Testimony on Industrial Development Agencies

January 18, 2005. Testimony by Frank J. Mauro, Executive Director, Fiscal Policy Institute, to the NYS Assembly Standing Committee on Local Governments, Public Hearing on Industrial Development Agencies.

Good Morning. We greatly appreciate being invited to appear before your committee to discuss the role and operations of Industrial Development Agencies in New York State.

The Fiscal Policy Institute (FPI) has been interested in this subject since its inception in early 1991. In October of the following year (1992), FPI published the first comprehensive review ever of the costs of Industrial Development Agencies (IDAs) in terms of foregone tax revenues. I have included copies of that report with my testimony this morning so that you can see the issues that concerned FPI at that time. In recent years, we have co-sponsored with Good Jobs First, a joint project called Good Jobs New York that has closely monitored the activities of IDAs in New York State and has actively participated in the opportunities for public participation provided for the New York City IDA. While we think that the New York City IDA has made significant improvements in its public hearing process, there is still significant room for improvement even in this case.

In my testimony this morning, I would like to cover the following six subjects:

  1. Increasing the usefulness of IDA hearings on proposed projectsIncreasing the effectiveness of IDA reporting on project costs and benefits
  2. Ensuring that IDA benefits are not given to firms that violate state laws including those dealing with environmental quality, worker safety, and fraud.
  3. Improving coordination with all local governments whose tax revenues, long range plans and/or service requirements are affected by agency projects.
  4. Ensuring that PILOT payments are transmitted promptly and fully to the treasuries of the local governments on whose behalf they are collected, and that clear records of these transactions are maintained and made readily available for public scrutiny.
  5. Establishing meaningful penalties for IDAs that violate Article 18-B’s anti-piracy provisions.

1. 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 probably 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. An example of an early notification requirement that might serve as a model for amendments of this type to the IDA law are the scoping session requirements under the State Environmental Quality Review Act. Other ideas for establishing such an early notice process include (a) requiring IDAs and their staff to maintain a list of pending projects about which they have been contacted, to make those lists available for public inspection, and to post updated versions of those lists on the IDA website at least weekly; (b) requiring public notice in the State Register which the Secretary of State publishes and sends free of charge to all county clerks and hundreds of public libraries and/or on the IDA’s website when an application for project assistance has actually been received by the IDA (This could also serve to increase interest in the State Register and perhaps increase subscriptions to this publication.); and (c) requiring an informal public discussion of each pending project early in the consideration/ negotiation process – before it is too late for public input to make a difference.

Another shortcoming of IDA public hearings is that they are frequently devoid of the IDA board members who will vote on a project. What is the purpose of requiring a public body to hold a hearing before voting on a particular measure? It is to make sure that the comments of interested individuals and groups are heard by the public officials who will vote on the measure involved. Imagine if a local school board claimed it was meeting a public hearing requirement if it called a public hearing and did not show up but sent the Superintendent, or a Deputy Superintendent, or an attorney, or its Communications director to listen to the people who showed up to speak. Or, if a Town Board or a City Council had staffers listen to the public on their behalf. The public hearing requirement in the IDA law needs to be made meaningful. It should go without saying that when a law requires a public body like an IDA board to hold a public hearing it is only meaningful if the members of that public body do the listening. 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.

For final hearings on project applications, those applications and related materials should be available well in advance of the hearing so that interested parties can provide informed and useful testimony rather than just grousing or cheerleading. And, it should go without saying that such applications should be made available for public review without having to file a FOIL request. As with the documents in major State Environmental Quality Review Act reviews, IDAs could provide copies of the applications for major projects to local libraries to facilitate public review.

If hearings or informal meetings are held early in the process before an application is submitted or refined for board approval, as suggested above, then the materials that should be made available for such hearing should be sufficient to explain the project plan as it then stands but need not be a fully fleshed out application.

For hearings on refined project applications, a reasonable amount of time should be allowed for consideration of the views presented at hearings.

Legal notices in small print on a single day in a single daily newspaper are important and should be continued but no one should think they provide sufficient or adequate notice.

Plain-English press releases or announcements of hearings should be sent to weekly community and business newspapers, local radio and television stations, and civic and community organizations.

Notices of IDA hearings should also be published in the State Register which the Secretary of State publishes and sends free of charge to all county clerks and hundreds of public libraries.

An analysis should be required of the comments received by the deadline established by the IDA. This would be similar to the requirement in the federal and satte Administartive Proceedures Acts requiring an analysis of the comments received on proposed rules.

2. Increasing the effectiveness of IDA reporting on project costs and benefits

The address of each project not just the address of the project’s owner(s) should be included in the annual reports filed with the State Comptroller.

The information on jobs created and retained presented in the annual report should be updated annually.

The calculation of tax benefits provided should be improved and standardized.

Information on Payments in Lieu of Taxes (PILOTs) should be included to allow fair cost benefit analyses.

Information on all government assistance provided to a project should be included and the source and/or nature of that assistance identified. It is illogical to compare project benefits to only IDA assistance not all government assistance.

3. Ensuring 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. While this requirement could be strengthened, there is no comparable requirement in the law governing IDA operations. There should be.

Attached to this testimony are several articles from the (Schenectady) Daily Gazette about the asbestos contractor scandals that plagued Upstate New York in recent year. These articles are included because of their references to one particular asbestos contractor who had pleaded guilty in February 2000 to conspiring to violate the Clean Air Act by falsifying air quality tests or failing to take them while providing documentation saying they did perform. In addition, this individual, using an alias, also owned and operated an asbestos removal business in violation of state and federal law. The following month the head of the Schenectady Economic Development Corporation (who had administered the city and county IDAs for many years) recommended that the city assist this individual with the development of a new coffee shop business by giving him some city land (an unused street). In explaining why he would recommend that the city assist a convicted felon in this way, the economic development official opined as follows according to the Daily Gazette:

Robertson said Fisher’s conviction should not be a factor in the city’s decision on transferring the property.

“In all of our loan funds and everything we do in economic development, if somebody applied for a city loan, we can’t use the fact that somebody was convicted of a crime even to turn down a loan,” as long as the person does not lie about it, Robertson said.

Robertson learned of Fisher’s legal troubles when he read it in the paper. “I never asked him, but he never denied it. It has nothing to do with the coffee shop business,” he said.

If what Mr. Robertson said back in 2000 is a correct characterization of the law in this field, the law should be changed. If he is mistaken, the law should still be clarified to prevent any future confusion of this type and appropriate training materials should be provided to IDA members and staff. Moreover, IDAs should be prohibited from providing assistance to individuals or businesses with a track record of violating environmental, worker safety, fraud or other important legal safeguards.

4. Improving coordination with all local governments whose tax revenues, long range plans and/or service requirements are affected by agency projects.

5. Ensuring that PILOT payments are transmitted promptly and fully to the treasuries of the local governments on whose behalf they are collected, and that clear records of these transactions are maintained and made readily available for public scrutiny.

Article 18 should be amended to required that IDAs’ standard tax exemption policies are sent at least annually to 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 thereto be made available to the public and be posted on the IDA’s website.

Notice of hearings on deviations from an IDA’s standard tax exemption policy should be sent to the chief executives and all members of the governing boards of all affected local governments and made available to public and be posted on the IDA’s website.

Copies of approved deviations from the standard tax exemption policy should be sent to the chief executive officers and all members of governing boards of all affected local governments and made available to public and be posted on the IDA’s website.

IDA boards should be required to respect local plans (such as smart growth plans) and to consider impact of proposed projects on local service delivery requirements.

Each IDA should be required to maintain, and make readily available to all local elected officials and the public, a current schedule of all PILOT payments due each year and the amount of each such payment allocable to each taxing jurisdiction on whose behalf the PILOT is being collected.

Each IDA should be required to maintain, and make readily available to all local elected officials and the public, a current schedule of project owners who are in arrears in the making of required PILOT payments, the amounts involved and the time periods involved.

Each IDA should 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.

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

In its decision In the Matter of Main Seneca Corporation v. Town of Amherst Industrial Development Agency; BDO Seidman, LLP, a copy of which is attached to this testimony, the New York State Court of Appeals held that the anti-piracy provisions of Article 18-B had been violated by the Town of Amherst IDA. The Court of Appeals also 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. It seems that for the law’s anti-piracy provision to be meaningful, a penalty should be assesses on the IDA not the business, or at least on the IDA in addition to the business. The law does not provide a penalty so the court devised one that it felt appropriate. But given the purpose of the anti-piracy provision the Legislature should amend the law to provide for a more appropriate penalty in future cases of this type. 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).

Thank you very much for your consideration of these ideas and suggestions.