Talk of the Sound has obtained a copy of an IDA Audit Report of the New Rochelle IDA (NRIDA) which is expected to be released by the Office of the New York State Comptroller (OSC) next month. The document is meant to be public, has been circulated within City Hall but is not on the agenda for the IDA meeting scheduled tomorrow. A brief review of the summary shows why the IDA would prefer to kick the report down the road into the summer months when they hope less people will notice -- it is a devastating report which confirms what many critics have long contended about an IDA with no defined process for approving projects, no effort to monitor ongoing projects and a generally sloppy, make-it-up-as-you-go approach while doling out tens of millions of dollars in bonds, tax incentives and other goodies to politically-connected developers with no particular concern over whether the projects deliver upon promised results.
Read the entire report here: New Rochelle IDA Comptroller Report (PDF)
The audit was meant to answer three questions:
1. Did the Board have formal criteria for selecting the firms or businesses that received sponsorship and economic development incentives, and did it consistently apply those criteria when approving projects?
2. Did the Board design and implement an adequate system to monitor, evaluate, and manage benefits and incentives granted to firms or businesses?
3. Did NRIDA comply with the General Municipal Law (GML) requirement to remit PILOTs to affected jurisdictions within 30 days of receipt?
In short, the answer was "No, No and No".
The OSC found that the NRIDA did not have a checklist of specific criteria for evaluating project owners’ applications, failed to use detailed evaluation criteria and failed to document the reasons for their project approvals. The auditors found the board could not provide any assurance that projects are evaluated in a consistent manner.
As many have long suspected, the NRIDA does not perform a comprehensive cost-benefit analysis for the projects it approves. Of the 10 projects evaluated by the Comptroller, NRIDA did not conduct a single cost-benefit analysis even though developers provided sufficient data for 7 of the 10 projects. The NRIDA never asked for data for the other 3 projects. In short, the NRIDA does not seek to determine if the benefits to the City would exceed the cost of providing tax abatements and exemptions. Not surprisingly, the auditors concluded "NRIDA cannot properly evaluate project applications or be sure of the net benefit to the City.
The audit found that NRIDA officials did not independently verify data supplied by project owners on their application forms which creates the risk that NRIDA could approve unqualified projects and would be unable to provide accurate measurement of ongoing project performance.
The report goes on to state that NRIDA did not monitor the status of ongoing projects to ensure reasonable progress toward the projected benefits described in the original applications so the board cannot be sure the projects will meet their intended goals, or know when they should invoke “recapture” agreements to recover some or all of the benefits provided when projects fall short of their promised goals.
The Capelli organization is on the NRIDA agenda tomorrow, in part to seek extensions on its recapture agreement for Trump Tower which expired in December. A recapture agreement is a clause which allows the City to claim money if a project fails to meet some promise, in this case to lease the retail space at Trump Tower.
The Comptroller warns that when NRIDA officials do not properly monitor ongoing projects and invoke recapture agreements, as appropriate, there is an increased risk that other taxpayers are subsidizing the projects’ financial incentives without receiving the expected benefits to the community. This is precisely what has been occurring since 2009 with Trump Tower.
It will be interesting to see the Board of Education reaction to the news that the NRIDA violated state law by failing to remit approximately $1.3 million in payments in PILOTs to the school district, city and county within 30 days of receipt as required by the General Municipal Law. The Board of Education routinely issues Tax Anticipation Notes (and pays fees and borrowing costs) which is to a certain extent a form of subsidy to the IDA which, in turn, is subsidizing the developer.
The report notes that NRIDA projects have, overall, failed to provide promised job gains for New Rochelle. In particular, Parcel 1A (Trump Tower) was supposed to deliver 358 jobs but has, as of December 31, 2008, delivered just 98 for a net deficit of 260.
In their official response, the New Rochelle IDA basically denies everything and says that somewhere they have all the documentation for how they made their decisions, how they verified applications and how they monitored projects.
Apparently the dog ate it.
In perhaps its most feeble response to the Comptroller Audit is the claim that "During times of recession, it is somewhat difficult to hold a project's performance exclusively to the number of jobs created versus forecasted as presented by OSC for the ten projects reviewed."
The audit period is from January 1, 2007 to December 31, 2008. According to the National Bureau of Economic Research's Business Cycle Dating Committee the recession began in December 2007 and appears to have ended in December 2009.
If the recession is the reason Capelli did not lease space or deliver jobs at Trump Tower how to explain that same failure in 2007 when the economy was growing -- or explain that the space is still not leased now even though the recession is said to have ended late last year.
It remains to be seen whether the Board of Education will be comforted by the IDA's assertion that the amount they improperly withheld in PILOT tax receipts is small potatoes - just "less than 1% of [the district's] annual budget". The IDA failed to note that New Rochelle's school budget is one of the largest in New York State.
There is more to the report worth discussing -- we just hit on the highlights. We invite readers to download a copy of the report and add their own observations.