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July 28, 2011

State Comptroller FY 2009 IDA Annual Performance Report Released And Advocates for Regional Economic Development Approach

Just days before Governor Cuomo announced details of the Regional Economic Development Councils provided for in the 2011-2012 State Budget, the Office of the New York State Comptroller ("OSC") released its Annual Performance Report on New York State's Industrial Development Agencies (the "Report"). The Report analyzes the performance of New York State industrial development agencies ("IDAS") based on quantitative information from IDA annual reports and information provided on the Public Authority Reporting Information System ("PARIS") and makes recommendations for enhanced transparency and accountability. The Report relies on job creation and job retention as the principal indicia of the effectiveness of IDAS and the tax exemptions and other benefits they provide. In the Report, OSC indicates that there are questions and problems related to local governments' use of IDAS and local development corporations.

Regional Economic Development: In its Report, OSC questions whether the number, distribution and overlapping jurisdictions of IDAS throughout the State result in a lack of effective coordination of economic development activities within a region. On July 20, Governor Cuomo announced the establishment of a Regional Economic Development Council for each of the State's ten Economic Development Regions. The Governor said that the Councils "will redesign the relationship between the state government and businesses to stimulate regional economic development and create jobs statewide." A uniform application for State grant and tax credit programs will be implemented and a strategic plan developed by each Council for its region. The Governor also announced that the State will "work with the Councils to align state resources and policies, eliminate unnecessary barriers to growth and prosperity, and streamline the delivery of government services and programs to help the Regional Councils carry out their plans for development." The Governor is expected to appoint members to the Councils who represent local business, community, municipal, State government, union and academic stakeholders.

OSC Quantitative Analysis of IDA Performance: The Report includes a summary of the activity of IDAS gleaned from their annual reports and information provided by IDAS on PARIS. The Report provides aggregate project data for the period 2003 through 2009 on project type, jobs created, job retained, wages and the value of tax exemptions and discusses ongoing reporting issues. OSC notes that the quality and consistency of IDA reporting have improved, but shortcomings remain due to inadequate data collection by IDAS from applicants and project operators.

The Report uses the quantitative information to measure the effectiveness of IDAS. For example, correlating job creation to the amount of tax exemptions. However, the current data collection mechanism does not allow OSC to take into account qualitative aspects of IDA performance that often reflect State public policy decisions and local conditions, constraints and objectives. For example, tax exemption policies vary among IDAS based on the needs and objectives of their communities and tax jurisdictions. The published policy of some IDAS reflects that they grant a real property tax exemption only upon approval of the affected tax jurisdictions. Other IDAS have a published policy to grant only those exemptions available to property owners "as of right" under the Real Property Tax Law.

Similarly many large projects in the State are undertaken by IDAS to implement important public policies of the State or Federal government. The benefits of these project are not based on job creation or retention. Examples include joint school construction projects undertaken by the City of Syracuse IDA and Erie County IDA, Payment In Lieu of Tax ("PILOT") arrangements for nuclear power facilities pursuant to the Real Property Tax Law and to address the deregulation of the electric generating industry, and financing low income housing projects with "as of right" 4% tax credits. As discussed below, we recommend that IDAS reflect the qualitative aspects of performance in their minutes, annual reports and policies so that OSC and the public have a complete basis for evaluating performance.

OSC Recommendations: In order to ensure that projects deliver the anticipated benefits, IDAS should adopt procedures to monitor the accuracy and completeness of applications, the status of projects and compliance by project operators with PILOT agreements, sales tax exemptions and covenants in the project documents.

The Report details "best practices" that OSC believes will enhance transparency and accountability. OSC recommends that IDAS adopt the following best practices:

  1. Report Card: Publish an annual report card with detailed information on projects including project cost, salary, job creation and retention data, amount of tax exemptions granted, amount of PILOTs actually paid and an evaluation of whether job creation and retention goals were met. In addition, we recommend that any annual report card also include the qualitative objectives for undertaking specific projects and whether those objectives were achieved.
  2. Disclosure Commitment from Project Operators: Require project operators to sign a uniform project agreement that contains covenants to disclose employment information and permits an IDA to revoke the exemptions and other benefits for failure to disclose.
  3. Uniform Application and Evaluation Criteria: Use a uniform application, conduct a cost/benefit analysis for each project and adopt objective criteria to evaluate and approve projects.

We note that it may not be feasible to use wholly objective criteria. We recommend that IDAS have a written policy of criteria (objective and subjective) to evaluate each type of project and review the form of application for financial assistance to ensure that it collects information required to apply the criteria. The criteria should include an evaluation of the cost/benefit analysis. In addition, we recommend that the evaluations and recommendations of IDA staff of each application be documented in detail and that the evaluation cover each objective criterion, discuss subjective criteria and compelling criteria and be provided to Board members to assist in their evaluation of a project for approval. Board minutes should reflect the members' evaluation of each application.

    

      4. Clawback: Include a provision in agreements with project operators that require repayment of benefits if employment or other goals are not achieved.

If you would like further information or have any questions with respect to the OSC Report, please feel free to contact Connie Cahill, Jean Everett or Sue Katzoff.

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