A comprehensive reform bill has been introduced into the New York State Assembly that calls for cracking down on abuses in local industrial development agency financings, closing loopholes in the enacting legislation that created the agencies, and increasing state and local government oversight of these agencies.
The ravages of a regional recession have contributed to the reform movement, as local governments have become more worried about the loss of tax revenues because of the power the agencies wield in granting tax exemptions to their clients and the projects under their jurisdiction.
"This bill is the first step in our legislative examination of IDAs," said Assemblyman Francis J. Pordum, D-Hamburg, who is also chairman of the Assembly Committee on Local Governments. "We hope to inspire feedback and make modifications after conducting extensive public hearings" this summer and fall, he said.
After incorporating feedback from the hearings into the bill, which was introduced on Wednesday, a final version of the legislation is expected to be presented in January, Mr. Pordum said. A similar measure has not been introduced in the state Senate.
Since the state's enactment of laws authorizing the creation of local industrial development agencies in 1969, over 180 such bodies have been created. About 139 remain active. While the contributions the agencies have made to the local economy are widely acknowledged by state and local government officials, there have been a number of deals that have gained a good deal of notoriety, triggering state and federal investigations.
These problems have partially spurred the reform movement, Mr. Pordum said, but he quickly added that "I want to go into these hearings with an open mind. We don't want to focus on individual IDAs."
And, he noted, "We are not saying IDAs have not been effective or efficient, because we think they have been. But we think tightening up the law would help."
Until very recently, industrial development agencies in New York have operated with virtually no oversight from the state. They are not required by law to gain the consent of the state or of affected localities before granting tax exemptions.
"It is important that we address local governmental concerns regarding potential losses in their tax base," Mr. Pordum said. "At the same time, we must not restrict IDAs from conducting worthwhile projects which create jobs.
Many localities, for example, are not notified by the agencies about a tax-exempt financed project or the tax exemptions offered to the agencies' clients and the potential revenue losses that could occur, Mr. Pordum said.
He noted that trends indicate potential loss of tax revenues has grown over the last decade. Exemptions from sales, property, and mortgage taxes increased to $3.7 billion in 1987 from $1.7 billion in 1984, Mr. Pordum noted in a memorandum accompanying the bill.
The memorandum says, "Many IDAs have used their authority to grant exemptions utilizing a financing tool called 'straight-lease transactions,' where an IDA takes title to property, thereby exempting the project from taxation.
"The value of these transactions has increased significantly to $164 million in 1989 from $10 million in 1988," the memo says, adding that the growth of the exemptions and these lease transactions raises additional concerns.
The bill would provide standardization of the procedures the agencies should follow, prevent potential conflicts of interest, and allow the state and local taxing jurisdictions to have some oversight of the agencies' activities.
Among other things, the reform bill would:
* Clarify that people who serve on the agencies' boards are subject to the conflict of interest provisions of the state's General Municipal Law. It would also prohibit the counsel of a municipality from serving as counsel to one of the agencies.
* Require the state's Department of Economic Development to develop a uniform application for projects to be used by the agencies and also require them to provide copies of the application to the municipality affected by a tax-exempt financing or exemption from local taxes.
* Require the agencies to enter into agreements with their clients that would stipulate the repayment of benefits granted a client if an agency determines that the purposes for which the benefits were granted were not fulfilled, without good cause.
* Mandate that the agencies report the estimated value of all proposed tax exemptions to the affected local taxing jurisdictions prior to the approval of an agency board resolution that would allow a bond sale or grant exemptions.
