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Government Waste
Developers showed up at a recent Amherst Town Board meeting complaining that the town was taking an anti-business approach in passing a resolution directing the Amherst Industrial Development Agency to not provide tax abatements to any new buildings until all the existing office buildings are at least 95% occupied, and also to complain about a recent moratorium on development in a floodplain.
At the meeting:
Amherst Chamber of Commerce President Colleen DiPirro stated, "Our residents and our leaders need to know the value of economic development to our quality of life." She promised a "careful, methodical study of the job creation benefits of the IDA and said, “Until we have all the facts we should not "shut down development."
Paul Ciminelli stated, “People are misinterpreting what IDA’s do. They do not take money and give it to developers.”
IDA Chairman Stachura said there is no political influence in their decisions. “The public almost never attends IDA meetings to give input, not more than a handful over many years. Why do developers come to Amherst? Because they know they will be supported. We will show the benefits to the community (i.e. study promised by the IDA & Chamber).”
Are they telling it straight up?
Well, not really straight up! It seems a large chunk of development doesn’t happen in Western New York anymore unless some form of incentive is offered. IDA incentives have requirements attached to them, requirements that if not fulfilled result in wasted taxpayer money. As taxpayers, we should have some knowledge of what IDA’s are, their importance to the community and whether their municipal governments act accordingly to ensure the IDA prerequisites are followed and taxpayer money is not wasted.
As a sidebar, I have to relate an unusual statement I heard made by a justice while recently attending a civil case in the Supreme Court. Said he, “Its not really fraud, its bad government.” Slippery slope, eh?
Function of IDA’s
New York State adopted the Industrial Development Agency Act in 1969 – Article 18-A of the General Municipal Law. It’s intent is to promote, attract, and encourage commerce and industry development for the purpose of creating employment and assist in acquiring, constructing, improving, maintaining or equipping certain facilities thereby advancing job opportunities, health, general prosperity and the economic welfare of the people of the State.
IDA’s, independent authorities, offer financial incentives to attract, retain and expand businesses within their jurisdiction. The incentives may include one or more of the following: issuance of a low interest rate bond, abatements from real property tax and exemptions from sales tax and mortgage recording tax.
Businesses that receive real property tax abatements (payments in lieu of taxes – PILOT agreements) enable the taxing districts to recover a portion of the foregone property taxes. These agreements usually have a ten to fifteen year shelf life and the percentage of taxes paid increases as the years go by.
There are currently 115 IDAs in the towns, village, cities and counties in New York State. Normally, the IDA receives application and administrative fees for providing its services to businesses. They act as a broker in the financial transaction. The fees range from 0.5 percent to 1.5 percent based on project costs.
If you believe businesses should receive incentives to locate in a tax overburdened state and the municipalities within, the above seems like a worthy program. Unfortunately, many taxpayers are undergoing like economic stress related causes and don’t have access to a “free lunch”. More importantly, they read the Hevesi Report on the shortcomings of six IDA programs and suspect all municipalities are guilty of the same abuse.
IDA abuse
Developers and representatives of special interest groups spoke at the Amherst Town Board meeting decrying Mohan’s resolution on curtailing abatements on office buildings until such time the occupancy rate hits 95 percent. How dare Mohan screw with their incentive packages!
Only a third of the projects supported by six Industrial Development Agencies (IDAs) around New York met their job creation goals, none of the IDAs had ever attempted to reclaim benefits from projects that did not meet targets and only one had standard evaluation criteria that was applied to all potential projects, according to an audit released recently by State Comptroller Alan G. Hevesi.
Auditors looked at 96 single unit projects at the six IDAs and found that 33 percent (32 projects) met or exceeded job creation goals; 33 percent (32 projects) did not meet job creation goals but did increase jobs or had no change in jobs; and 33 percent (32 projects) actually reduced the number of jobs
The Amherst and Erie County IDAs were two of the six mentioned in State Comptroller Alan Hevesi’s report, thereby offering enough reason for Satish Mohan to take a hard look at the “Spec” building projects taking place in Amherst. Hevesi’s report should cause residents in all communities to question whether their municipality industrial development agencies are acting appropriately.
For single unit projects, the IDA knows at the time of application what company will occupy the project site. “Spec” building projects involve incentives to developers to build a facility which be later leased to tenants. Job creation estimates here are based on square footage of lease area – one employee per 250 square feet.
The Town of Amherst IDA projected increasing jobs by 51 percent (1,205 jobs) but instead the number of jobs went down by 14 percent (324 jobs). Although they did not meet targets, Erie County IDA added 75 percent of projected jobs.
Auditors also examined 14 spec projects at four of the IDAs, and found that only Erie County IDA’s spec projects met or surpassed job creation goals, generating 228 more jobs (28 percent) than expected. Town of Amherst IDA spec projects added 19 percent of projected jobs.
State auditors also reported that poor monitoring (audits) programs are in place to follow up and ensure businesses are meeting their performance goals – job creation, tax revenues realized, etc. This is especially warranted to ensure “claw-back provisions” are utilized to prevent taxpayer fleecing; that is, if such provisions are in place. The Erie County and Amherst IDAs do not have claw-back provisions. Other IDA’s have such provisions, but never use them.
Claw-back provisions
A “Recapture of Benefits Policy” provides that the IDA could recapture the value of the incentives received by a business getting the real property tax abatement if the economic benefits of the project are not achieved within the first four years of the project - if they do not achieve job creation or other goals.
The IDA’s claw-back policy allows for acceptable explanations – such as loss of a major customer or supplier or natural disasters – for failure to reach project targets, but there was no formal process for verifying the explanations.
Hevesi declared, “Some businesses make honest and diligent efforts to succeed, but are negatively effected by changes in market conditions or other unforeseen circumstances. Our concern is with a business that may create unrealistic plans for expansion to take advantage of programs that offer financial assistance.
Claw-back provisions protect taxpayer dollars by giving IDAs a way to stop benefits or pursue repayment of benefits when they believe that businesses have not made good-faith efforts to meet the goals they set for themselves. “Claw-backs simply send the message that IDA benefits are not just give-aways, and they should be in place at all IDAs.” Town of Amherst IDA officials also stated that they believed it was bad public policy to take back incentives.
Commentary
A couple of bad examples leads residents in other municipalities to question whether their municipality IDA is acting appropriately. Outside of the six-targeted IDAs, it would appear the others are less deficient and/or have auditing procedures in place to adequately monitor the performance of their incentive receivers.
At least we hope so, it is taxpayer money and we have a right to demand an auditing system is in place to measure performance, a system with a claw-back provision to pursue repayment should the business not meet its instated goals.
Like Amherst’s Mohan, other municipal government officials (many sit on the IDA Boards) should become more involved in the IDA program in as much as they (officials) are supposed to be looking out for resident best interests.
Other
NYS Senator George Maziarz is the prime sponsor of a bill that proposes that companies receiving IDAs would have to pay workers a living wage - $15 per hour. It would also add a claw-back provision that would force companies to reimburse IDAs for a portion of the tax and other incentives they receive if companies fail to meet employment targets.
The Maziarz bill was embraced by labor, including the Service Employees International Union and the United Autoworkers. No surprise there!
The business community thinks it a "dumb idea", one that is union-driven and makes it even harder to attract new jobs into the state. Estimated job creation is just that, estimation, they declare. It is based on the best information available at the time. Yet there is no documentaion provided to verify reasons for shortcomings.
The next chapter in incentives
It has suddenly become imperative that we save and restore “the huge stock” of vacant historic buildings in downtown Buffalo. But developers and businesses can’t do this on their own dime because the financial return may not be there – market rents are not high enough to offset the investment.
A specially targeted City of Buffalo Historic Preservation Tax Credit Act is once again before the State Legislature. The legislation would allow 30 percent of the rehabilitation costs to be reimbursed in the form of a credit or refund.
Proponents of the legislation say the legislation would make financially risky projects more viable in Buffalo, return buildings to municipal tax rolls and add construction jobs. Hold on here a second. Doesn’t that sound like another IDA corporate welfare program? Do you think I could get a few bucks out of the program to restore my “historic” car?
NEXT: Developers and businesses have no right to whine, considering the adverse impacts they have had to resident and environment best interests
© Copyright 2008 by Speakupwny.com
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