The governing system for New York State’s nearly 350 industrial development agencies and local development corporations needs an overhaul.

They need more regional consolidation to effectively boost business investments, according to a report from the Citizens Budget Commission, a nonpartisan, nonprofit civic organization.

Its report highlights what the commission describes as the lack of accountability of the Empire State’s IDAs and LDCs, which combined have nearly $24 billion in debt outstanding. The report said businesses will often be lured from one locality to another in the same region through tax breaks that generate no meaningful new jobs or revenue.

“Businesses can play off each other to get the best deals,” David Friedfel, director of state studies for the CBC, referring to the multiple IDAs and LDCs now run by counties, towns, cities and villages. “It puts them counter to each other.”

Certified Laboratories, Inc. in Melville, N.Y. received funding support from the Suffolk County Industrial Development Agency as part of an $11.1 million project for a new headquarters completed in early 2017.
Certified Laboratories, Inc. in Melville, N.Y. received funding support from the Suffolk County Industrial Development Agency as part of an $11.1 million project for a new headquarters completed in early 2017. Certified Laboratories, Inc.

IDAs and LDCs have proliferated in different regions leading often to a duplication of services with a lack of accountability, according to Friedfel. The CBC suggests that each of New York’s 10 regions be home to one IDA instead of the 107 that now blanket the state. IDAs can offer tax exemptions to lure businesses while LDCs can give grants and loans.

Friedfel said potential changes from Republican tax reform proposals in Congress make it even more vital to change the IDA and LDC structure. He said the uncertain future of federal tax deductions for state and local income or sales taxes underscores the importance of IDAs and LDCs running more efficiently.

Elimination or reduction of the deduction "would mean that local taxes will cost taxpayers more, and therefore IDAs and LDCs should be even more careful with the public’s dollars,” Friedfel said. “Likewise, when property tax exemptions are granted by IDAs to private businesses, those taxes are shifted to everyone else paying property taxes. IDAs could be shifting taxes from businesses, where property taxes would still be deductible as a normal business expense, to homeowners that may not be able to deduct those same taxes.”

The CBC report notes that 86% of outstanding debt from IDAs and LDCs was sold by conduit issuers. Roughly 10% of the debt is held by IDAs even though they have been prohibited since 2008 from issuing bonds on behalf of nonprofit projects. The restriction has led to a decrease in IDAs during the last decade while LDCs have increased.

IDAs and LDCs also are responsible for revenue debt as well as some general obligation paper. Two upstate LDCs, the Griffiss Local Development Corporation and Saratoga County Industrial Development Agency, hold debt from payment-in-lieu-of-taxes increment Financing, which shifts PILOT payments to cover debt service on bonds.

The House tax bill's elimination of private activity bonds would also reshape the purpose of the agencies.

Since 2011, IDAs and LDCs have issued at least $578 million in conduit debt for economic development purposes, according to the CBC analysis. New York City’s Hudson Yards Infrastructure Corporation alone also has authority debt dominated by $3 billion in revenue bonds it issued.

Advocates for IDAs and LDCs dispute the CBC report, arguing that municipalities are more effective building local economic growth than regional agencies would be under a consolidation plan.

Ryan Silva, executive director of the state’s Economic Development Council, which represents IDAs across New York, said a March 2017 report by the Office of the State Comptroller showed that IDAs have reported projects valued at $88.7 billion that have resulted in 224,734 jobs while retaining over 350,000 positions. He said the CBC report relies on a “small snapshot” of data from 2015 that doesn’t factor in how IDAs collaborated with the OSC on 2016 legislation to improve reporting.

“This work has led to greater accountability in project selection, better monitoring, and more standardization in the reporting process,” said Silva of the 2016 changes. “The IDA statute is broad as many IDAs work with academia to help develop research partnerships, work with startup companies, and help businesses navigate local planning, zoning, and municipal processes.”

Anthony Figliola, vice president of Uniondale, N.Y. -based consulting firm Empire Government Strategies, said reforms under the Public Authorities Accountability Act of 2005 have improved transparency because every IDA in the state is required to submit annual reports in addition to posting all company information and public meetings online.

Figliola, who ran the Town of Brookhaven’s IDA when he was deputy supervisor of economic development a decade ago, said while there have been some mistakes made in giving tax breaks to major retail establishments or big box stores, overall the state’s business incentive program has been effective. He said a transparency program for IDAs created while working with the Town of Brookhaven a decade ago could become a framework for other municipalities.

“When I ran the Brookhaven IDA I created the state’s first metric-driven system which tracked all projects in real time for full transparency,” Figliola said. “We accepted only companies that were part of our strategic economic plan and they had to pay their employees a living wage including some level of benefits.”

Figliola said he shared the system with other IDAs, but isn’t sure how many adopted it. He also presented the initiative to state officials and many aspects were implemented as part of Gov. Andrew Cuomo’s economic development overhaul.

IDAs are subject to oversight by the state controller's office and the Authorities Budget Office, which was formed by the Public Authorities Reform Act. The ABO, which has limited enforcement ability, is the only oversight for LDCs. Friedfel said improved transparency could be achieved by allowing the comptroller’s office to edit these entities. The ABO can only issue warnings and letters of censure to IDAs and LDCs it investigates after failed attempts the last eight years add fines to its powers.

“The public doesn’t fully know what they are getting from this public money,” said Friedfel. “When people know they are being watched they tend to behave differently.”

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