparent and Less Corrupt

Over 100 community, religious, education, health care, labor and human services organizations from throughout New York State have endorsed a joint statement of principles to reform the state’s Industrial Development Agency laws. The joint statement was issued today at a press conference at the Legislative Office Building in Albany.

Portions of NYS’s Industrial Development Agency Legislation (Article 18a of the General Municipal Law) sunset on July 1 and 2, 2005. Industrial Development Agencies are designed to provide subsidies at the local level to attract or retain businesses in communities across the state.

The groups urged that the Legislature use the following 8 principles in reauthorizing the law:

1. Ensuring Broader Oversight and Coordination

2. Developing Community Impact Reports

3. Mandating Basic Standards

4. Improving Reporting Requirements

5. Requiring Enforceable Clawback Penalties

6. Increasing the Effectiveness of IDA Public Hearings

7. Ensuring that IDAs are run transparently

8. Establishing meaningful penalties for IDAs that violate anti-piracy provisions

“We need to ensure that our tax dollars are being used to create quality jobs that benefit local residents and do not put our small businesses at an economic disadvantage with their larger, more politically-connected, big-business competitors,” stated Ron Deutsch of SENSES. “We need to eliminate the corruption in this program by making sure that local IDA Boards are more representative of the communities they serve and that local IDAs fund projects that pay a living or prevailing wage, provide employment benefits, maintain high worker retention and full-time employment ratios, hire people from the local community, and provide job training.”

Adrianne Shropshire of New York City Jobs With Justice (NYC JWJ) noted that in order to hold these local IDAs accountable they should develop Community Impact Reports for each project that detail the quality of the jobs created or retained, the effect on housing in the area, the effect on other businesses, the effect on open space and the effect on infrastructure, such as transportation, schools and water and sewers. “Communities should have the information needed to decide whether a development project is really in the best interest of the community. Public money should not go to projects that don’t benefit the people who live in the area.”

Metro Justice, community-based peace and justice organization in Rochester with close to 1,000 dues paying members, has been tracking the activity of the County of Monroe Industrial Development Agency (COMIDA) for the past 8 years. “In Monroe County we have seen our local IDA (COMIDA) degenerate into a feeding trough of corporate welfare for well-connected businesses,” stated Barbara Orsino, a member of Metro Justice. “At COMIDA meetings we’ve seen the appointees to the COMIDA board give tax breaks and subsidies for the purchase of company vehicles, telephone and computer equipment to restaurants, law firms, tennis clubs and financial service firms, all of which simply move jobs from one local business to another. Among the most egregious actions of corporate welfare have been recent IDA grants to the Sutherland Corporation, a business that outsources jobs to overseas firms. We need to reform this program to remove the cronyism and to stop putting our communities small businesses at a competitive disadvantage with larger IDA sponsored businesses. You also know a program like this has major conflict of interest issues when the lawyer for COMIDA is also the same lawyer representing the corporations applying for the subsidies.”

“IDAs are in desperate need of reform,” said William Cooke of Citizens Campaign for the Environment. “These agencies are charged with handing out public funds and IDAs must be more accountable to the public. The State Legislature has the opportunity to address many of the IDAs biggest abuses and they should,” Cooke concluded.

Frank Mauro, Executive Director of the Fiscal Policy Institute, insisted the law should be reformed to establishing meaningful penalties for IDAs that violate Article 18-A’s anti-piracy provisions. Mr. Mauro cited a recent Court of Appeals decision In the Matter of Main Seneca Corporation v. Town of Amherst Industrial Development Agency; BDO Seidman, LLP, where the court held that the anti-piracy provisions of Article 18-A had been violated by the Town of Amherst IDA and upheld the penalty imposed by the lower court, that Uniland Partners repay the portion of the taxes that it had avoided in regard to the facilities occupied by the firm (BBO Seidman) that the Amherst IDA had illegally pirated from the City of Buffalo. Mauro stated that, “It seems perverse that the Town of Amherst, on whose behalf the Amherst IDA was established and on whose behalf it operates should get a bonanza (the back tax payments) rather than a penalty. Amherst got the business which Buffalo lost and it, after the fact, got back the taxes that it had offered as an inducement to attract the business. It seems that for the law’s anti-piracy provision to be meaningful, a penalty should be assessed on the IDA not the business, or at least on the IDA in addition to the business. The legislature should amend the law to provide for a more appropriate penalty in future cases of this type.”

“Our research revealed that many deals negotiated by the New York City IDA gave millions of dollars to some of the world’s wealthiest corporations without creating the jobs that were promised. Incorporating better transparency and reporting standards into IDAs statewide would give New Yorkers a way to make sure that good jobs are being created in exchange for subsidies,” said Stephanie Greenwood of Good Jobs New York.

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8 Simple Ways to Reform IDAs

Portions of the law (Article 18-A of the General Municipal Law) that establishes the state’s 100+ Industrial Development Agencies (IDAs) and governs their operations are scheduled to sunset on July 1 and July 2, 2005. The need to deal with these expiring provisions provides the Legislature with the opportunity to strengthen the accountability of the IDAs to the state’s taxpayers for carrying out the important powers and duties with which they are entrusted by Article 18-A.

Many of the purposes of the state’s 100+ IDAs, such as advancing job opportunities for New Yorkers, advancing their health, general prosperity and economic welfare, and improving their prosperity and standard of living are clearly very important objectives. To the extent that IDAs can operate in ways that help to secure these objectives, the people of the state will clearly be better off. In practice, however, many questions have been raised about the IDAs’ operations and activities.

Given the findings of a May 2004 report by Comptroller Alan Hevesi and an earlier audit of Erie County IDAs by former Comptroller H. Carl McCall, and the experiences of our various organizations in monitoring the activities of IDAs in different parts of the state, we believe that any reauthorization of the expiring provisions of Article 18-A should adhere to the following principles. Doing so would give communities the power to ensure that state and local tax dollars are not given to favored businesses at the expense of other businesses with which they compete, working families, and the environment.

1. Ensuring Broader Oversight and Coordination

The first critical policy change for Industrial Development Agencies is enforcement of new and more stringent guidelines on board membership. In many cases, there are serious conflicts of interest arising from the affiliations of local IDA board members and the IDA staff. These members’ decisions have raised concerns about how, and to whom, subsidies are granted and have generally tainted the agency and its programs. By establishing mechanisms to eliminate conflicts-of-interest and ensure cooperation among local IDAs and by setting broad board membership guidelines to require a blend of business, organized labor, educational, environmental and community representatives, we will gain better coordination and oversight and thus improved performance of our IDAs.

There are also many instances of different IDAs operating in the same geographic area (i.e., a city IDA and a county IDA or county IDAs in consecutive counties) with competing agendas that do more harm than good to the local communities. We need to ensure approval by all local governments whose tax revenues, long range plans and/or service requirements are affected by agency projects.

We must also close loopholes that let companies to get subsidies by exploiting loopholes that allow funding for training facilities, tourism and corporate headquarters.

2. Developing Community Impact Reports (CIRs)

A CIR can be an essential tool in assessing the potential positive and negative impacts a proposed project will have for the communities where the project will be located. The CIR would study, among other things, the quality of the jobs created or retained, the effect on housing in the area, the effect on other businesses, the effect on open space and the effect on infrastructure, such as transportation, schools and water and sewers. An independently conducted CIR should be required of all subsidy applicants and should be conducted during the application process over a significant period of time from initial public disclosure of the project application to completion of the CIR. Subsidy approval should be conditional on the completion of a satisfactory CIR and on an agreement within the subsidy contract to address recommendations made in the CIR.

3. Mandating Basic Standards

The standards applied to businesses applying for IDA assistance should be strengthened. Mandating basic employment, community, civil rights and environmental benefits standards on subsidy deals will ensure that subsidy recipients create quality jobs, meet community needs, and have a positive environmental impact in our neighborhoods. Such standards would include paying a living or prevailing wage, hiring locally when possible, protecting greenfields and community benefits standards.

We should further ensure that IDA benefits are not given to firms that violate state laws including those dealing with environmental
quality, worker safety, and fraud. The law governing the Empire Zones program includes a provision that makes compliance with environmental, worker safety and certain other laws a condition for receiving and maintaining certification as a business eligible for zone benefits. IDAs have no comparable requirement.

4. Improving Reporting Requirements

Improved reporting on subsidy contracts is necessary to make economic development more accountable to our communities. Statewide reporting standards would make certain that companies report progress on their commitments in a uniform and timely way and that local agencies use this information in making further subsidy decisions and also provide it to the public in a useful form.

This should include annually-updated information on job creation and retention, information on Payments in Lieu of Taxes (PILOTs) and information on all government assistance provided to a project (not just assistance provided by the IDA).

5. Requiring Enforceable Clawback Penalties

The subsidies afforded to IDA recipients should be retracted if a given establishment fails to meet the agreed-to contractual obligations. When entering into a contract with the IDA, the business should have to agree to job retention and creation goals and an enforceable clawback procedure. Clawbacks are a type of penalty through which a city or county cancels, reduces, or recovers a subsidy when the recipient fails to deliver on its contract obligations. In other words, if a company does not uphold provisions of the subsidy contract, the City can recapture its subsidy based on provisions established in the original agreement. Assuming stronger reporting requirements are in place, the locality will have adequate information to determine if subsidy recipients are meeting contractual obligations as established in the subsidy agreement.

6. Increasing the Effectiveness of IDA Public Hearings

Under current law, public hearings come at the end of the IDA review process and right before the IDA board is about to vote on a proposal. At the time these hearings are held, the IDA, its staff, its attorneys, and sometimes other consultants, as well as the project applicant, its staff, attorneys and consultants have frequently spent months if not years developing and refining a proposal. It is not surprising that by the time the public hearing is held, both sides in these negotiations are fully committed to the project to be voted upon.

Public hearings at this point in the process are necessary, but the public must be given earlier notice of applications that have been filed with the IDA and some idea as to when those projects are likely to come up for a vote. A possible model for this is the scoping session requirement under the State Environmental Quality Review Act. Another shortcoming of IDA public hearings is that they are frequently devoid of the IDA board members who will vote on a project. The IDA law should be amended to require that a board member who has not participated in a required public hearing on a proposed project should not be allowed to vote on that project. Under such an approach, we would be ensured that at least a majority of IDA board members would attend the required public hearings.

7. Ensuring that IDAs are run transparently

The IDA law should be amended to require that IDAs’ standard tax exemption policies, hearings on deviations from these policies and copies of approved deviations are sent at least annually to the state and the chief executives and all members of governing boards of all affected local governments, that any changes to those standard tax exemption policies be transmitted promptly to those same officials, and that these policies and any changes be made available to the public and be posted on the IDA’s website.

Each IDA should be required to maintain, and make readily available to the state and all local elected officials and the public, a current schedule of all PILOT payments due each year and the amount of each such payment allocatable to each taxing jurisdiction on whose behalf the PILOT is being collected and a list of project owners who are late making required PILOT payments, how much they owe and how long they have owed it.

IDA boards should be required to respect local plans (such as smart growth plans), to consider impact of proposed projects on local service delivery requirements, and to ensure that all PILOT payments received are promptly and fully transmitted to the treasuries of the local governments on whose behalf those PILOT payments were collected.

8. Establishing meaningful penalties for IDAs that violate Article 18-A’s anti-piracy provisions.

In its decision In the Matter of Main Seneca Corporation v. Town of Amherst Industrial Development Agency; BDO Seidman, LLP, the New York State Court of Appeals held that the anti-piracy provisions of Article 18-A had been violated by the Town of Amherst IDA and upheld the penalty imposed by the lower court, that Uniland Partners repay the portion of the taxes that it had avoided in regard to the facilities occupied by the firm (BBO Seidman) that the Amherst IDA had illegally pirated from the City of Buffalo. It seems perverse that the Town of Amherst, on whose behalf the Amherst IDA was established and on whose behalf it operates should get a bonanza (the back tax payments) rather than a penalty. Amherst got the business which Buffalo lost and it, after the fact, got back the taxes that it had offered as an inducement to attract the business.

For the law’s anti-piracy provision to be meaningful, a penalty should be assessed on the IDA not the business, or at least on the IDA in addition to the business. For example, the first time that an IDA violates the law’s anti-piracy provision, it could be suspended from doing any deals for six months, the second time a year, and the third time two years, etc. On the firm’s side, if a payment of the type imposed in this case is required, the payment could be to the “pirated” municipality (in this case Buffalo) rather than to the “pirating” municipality (in this case Amherst).

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