Critics seek to rein in Industrial Development Agencies

The yearly cost of tax breaks given to Long Island companies by Industrial Development Agencies has tripled since 2004, to more than $140 million, fueling calls for reform.

The Island’s eight IDAs are under fire for competing to help the same companies, which increases the amount of their tax benefits, and for not being selective enough.

Homeowners, politicians and good-government groups have criticized local IDAs for cutting the taxes of automobile dealerships, self-storage facilities, a shopping mall and businesses moving short distances.

Tax reductions granted by IDAs — which must be made up by other taxpayers — can last 10, 20 or even 40 years.

“In the last year and half people have started to wake up and say, ‘What is this IDA that I didn’t elect, and that’s going to have a decisive impact on my community and how much I pay in taxes?’ ” said State Sen. Todd Kaminsky (D-Long Beach). “The time is ripe for IDA reform.”

He has proposed legislation to overhaul IDAs in response to two recent controversies: requests by the developer of waterfront apartments on Long Beach’s Super Block parcel for help from the Nassau County IDA, and large increases in homeowners’ tax bills because of a budgeting error by two Valley Stream school districts over tax breaks granted to Green Acres Mall and an adjacent strip plaza by the Hempstead Town IDA.

IDAs are public authorities run by appointed boards that operate independently of local government. Their mission is to grow the economy by granting tax incentives to expanding businesses that retain and create jobs.

IDAs were established under a 1969 state law and are regulated by the state comptroller and Authorities Budget Office.

Besides the Nassau and Hempstead IDAs, there are agencies for Suffolk County, Babylon, Islip, Brookhaven, Riverhead and Glen Cove.

Holding the Nassau and Hempstead IDAs accountable for their decisions was an issue in last year’s elections for county executive and town supervisor.

The victors, both Democrats, have promised more public disclosure and input before tax breaks are approved by the IDAs. They can influence IDA decision-making through the appointment of IDA board directors.

Advisers to the new Nassau County executive, Laura Curran, have also discussed combining the Nassau and Hempstead IDAs.

In Babylon Town, the IDA board is expected this month to begin considering a proposal to give the town’s three villages more say in the scope of tax incentives affecting them. Amityville Village trustees complained last year about lost tax revenue.

Calls for changes to IDAs come as they experience explosive growth:

• The number of projects receiving tax breaks from the region’s eight IDAs jumped from 449 in 2004 to 812 in 2016, an 81 percent increase, according to a Newsday analysis of certified IDA reports filed with the state.
• The cost of the annual tax breaks climbed 231 percent between 2004 and 2016 to $143 million. However, job growth was about half that rate, a 109 percent gain to 51,632 in 2016, the analysis showed.
• The average cost of each new job was $2,773 in 2016, up 59 percent from 12 years earlier.

Among the IDAs, Babylon and Nassau had the most projects getting tax breaks, while Hempstead Town had the largest combined tax breaks, $47 million in 2016.

Projects backed by the Suffolk IDAcreated the most jobs in 2016: 15,342. But Suffolk, along with Brookhaven Town and Glen Cove, each had fewer new jobs in 2016 than in 2004, according to the analysis.

The overall growth has been driven by several factors, including the IDAs’ aggressive response to the 2007-09 recession. The recipients of tax reductions also have expanded beyond manufacturing projects to housing for commuters and the elderly, and, in a few cases, retailers.

This expansion has drawn flak from the Citizens Budget Commission, an influential fiscal watchdog in Manhattan.

“There’s been a race to the bottom: IDAs give away taxpayer dollars to businesses that then have to be raised by local governments from other taxpayers, and the economic benefits are questionable,” said David Friedfel, CBC’s state studies director. “They’re just paying businesses to relocate down the road.”

In October, CBC issued a report calling for consolidation of the 109 IDAs across New York into one for each of the state’s 10 regions. New York City is the only region with a single IDA now.

The report’s author, CBC research associate Riley Edwards, said having regional IDAs would reduce competition, which drives up the cost of tax breaks and the number of incentive packages offered to companies.

IDAs “shouldn’t be pulling an existing business from one locale to another. They also shouldn’t be supporting businesses that cannot easily relocate because they have to be where their customers are,” such as car dealerships and other retailers, she said.

Four dealerships won tax breaks from the Nassau IDA between 2014 and last year to renovate showrooms and maintenance facilities; one of them got incentives for two projects.

The improvements were necessary for the Chrysler, Honda, Mazda and Volkswagen dealers to comply with car manufacturers’ requirements or risk not being able to sell their models, according to the dealers and their attorneys.

Each dealer also pledged to create jobs in return for IDA assistance.

To help three of the dealerships, the Nassau IDA used a so-called “tourism exception” to a 2013 state law that prohibits helping retailers unless more than half their customers come from outside an IDA’s jurisdiction.

The Nassau IDA and others are rarely in the spotlight, in part because the world of tax incentives is arcane. Yet, some residents of southwestern Nassau County are incensed by the tourism loophole used to help car dealerships.

“I don’t know anyone who goes on vacation to a car dealership,” said Anna Weiss, 67, a retired homemaker from Valley Stream. “And now homeowners like me have to pay more in school taxes because these car salesmen aren’t paying their fair share for 12 years.”

Nassau IDA chief Joseph J. Kearney defended his agency, saying its aid packages to the dealerships “were a proper interpretation of the statute . . . If Albany wanted to do away with retail in its entirety they would have said so,” he said, referring to state government.

IDAs and their supporters in the commercial real estate industry are opposed to consolidation, saying town, city and county IDAs have greater familiarity with community needs.

“IDAs are working on the ground with various planning and zoning boards . . . to help get projects off the ground,” said Ryan M. Silva, executive director of the state Economic Development Council, a private group in Albany representing IDAs.

He and others said only a handful of IDA-backed projects have sparked controversy on Long Island while dozens of others have won plaudits.

For example, tax breaks from the Suffolk IDA helped camera and office machine seller Canon U.S.A. construct a new Americas headquarters in Melville instead of leave New York State. Drugmaker Amneal Pharmaceuticals, using aid from the Brookhaven IDA, quadrupled the size of its South Yaphank factory. And downtowns in Farmingdale and Mineola are growing because commuters are choosing to live in new apartments near the Long Island Rail Road stations that were aided by the Nassau IDA.

“IDAs provide real value in creating jobs, stimulating economic activity and improving the quality of life for local communities,” Silva said.

A few years ago, the development council struck a compromise with state Comptroller Thomas DiNapoli on reform measures it had blocked for more than 10 years. The changes, which went into effect in 2016, include requiring all IDAs to claw back tax benefits when companies fail to keep employment promises.

Eliminating town and city IDAs in favor of one IDA per county would lower by 30 percent the value of the property tax breaks being granted but would have “little effect” on where businesses choose to locate, according to Evan Mast, who studied New York’s IDAs for his economics doctorate from Stanford University. He’s now an economist at the W.E. Upjohn Institute for Employment Research, a think tank in Kalamazoo, Michigan.

“Competition among IDAs is driving up the size of tax breaks,” Mast said. “If you have two IDAs within 15 miles of each other, the size of the tax breaks that are granted goes up by over 50 percent.”

On Long Island, there are overlapping IDA jurisdictions with two IDAs covering a county and six IDAs covering a town or city within the county.

Competition among IDAs is fierce because some can offer bigger breaks than others and the cost of doing business in Nassau is higher than in Suffolk.

Office space typically costs 20 percent to 25 percent more in Plainview than across the Nassau-Suffolk border in Babylon Town because of differences in how commercial properties are taxed, according to Patrick Halpin, chairman of the Babylon IDA board from 2006 through last year and a former Suffolk County executive. “Suffolk County is significantly cheaper right off the bat before the IDA makes an offer,” he said.

The Babylon IDA also has a tool that some of its competitors lack: It can reduce a property’s existing taxes as well as future taxes. Halpin said the tool was adopted during the recession to help retain manufacturers, primarily in Farmingdale and East Farmingdale. The Islip and Suffolk IDAs adopted the tool to remain competitive.

In Hempstead, the new town supervisor, Laura Gillen, wants to implement a range of reforms, her spokesman said. They could include establishing a minimum number of good-paying jobs that a project will create to be eligible for IDA assistance, banning political activity by IDA board members and employees, and webcasting IDA board meetings.

Once her changes are put in place, Gillen will “reassess whether a merger is necessary or feasible” between the Nassau and Hempstead IDAs, said spokesman Mike Fricchione.

Nassau County Executive Laura Curran “has already begun to implement reform in the Nassau County IDA” by nominating a new IDA board, said her spokesman Michael Martino. All of Democrat Curran’s seven board nominees have yet to be confirmed by the Republican-controlled county legislature.

Critics said they want to remake IDAs, not do away with them.

“IDAs can be very beneficial in helping projects that wouldn’t get done without tax incentives,” Kaminsky said. “But the process is broken when the public doesn’t know what’s going on, and [when] politics is more important than how the project helps the community and the economy.”

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.