Recent audits by New York State Comptroller Thomas P. DiNapoli have revealed a number of local Industrial Development Agencies (IDAs) do not verify if businesses receiving tax breaks are actually meeting job creation goals. These same IDAs are unable to recover incentives given to companies that fail to reach specific benchmarks because of inadequate contract agreements.

DiNapoli’s office audited the IDAs in Cattaraugus County, Orleans County, Oswego County, Schenectady County and Schuyler County. The IDAs responses are included in the audit reports.

“These audits highlighted what is both right and wrong with IDAs in our state,” said DiNapoli. “Too many communities are left with unanswered questions about the effectiveness of providing costly tax breaks to private companies. IDAs owe it to taxpayers to appropriately track whether companies are delivering on their promises and take back benefits if they are not. My office will continue to scrutinize the operations of these entities so that residents can better determine if their local IDA is fulfilling its mission.”

The Comptroller’s audits, which focused on project approval and benefits, revealed:

County of Orleans IDA

• None of the project agreements that were reviewed contained recapture provisions. For example, one business received more than $600,000 in tax abatements, but closed its operations three years into a 10-year agreement. The company was not held accountable.
• Officials billed one business for payments in lieu of taxes (PILOTs) using an agreement billing schedule that was different from the board-approved schedule, resulting in the under-billing of $246,000 over a 12-year period. If not corrected, this would have increased to a projected $635,000 over the 20-year agreement period.
• Officials did not require periodic reporting of necessary information from businesses or verify the information that was provided, and therefore did not adequately monitor projects to ensure they met promised goals.

County of Oswego IDA

• Established an unauthorized revolving loan program, using its own funds, to finance a portion of the cost of projects. The IDA had 90 loans outstanding as of May 31, 2014, totaling nearly $9.6 million that were financed by its own funds.
• There is no formal process to compare current and projected jobs at the time of application to the reported number of jobs actually created and retained.
• Auditors found 31 companies that received loans only created half of the jobs they said they would create.

Schenectady County IDA

• Auditors examined 10 projects aided by the IDA and found only one business met its job creation goal while five others failed to reach their target. Additionally, auditors were unable to determine the economic impact of four projects because of a lack of proper documentation.
• Officials did not include recapture provisions in their PILOT agreements and were unable to recover incentives such as tax exemptions from companies that failed to meet job creation goals.
• Officials did not adequately monitor payments from the agreements and were unaware that companies underpaid by $94,000 over a 10-year period.

Schuyler County IDA

• Officials do not adequately monitor projects for compliance with job creation and retention goals.
• The board has not established documented criteria or procedures for selecting projects and subleases. Although the board has a uniform tax exemption policy, this policy does not include specific criteria for selecting and approving projects.
• Although the board developed a schedule that determines administrative fees owed to the IDA by companies, the amounts collected deviated from this schedule for six of nine active projects. As a result, officials charged $50,000 less in fees than their schedule required. Officials also forgave administrative fees after the fact, resulting in $100,000 in additional lost revenue.

In addition, an audit of the Cattaraugus County IDA found the IDA was effective in its efforts to promote, develop and assist in economic development projects in the county. However, Cattaraugus officials do not verify the investment and job information provided when businesses apply for financial assistance and have not established adequate procedures for cost-benefit analyses.

DiNapoli made several recommendations to each IDA. Generally, these include:

• Review the annual job reports for reasonableness and follow up with companies reporting questionable job data;
• Ensure that all project agreements contain a recapture clause that would allow the IDA to recover the financial incentives provided if businesses do not produce the intended benefits; and
• Establish and formally adopt policies that define criteria and procedures critical to project approval and monitoring.

Next month Comptroller DiNapoli will release his annual IDA performance report. Last year’s report noted that 112 active IDAs in New York provided $1.3 billion in total tax exemptions in 2012.

To read the Cattaraugus County Industrial Development Agency report, visit:
http://www.osc.state.ny.us/localgov/audits/ida/2015/cattaraugusco.pdf

To read the County of Orleans Industrial Development Agency report, visit:
http://www.osc.state.ny.us/localgov/audits/ida/2015/orleansco.pdf

To read the County of Oswego Industrial Development Agency report, visit:
http://www.osc.state.ny.us/localgov/audits/ida/2015/oswegoco.pdf

To read the Schenectady County Industrial Development Agency report, visit:
http://www.osc.state.ny.us/localgov/audits/ida/2015/schenectadyco.pdf

To read the Schuyler County Industrial Development Agency, visit:
http://www.osc.state.ny.us/localgov/audits/ida/2015/schuylerco.pdf

For access to state and local government spending and 50,000 state contracts, visit OpenBookNY. The easy-to-use website was created by DiNapoli to promote openness in government and provide taxpayers with better access to the financial workings of government.