When Adelphi University in Long Island, N.Y., goes to market this week with $25 million of tax-exempt bonds, it will use a resurrected conduit issuer to get around the lack of industrial development agency financing.
The expiration in January 2008 of the law allowing IDAs to issue bonds for nonprofit civic facilities meant that many 501(c)(3) nonprofit corporations have had to look elsewhere for financing. The debate over the law remains unsettled but is increasingly moot as municipalities revive dormant issuers or create new ones to issue bonds.
The Hempstead Industrial Development Agency had issued bonds on behalf of Adelphi but after it could no longer do so, it turned to a long-dormant local development corporation — the Hempstead Local Development Corp., which was created in 1966.
“It was a good 15 to 20 years [since] they had done anything,” said Fred Parola, executive director and chief executive officer of the IDA and LDC. Last year Hempstead’s town board reconstituted the LDC with IDA board members. Now the agency handles commercial transactions while the corporation works with nonprofits.
“The creation of the LDC has helped us dramatically,” Parola said. They are still “up against a very challenging economic environment, but it’s good that at least we have these tools.”
Last year, the LDC sold $31.1 million of bonds on behalf of Adelphi. The university also had $53.6 million of IDA-issued bonds outstanding as of Aug. 31, according to the preliminary official statement.
This week’s deal is expected to price on Wednesday and will refund $14.4 million of IDA bonds and reimburse the school for $10.6 million of capital expenditures.
Bank of America Merrill Lynch is underwriting the deal. Nixon Peabody LLP is bond counsel. Standard & Poor’s rates the bonds A with a stable outlook.
Other municipalities are taking similar actions. In March, the newly created Columbia County Capital Resource Corp. issued $14.5 million of tax-exempt bonds on behalf of the upstate Columbia Memorial Hospital.
“We needed to determine or find a way to help the not-for-profits access the tax-exempt bond market as interest rates were very attractive,” said Kenneth Flood, executive director of the county’s IDA and chief operating officer of its CRC. “The way we set it up is that the CRC can do those projects that the IDA cannot.”
Though the hospital could have gone to the Dormitory Authority of the State of New York to issue its bonds, the CRC has lower fees and a more streamlined process, Flood said.
The civic facilities law expired because Democratic lawmakers in the state Assembly and the then-majority Republicans in the Senate clashed over proposed IDA reforms, including the institution of wage standards.
“It’s an effective replacement,” said Brian McMahon, executive director of the New York State Economic Development Council, a trade group. “However it kind of frustrates the one-stop role that IDAs have played.”
Critics of the IDAs aren’t pleased with the rise of the new issuers.
“We see the rapid emergence of 'shadow agencies’ like LDCs and CRCs as an attempt to circumvent reforms aimed at IDAs, and a trend which further complicates and obscures the economic development structure in New York State,” Kristi Barnes, spokeswoman for New York Jobs with Justice, a labor-oriented organization, said in an e-mail.
“We believe the job and environmental standards, accountability measures, and transparency reforms that we advocate for IDAs should be adopted by subsidiary agencies, as well.”