The New York City Industrial Development Agency (NYCIDA) approved tax breaks and other incentives for businesses even though it lacked required financial information and financial feasibility analyses, according to a new audit from State Comptroller Thomas P. DiNapoli.
“The New York City IDA can help foster local economic growth and job creation, but without effective project selection and monitoring, there’s little accounting for the benefits the public gets from these tax breaks and other incentives,” DiNapoli said. “My audit found the agency needs to do a much better job in ensuring that applicants have been thoroughly vetted and that they fulfil all program requirements, including the creation and retention of jobs.”
The NYCIDA helps eligible local businesses to invest in their growth, expansion, or relocation by waiving city and state sales tax, providing local property tax abatements, and lowering their mortgage recording taxes, with some benefits continuing for up to 30 years. Companies have to show why they would not be able to execute their business plans without this help, provide their financial statements, and project how many full time equivalent (FTE) jobs will be created or retained because of the breaks.
In 21 of the 23 successful applications that auditors sampled, NYCIDA did not get all the required financial information from companies that were awarded tax breaks and other assistance. NYCIDA was missing 13 companies’ last three years of financial statements and 10 companies’ certificates of liability insurance. Two companies did not have to submit applications because their assistance was a continuation of previous benefit awards.
NYCIDA is supposed to conduct a feasibility analysis for businesses’ proposed projects, but in 17 of the 23 applications reviewed, auditors found the analysis either was not done or was done incorrectly for the 15 that the IDA performed. The IDA did not complete the analysis for eight of them because it lacked the necessary information on the businesses’ cash flow. For the other seven, it transcribed information from the businesses’ tax returns and financial statements into its own analysis but made errors during transcription. Auditors also discovered that NYCIDA used incorrect financial formulas in their analyses from 2012 until 2021. For example, its analysis mistakenly overstated the cash flow businesses had available to pay their debts.
For the other two of the 17 projects examined, NYCIDA said it did not have feasibility analysis documents because it relied on reports provided by third parties.
The 23 sampled projects had 2,517 employees and said they expected to hire 4,559 FTE positions within three years of their projects’ completion. Seven projects met or exceeded their FTE projections. Three created jobs but did not meet FTE expectations. Four had fewer FTEs than when they applied. Two of the projects, accounting for 472 of the expected jobs, got extensions on their completion dates – one for eight months and the other for three years. They received $2.67 million in various tax breaks. Two other projects were terminated with the same number of employees as when they started but received $113,950 in assistance.
After NYCIDA staff complete their analysis, they present their recommended applications to the NYCIDA board. Applications presented to the board had a 0% rejection rate, which officials said was evidence of staff’s due diligence on each of them.
DiNapoli’s audit also found NYCIDA did not adequately track the status of inquiries from businesses about its assistance programs. There were inquiries with no evidence that IDA responded with information and no information on why applicants were denied, making it hard to ensure that the process for getting these vital tax breaks was fair and equitable for all businesses.
NYCIDA has the power to recapture money if a company violates its agreement. Auditors looked at 28 projects that resulted in recapture payments and found 15 had recapture errors resulting in both overpayments and underpayments, resulting in net unrecaptured amounts of $674,894.
DiNapoli’s audit made 14 recommendations for improving the program including improved tracking and retention of application documents, ensuring IDA staff have expertise in interpreting financial statements and conducting feasibility analyses, and reviewing the over or under-collected recaptures the audit identified.
In its response to the audit, NYCIDA took issue with the findings, stating they do not reflect its current operating practices and improvements made in recent years. Its full response is included in the audit.