We all are familiar with the expression “Rob Peter to pay Paul”. According to the Encyclopedia of Word and Phrase Origins, the words usually mean “to take money for one thing and use it for another, especially in paying off debts.”

This phrase has quickly become one of the focal points in the Town’s approval of the zoning changes requested by the developers of the Lighthouse Project. One of the Town’s primary concerns is the potential loss of tax revenue if the developers are granted a tax abatement by the Nassau County Industrial Development Agency. In a September 10, 2009 letter to Nassau County Executive Thomas Suozzi, Hempstead Town Supervisor Kate Murray outlined several stipulations agreed to by the Town Board that must be in place prior to the Board granting any zoning changes for the Lighthouse Project. One of these provisions addressed the loss of property taxes:

“The developer agrees not to make application to an Industrial Development Agency, Local Development Corporation, or any other entity for the purpose of abating property taxes, ad valorem levies, or special assessments to which the property (and the improvements thereon) would ordinarily be subject.”

On the surface, this request seems reasonable. The Town of does not want another agency to agree to a deal that would decrease anticipated tax revenue to the Town - i.e. “robbing Peter to pay Paul.” But this represents a complete reversal in the Town’s position and practice as its own Industrial Development Agency has been granting tax exemptions for years for projects that have reduced tax revenues to other municipalities - particularly villages. And it elevates to the forefront a much larger issue: Should IDAs have the ability to “rob Peter to pay Paul” by making decisions that impact other municipalities?

Is the Value of an IDA

Still Relevant?

Once viewed as the engine for driving economic development and job creation in is now being challenged - especially in localities not facing significant unemployment or economic deterioration. New York State Comptroller Thomas DiNapoli recently evaluated the performance of local IDAs. After reviewing the records of IDAs across the state, DiNapoli found that although local industrial development agencies gave tax breaks in 2007 to 300 additional projects, they actually created 2,000 fewer total jobs.

How can this be? To better comprehend the role of IDAs, it is helpful if we trace its inception and evolution. Article 18-A of the General Municipal Law entitled “Industrial Development” was enacted in 1969 for the purpose of promoting the economic welfare, recreation opportunities and prosperity of state residents and to actively promote, attract, encourage and develop recreation, economically sound commerce and industry and economically sound [park, recreation and historic preservation] projects for the purpose of preventing unemployment and economic deterioration by the creation of industrial development agencies. Each is established by State legislation. The Town of was created in 1971, the Town of in 1984 and the The law establishing IDAs sets forth detailed provisions for the maintenance of financial records, restrictions on the use of funds, and rules regarding tax exemptions. Each is required to create a Uniform Tax Exemption Policy for exemptions from real property taxes, mortgage recording taxes and sales taxes. Each also must establish procedures for deviation from its Uniform Tax Exemption Policy. While the law states that the Uniform Tax Exemption Policy has “input from affected tax jurisdictions” and that any deviation from the policy and the reasons for any deviation from the policy must be set forth in a written notification to the affected local tax jurisdictions, there is no requirement that the affected local tax jurisdictions consent to the tax exemptions provided by the have indicated they neither consult with nor take into consideration the wishes of the local affected municipality when setting PILOT (Payment in Lieu of Taxes) payments under the Uniform Tax Exemption Policy.

In many jurisdictions throughout the State, involvement in a project is enthusiastically welcomed by the local affected tax jurisdiction because the participates in a commercial or industrial project that results in employment and economic benefits to the local municipality. That has not necessarily been the case in many local affected jurisdictions on In communities where there is no economic deterioration, the tax relief benefits afforded by the are hard to justify. Even more so, the cost to the local municipalities of the tax relief afforded by the IDAs is not always justified by the jobs that are created. In the annual performance report on IDAs prepared by the State Comptroller, the average [tax relief] cost per job for 2007 was $4,527.00. By contrast, in some recent projects in the Town of , the cost of the tax relief per job created has been estimated at hundreds of thousands of dollars per job. This is unconscionable. In addition, the Town of Hempstead has proposed to grant tax relief benefits for projects such as the Garden City Hotel and a luxury apartment rental in which do not even appear to fall within the definition of a “project” as set forth in the law creating IDAs.

The Town of mirrors the exemption permitted under Section 485(b) of the New York State Real Property Tax Law, which permits a ten year abatement of real property taxes beginning with 50% abatement in the first year and decreasing 5% each year over a ten year period. Under Section 485(b), each affected tax jurisdiction has the option of reducing or eliminating that abatement if the municipality believes that it is not necessary for the local tax jurisdiction to offer such an abatement to induce real estate projects in it jurisdiction. The Town of does not recognize the ability of the local tax jurisdiction to reduce or eliminate the amount of real property tax exemption that the IDA proposes. It would appear that, like the option given in the Real Property Tax Law, local taxing jurisdiction should be able to insist that the IDA either reduce the amount of real property tax exemption that it proposes or not grant such real property tax exemptions [in the form of PILOTS] at all.

Furthermore, the IDAs should be limited to the types of projects defined in the law and should be required to demonstrate the cost of the tax relief per job created. Surely, there is no justification for significant tax relief that results in an insignificant number of new permanent jobs. And, most importantly, the local affected tax jurisdiction should have major input on whether the tax relief should be granted. Given the Town of ‘s current position with the Lighthouse Project, it would be impossible for the Town’sIDA to argue against this.