WASHINGTON — The Cicero Local Development Corp. was sentenced last week by a federal judge to pay a $390,000 fine and dissolve itself after pleading guilty to providing false information to the Internal Revenue Service. But federal officials are not optimistic the fine will be paid considering the New York agency defaulted on $15 million of bonds in 2003 and 2004 due to a dearth of funds.
Chief Judge Norman A. Mordue in the United States District Court for the Northern District of New York sentenced the corporation on Aug. 7 to a steeper fine than requested by the prosecution, which asked for $250,000, well below the $400,000 to $1.0 million in estimated tax losses. The CLDC was facing a maximum fine of $500,000 under the law.
U.S. Attorney Andrew Baxter told the court in his sentencing recommendation that “the government harbors no realistic expectation that the CLDC will be able to pay the fine, and the most likely result is that the 'death penalty’ to the CLDC is the sole consequence of the sentence.”
However, Baxter and the court agreed that if any funds emerge as part of the dissolution process, they should be directed towards paying the fine. The CLDC pleaded guilty to the charge on March 20.
The CLDC revenue annual lease-appropriation bonds were issued in 2001 to finance a 140-acre community development project called the Cicero Commons, which would have consisted of a number of residential, municipal, and commercial buildings, including an ice arena and a fitness center. The city of Cicero donated the land to the CLDC for the project in 1999, which fell apart after the default of the debt in 2003.
In its guilty plea, the CLDC admitted to twice providing false documents to the IRS detailing how it chose the project developer, Hillspoint Wyatt LLC — once during a 2002 audit of the bonds, and a second time in 2003 while it was applying for tax-exempt status.
Both times, the CLDC told the service that it had rejected the developers who first applied because they each demanded “substantial amounts of up-front money” from the corporation, which it could not afford. Instead, the CLDC said it sought a developer that would be willing to defer fees until financing was obtained, leading it to select Hillspoint following an introduction to the firm from then-state Assemblyman Marshall Breines. Baxter said at the time of the plea agreement that Hillspoint’s selection as developer was based primarily on “the perceived preference of the state official.”
Hillspoint reached an agreement with the CLDC under which the developer would receive $1.8 million once financing was obtained for the project. In addition, Hillspoint would buy the $1.35 million of Series B bonds from CLDC. The bonds would provide tax free interest payments for 40 years equal to $5.94 million.
However, at least two rejected developers made clear they were willing to negotiate or defer the up front costs until funds became available, according to court documents. Furthermore, the rejected developers submitted proposals with fees ranging between $450,000 and $1.2 million to complete the project, while Hillspoint’s bid was estimated to be in excess of $3 million. And even though CLDC claimed it was unwilling to pay up-front costs to developers, it provided Hillspoint with some up-front payments, court documents stated.
The IRS granted the CLDC tax-exempt status in September 2003. At the same time, the corporation entered into a closing agreement with the IRS to conclude the audit and retain the bonds’ tax-exempt status. Part of the agreement required the CLDC to cancel further interest payments on the Series B bonds, of which the developer was the beneficiary, because the IRS determined the developer fee was excessive for a public project.
David G. Burch Jr., an attorney with Hiscock & Barclay LLP who represented the CLDC, declined to comment on the case earlier this week.