The state Comptroller’s office has released its annual report on New York’s 113 Industrial Development Agencies (IDAs), with concerns raised about the effectiveness and transparency of the organizations.
In 2011, IDAs across the state provided more than half a billion dollars in net tax exemptions to 4,486 projects.
This represents an increase of nearly $80 million in net exemptions from 2010, or a 16 percent jump.
State Comptroller Thomas DiNapoli says oversight of the process remains opaque, and there’s a need for more definitive cost-benefit analysis.
“We really need a more standardized and more accountable approach to evaluating whether or not we’re getting the bang for the buck that’s being given in terms of tax breaks and other incentives that IDAs give out.”
IDAs and retail development
The Comptroller says increases in the IDAs support for retail projects, provides the strongest reason for regulation reforms.
Prior to 2008, restrictions prohibited IDAs from funding retail development because of their questionable economic benefit, the report says.
“The increased investment in retail projects with questionable economic benefit renews the concern that IDAs may not be objectively conducting a cost/benefit analysis prior to project selection.”
However, since those restrictions were lifted, there’s been an increase of almost 200 percent in the number of retail projects receiving IDA assistance. In 2011 the number of projects hit 105, with a total value of $1.2 billion.
IDAs also reported that nearly 10,000 jobs have been created since 2007 due to assistance given in the retail sector.
However, the State Department of Labor indicates that retail jobs are among the lowest paying occupations in the state. On these grounds, the report states that the economic benefit realized by creating these kinds of jobs is questionable.
“Retail projects tend not to be the most preferable in terms of the projects to be funded, the jobs that are created are at the lowest end of the pay scale relative to other positions,” says the Comptroller.
The former restrictions have been revived as part of the 2013-2014 state budget negotiation, but the Comptroller advocates for an even higher level of regulation in the report.
“By requiring these additional measures of accountability, the State has signaled a stronger commitment to protecting its own fiscal interest in a time of economic uncertainty. And, while this legislative change relates only to the granting of State sales tax exemptions it should motivate IDAs to revisit and strengthen their own policies pertaining to the granting of local sales tax exemptions,” the report states.
Job creation
New York IDAs estimate that 36,000 additional jobs were created in 2011, compared to the previous year, with 292 new projects being approved, or becoming active, over the same time period.
In addition, they estimate more than 700,000 full-time equivalent positions existed in 2011 due to projects receiving IDA assistance.
The largest portion of IDA assistance continues to be funneled into the manufacturing sector, but the percentage of manufacturing projects has declined since 2007 from 29.9 percent to 27.4 percent.
Construction and retail trade have received a boost since 2007, and the amount of money set aside for services sector has taken a hit over that time period.
IDAs reported that the nearly 4,500 projects active in 2011 were valued at $74.2 billion, an increase of nearly two percent from 2010 total value.
However, the Comptroller warns that tax exemptions granted by the agencies can put a strain on local governments by removing properties from the tax roll and generally depleting a main revenue source in the tax base.
“It does underscore the need for IDAs to recognize that they’re not operating in a vacuum and that their decision can in fact have a very significant impact.”
As autonomous entities, IDAs do not have to get approval from local governments or organizations before granting tax exemptions at a state or local level.
The Comptroller says this has caused tension in some towns already, and the lasting impact of the recession could make this issue even more pronounced moving forward.
Recommendations
The Capital district provided the highest amount of net tax exemptions per capita in the state, with the Finger Lakes and Mid-Hudson regions high up on the list also.
Western New York had one of the lowest net tax exemptions per capita, at $26.00.
The Western New York region was also noted in the report as the home of the highest paid IDA employee in 2011. Steve Hyde, President and CEO of Genesee County IDA received $186,342 in total compensation for that year.
The Comptroller says by any measure, that is a high salary.
“It’s certainly at the high end, and the question is, is the IDA promoting job growth, or is the IDA structure promoting the salary interests of those who work at the IDA?” he says.
The Comptroller says that question cannot be answered without further transparency and accountability from IDAs across the state.
In the report the Comptroller's office recommends improving accuracy of job data projections, improved transparency, creation of set criteria to allow objective evaluation of projects on a cost/benefit basis, and the inclusion of a provision that would allow tax dollars to be reclaimed if a project failed.
For more background on IDAs from the Innovation Trail, click here.
