Operational Review Schenectady County Economic Development Entities

For PDF:
http://www.abo.ny.gov/reports/compliancereviews/SchenectadyCountyEconomicDevelopmentFinalReport.pdf

Executive Summary
Purpose and
Authority: The Authorities Budget Office (ABO) is authorized by Title 2 of
the Public Authorities Law to review and analyze the operations,
practices and reports of public authorities, to assess compliance
with various provisions of Public Authorities Law and other
relevant State statutes, and to make recommendations
concerning the reformation and structure of public authorities.
This includes rendering conclusions and opinions regarding the
performance of public authorities and assisting these authorities
improve management practices and the procedures by which
their activities and financial practices are disclosed to the public.
Our  operational review of the  economic development public
authorities of Schenectady County was performed between May
and November of 2011 and was conducted in accordance with
our statutory authority and compliance review protocols which
are based on generally accepted  professional standards.  The
purpose of our review was to evaluate the overall effectiveness
of the approach taken for economic development in the county
and to assess the need for seven authorities to implement this
approach.  The report also makes recommendations to improve
the operating practices of the authorities.
Background
Information: In addition to the Schenectady County Department of Economic
Development and Planning, and the City of Schenectady
Department of Development, seven local authorities have been
created for economic development purposes in the county.
These seven local authorities are: Schenectady County
Metroplex Development Authority (Metroplex), Schenectady
County Industrial Development Agency (County IDA), City of
Schenectady Industrial Development Agency (City IDA), Town
of Rotterdam Industrial Development Agency (Rotterdam IDA),
Schenectady Local Development Corporation (SLDC),
Schenectady County Community Business Center (CBC), and
Schenectady County Capital Resource Corporation (CRC).
Metroplex is the most significant of the seven authorities
involved in the economic development process in the County.
The IDAs and other entities, although overseen by independent
boards, play a subordinate role to Metroplex. Each IDA has
contracts that result in Metroplex administering and managing
its operations and Metroplex also provides funding to the other
authorities.  ES-2
Results: Our review found that the mission of all seven local authorities is
similar:  to create jobs and spur economic development,
increase  property values and  expand the local tax base, and
increase sales tax revenues. To accomplish their missions, the
authorities provide a variety of financial assistance that includes
issuing tax exempt debt and providing exemptions from
mortgage and sales taxes, property tax abatements, grants, and
loans. However, no one local authority can provide all forms of
assistance. Based on a review of unemployment, sales tax, and
property value data for the County,  it appears that the
authorities are relatively successful in accomplishing their
missions, although employment results are not as positive.
We conclude that these accomplishments are not a result of the
structure in place.  Instead, we believe that the  residents of
Schenectady County could be equally and more cost-effectively
served by  fewer authorities, since multiple authorities currently
provide similar financial assistance to projects.  In addition, the
Rotterdam IDA no longer has outstanding bonds, and therefore
has ceased to exist under Section 882 of General Municipal
Law.  We are concerned that board members, Town of
Rotterdam officials, and any businesses receiving financial
assistance from Rotterdam IDA  are at risk for actions taken
subsequent to 2009.
Although  authority officials  described the existing  seven
authority structure as a unified economic development team, we
found such a claim to be overstated.  The seven authorities do
not share a common application for financial assistance, and
relevant information is not shared among all of the authorities
involved in a project.  The coordination that does take place
occurs because Metroplex administers the IDAs and CRC and
its staff are involved with all economic development projects.
We also found that there  is no  comprehensive economic
development plan in place that is annually reviewed and
updated, and that Metroplex has not developed a five-year
capital projects plan, as required by its enabling legislation.
We identified instances where  the involvement of multiple
authorities has led to the inefficient allocation of resources.  For
example, over $600,000 of economic development funds  have
been provided to the CBC since 2003 for the CBC to meet its
operating costs although the CBC no longer fulfills its original
purpose.  In another instance, over $25,000 is paid annually to
municipal and authority staff, in addition to their full time
salaries, to provide administrative and operational services to ES-3
the various economic development authorities.  These services
are generally provided during the individuals normal work day.
We also are concerned that IDAs may be providing
inappropriate types of financial assistance, since it appears that
the IDAs have awarded economic development grants.  The
types of financial assistance that IDAs are authorized to provide
are enumerated in General Municipal Law, and the provision of
grants is not included.
Lastly, we noted that records and information maintained by the
various authorities  are incomplete and poorly managed.  As a
result, we were unable to accurately determine the number and
amount of loans provided by the SLDC, and identified other
instances where records contained inaccurate data.  In addition,
reports required to be filed pursuant to Public Authorities Law
are not submitted timely and often contain inaccurate
information.  
. 1
Introduction and Background
Local economic development projects in New York State  are undertaken
primarily  by industrial development agencies (IDAs) and local development
corporations (LDCs).  IDAs are  authorized pursuant to Article 18-A of General
Municipal Law. There are currently 114 active IDAs throughout the State.  LDCs
are not-for-profit organizations often formed by municipalities or IDAs. The ABO
has identified more than 220 LDCs active throughout the State that are under the
control of a sponsoring municipality.  Separate IDAs and LDCs have been
created  by nearly every county in the State,  while other IDAs and LDCs have
been established at the sub-county level by many cities, towns and villages.  This
creates overlapping and duplicative areas of responsibilities that contributes to
competition among the IDAs, “comparison shopping” by project applicants
looking for the most favorable financial assistance package, and a potentially
incoherent, and inefficient, economic development policy.  While LDCs existed
prior to the establishment of IDAs, the creation of LDCs has proliferated since
IDAs lost the ability to finance civic facility projects.  Many IDAs and LDCs have
common board members and share staff.
There has been much discussion whether this economic development  model
produces the best results. While this approach is based on the premise that
economic development is best driven at the local level, questions remain how to
structure  local economic development  decision-making, and how economic
development resources can best be used.
Similar to the rest of the State, there are a myriad of organizations involved with
economic development within Schenectady County.  Schenectady County is the
second smallest county by geographic size outside of New York City, yet it has at
least seven different local economic development authorities.  These authorities
are the Schenectady County Metroplex Development Authority (Metroplex),
Schenectady County Industrial Development Agency (County IDA), City of
Schenectady Industrial Development Agency (City IDA), Town of Rotterdam
Industrial Development Agency (Rotterdam IDA), Schenectady Local
Development Corporation (SLDC), Schenectady County Community Business
Center (CBC), and Schenectady County Capital Resource Corporation (CRC).
In addition, the County’s Department of Planning and Economic Development
and the City of Schenectady’s Department of Development also have economic
development responsibilities.
This seven-authority structure is dominated by Metroplex, which is not an IDA or
an LDC. It is a public authority unique to Schenectady County that was created to
develop and revitalize specific areas within the County.  Based on audited
financial statements and federal tax reports, for 2010, Metroplex generated
approximately $7.3 million in revenue.  The other 6 entities reported
approximately $500,000 in total revenue. Only Metroplex and CRC had operating 2
surpluses for 2010; none of the other five authorities generated sufficient
revenues to meet their operating costs, incurring a total of  nearly $350,000 in
operating losses.
The financial assistance provided by these authorities generally consists of some
combination of  tax exempt  financing, property and sales tax exemptions and
abatements, loans and grants.  While no single authority is able to provide all
four forms of financial assistance, the same type of financial assistance  can be
and is provided by multiple authorities.
The Schenectady County Department of Economic Development and
Planning, according to the County’s 2011 adopted budget, is responsible for
coordinating job creation and retention activities throughout the county.  The
Department has eight staff, and also provides support functions to Metroplex.
The City of Schenectady Department of Development, according to the City’s
2011 adopted budget, has 10 staff and is responsible for long-range planning
and economic development in the City, as well as the day to day administration
of various city, State and federally-funded programs geared towards the physical
and economic renewal of the City.
Metroplex was created in 1998 to undertake economic development activities in
downtown Schenectady and along the corridors that connect to downtown.  The
Authority is governed by an 11 member board appointed by the County
Legislature, six of which are nominated by various local officials.    Metroplex
receives a portion of the  sales taxes generated in the County, and provides
financial assistance primarily in the form of loans  and grants, but can also
provide tax exemptions for specific types of projects.  Metroplex has five staff
consisting of an Executive Director, Director of Development, Finance Director,
and full and part time support staff.  The Schenectady County Commissioner of
Economic Development and Planning currently serves as Chairman and chief
executive officer of Metroplex.
The Schenectady County IDA, the City of Schenectady IDA, and the Town
of Rotterdam IDA  were established between 1975 and 1978 to stimulate
economic development and job creation in their respective communities through
low cost financing and tax exemptions. Each has its own board of directors and
governing structure. The IDAs generate revenues from project fees and interest
income.  In addition, each IDA has contractual agreements that result in
Metroplex providing administrative services and the Executive Director of
Metroplex serving as the administrative director for each of the IDAs.
The Schenectady Local Development Corporation (SLDC) was established in
1978 to provide low interest loans to businesses for the purpose of increasing
employment and attracting new businesses to the City.  The SLDC is currently
governed by a 13 member board that is appointed by its members.  Revenues for 3
the operations of the SLDC come from interest payments on loans and other
administrative fees generated by the different loan funds it administers.
However, over the past several years the SLDC’s funds have decreased
significantly and may no longer be sufficient to support its operations.
The Schenectady County Community Business Center (CBC) was
established in 2000 to manage an incubator program for new businesses within
the county.  The CBC is governed by an eight member board appointed by its
directors.  Several years ago the County decided to no longer fund the
administration of the CBC and the incubator program. The CBC now functions as
a landlord, on behalf of the County, and rents the county-owned building to nine
businesses, in addition to some county departments.  About $100,000 in annual
rent is received from these tenants and remitted to the County.  The CBC is
responsible for its payroll and some operating costs, but without a dedicated
revenue stream, it is reliant on subsidies from Metroplex, the SLDC and the
County IDA. The Executive Director of the CBC is Metroplex’s Director of
Development.
The Schenectady County Capital Resource Corporation (CRC) was
established in 2010 to issue low interest financing for non-profit entities.  This
financial assistance had been provided by the IDAs prior to the expiration of their
statutory authority to issue debt for civic facilities. The CRC is governed by the
same seven member board that comprises the County IDA.  The CRC has no
employees, but Metroplex staff provide administrative services.
In addition to these seven local authorities, three Business Improvement Districts
(BIDs) were formed within Schenectady County. BIDs are public-private
partnerships in which property owners in a well-defined geographic area pay
annual assessments that support services such as supplemental street and
sidewalk cleaning, promotional events, enhanced security, or improved
landscaping. The County has established BIDs for downtown Schenectady,
upper Union Street, and the Village of Scotia.  4
Compliance Review Objectives
The Authorities Budget Office (ABO) is authorized by Title 2 of the Public
Authorities Law to review and analyze the operations, practices and reports of
public authorities, to assess compliance with various provisions of Public
Authorities Law and other relevant State statutes, and to make recommendations
concerning the reformation and structure of public authorities.  Our operational
review was conducted to evaluate the overall effectiveness of the multi-authority
approach taken regarding economic development in the County, as well as make
recommendations to improve each authority’s business practices.
Compliance Review Scope and Methodology
Our compliance review was conducted between May and  November 2011, and
covered select authority operations for the period 2005 through 2011. To
perform our review we relied on the following documentation and data sources:
Contractual agreements between the various authorities in the County
Board meeting minutes
Project documentation
Project review and approval processes
Revenues, expenditures and outstanding bond obligations
Independent financial audits and other reports
Annual and Budget Reports required by the Act
Policies and procedures required under the Act, Public Authorities Law,
General Municipal Law, and Public Officers Law
Policies and procedures indicative of good governance practices
In addition to reviewing documents and records, we interviewed Metroplex
management and board members from each of the authorities; attended
authority board meetings; and performed other testing we considered necessary
to achieve our objectives. Our report contains recommendations to improve the
effectiveness of the operations of the authorities and economic development in
the county. The results and recommendations of our review were discussed with
appropriate officials.  As Metroplex staff administer most of the authorities, they
coordinated the responses from the individual authorities, and these responses
are reflected in this report where appropriate.  5
Review Results
Results Achieved by the Seven Economic Development Authorities
As the following narrative and table illustrates, the economic development
interests of every city and town within Schenectady County is served by multiple
local authorities.
Authority with Economic Development responsibility
Municipality Rotterdam IDA City IDA County IDA LDC Metroplex CBC CRC
Schenectady City X X X X X X
Duanesburg X X X X
Glenville X X X X
Niskayuna X X X X
Princetown X X X X
Rotterdam X X X X X
Metroplex was created to implement a comprehensive economic development
program along the Route 5 and Route 7 corridors of the County, especially in the
downtown region of the City. Its goal is to increase sales tax collections and
increase property values in downtown, and create and retain jobs. Since its
creation, the Metroplex service area has expanded to include 60 percent of the
County, and some portion of every municipality within the County. Metroplex is
funded with local sales tax revenue, and is able to provide financial assistance to
projects in the form of grants and loans to businesses, as well as tax exemptions
for specific types of projects.   Based on information provided to the ABO,
Metroplex has approved over $138 million  in direct financial assistance to  171
projects and programs  since 1998.  As of our review, Metroplex had 44 active
projects that were awarded $31.5 million in funding.  Metroplex does not
consistently track job data for all of its projects, but reported that 27 of its projects
– not all of which are currently active -- created an additional 1,900 jobs as of
June 2010.
Metroplex has completed a significant amount of renovation and rehabilitation
that has improved the appeal of downtown.  Resources have been dedicated to
improving the downtown State Street corridor, transforming it into an arts and
entertainment district while also encouraging businesses to locate or re-locate in
the area.  Metroplex has provided over $2.4 million for a downtown façade
program,  through which businesses receive  matching  grants to improve the
appearance of their buildings.  In addition, major redevelopment is taking place
along the Broadway entrance to downtown, converting vacant parcels and
abandoned buildings into modern commercial facilities.
The Schenectady County IDA reported 26 active projects as of December
2010, with a total project value of $246.6 million.  The IDA issued $74.2 million of 6
debt to finance eight of these projects, and entered into straight lease
arrangements with the remaining 18 projects. The County IDA reported that 15 of
the projects received a total of $3.4 million in tax exemptions and created 2,570
jobs, while 14 of these projects made PILOT payments to the County and other
taxing jurisdictions totaling over $1.8 million.  Since 2003 the IDA has had an
agreement for Metroplex to provide administrative services to the IDA.
The City of Schenectady IDA reported 38 active projects as of December 2010
with a total project value of $340.8 million.  The IDA issued $91.8 million of debt
to finance 11 of these projects, and has lease agreements with the other 27
projects.  The IDA reported that 19 of the projects received over $2.2 million in
tax exemptions and created 1,582 jobs, while 15 of these projects made PILOT
payments totaling over $1.2 million.  Since 2002 the IDA has had an agreement
for Metroplex to provide administrative services to the IDA.
The Rotterdam IDA reported eight active projects as of December 2010, with a
total project value of $39.5 million. None of these projects were financed with
bond proceeds, but did receive other forms of financial assistance, such as tax
exemptions totaling $2.2 million in 2010. Seven of these projects  made PILOT
payments, totaling $1.5 million in 2010.  A specific area of focus was the vacant
Capitol Plaza site.  As a result of financial assistance provided by both the
Rotterdam IDA and Metroplex, the site was redeveloped to house both a sportsthemed restaurant and a bank, and create 25 full-time jobs and 30 part-time jobs.
Overall, the IDA reported that its eight projects led to the creation of 124 jobs.
During 2010, Rotterdam IDA was staffed by two Town of Rotterdam employees,
but also entered into an agreement that stipulates that its administrative services
will be performed by the County IDA. Since the County IDA has no employees,
these services are provided by Metroplex staff.
Section 882 of General Municipal Law states that whenever all of the bonds or
notes issued by an IDA have been redeemed or cancelled, the IDA ceases to
exist and its rights, titles and interest and all obligations and liabilities are to vest
in and be possessed by its sponsoring municipality.  Rotterdam IDA had issued
debt for a project that was approved in 1993, and these bonds were fully retired
in 2009.  Since Rotterdam IDA no longer has  outstanding bonds or notes, the
IDA is subject to Section 882.  We are concerned that board members, Town of
Rotterdam officials, and  any businesses receiving financial assistance from
Rotterdam IDA could be at risk for actions taken subsequent to 2009 and any
such actions could be a nullity as a matter of law.  Authority officials indicated
that they are reviewing the status of the Rotterdam IDA with counsel and
auditors.
The Schenectady Local Development Corporation (SLDC) was created in
1978 by the City of Schenectady to provide low interest loans to businesses with
a goal of increasing employment and attracting new businesses to the City. The
loan programs were funded by grants from State and federal agencies.  In 2010, 7
SLDC received approval from the New York State Urban Development
Corporation (UDC) to issue loans for businesses  located within the County but
outside  of  the City of Schenectady.  We attempted to determine the extent of
SLDC’s loan activity, but authority officials were unable to provide us with reliable
data.  This issue is presented later in this report.  A City employee serves as
Executive Director for SLDC while another City employee provides administrative
support.
The Schenectady County Community Business Center (CBC) was created in
2000 to operate an incubator program for new and start-up businesses, support
an educational mentoring program and provide low cost office space in a building
owned by the County.  The incubator program did enjoy some initial success.
CBC was able to assist a few businesses develop and become sufficiently selfreliant to relocate to other locations in the  County.  The County has since
determined that it could not afford to finance the incubator program, and  these
services are no longer provided.  However, the County-owned building is still
used to house some County departments, and to provide low cost space to a mix
of nine start-up and established businesses.  The CBC administers a federallyfunded microenterprise loan program, but has not awarded a loan since 2008.
For the period 2003 through 2008, the CBC reports awarding nine loans totaling
$360,000 to nine different recipients, resulting in the creation of 20 jobs.  A
Metroplex employee assists the CBC while  a City employee assigned to the
SLDC provides administrative support.  CBC board members have indicated that
the CBC intends to dissolve in the near future, perhaps merging with the SLDC.
The Schenectady County Capital Resource Corporation (CRC) was created
in 2010 to issue low interest financing for nonprofit and for-profit entities.  The
CRC also offers mortgage recording and sales tax exemptions. During 2010, the
CRC issued $15.5 million of debt to finance one project.  The CRC has no
employees, but has entered into an agreement with the County IDA to provide
administrative services.  Again, since the County IDA has no employees, these
services are provided by Metroplex staff as part of its contract with the County
IDA.
Metroplex officials, in responding to our draft report, stated that there has been a
significant reduction over the years in the number of entities involved with
economic development.  They stated that there have been several programs and
funds that have been eliminated as well as organizations that are no longer
funded.  While true that these organizations may no longer be actively involved in
economic development, the purpose of our review is to focus on the  continued
need for seven authorities that are currently involved with economic development
in the County.
All seven local authorities  were formed to create jobs and spur economic
development, to increase property values and expand the tax base within the
County and to increase sales tax revenues. To gauge the effectiveness of these 8
economic development authorities, we compared unemployment data from the
State Labor Department, and sales tax and property value data from the State
Comptroller’s Office for the  County, the region, and upstate New York (all
counties north of Westchester and Rockland) for 2005 and 2010.  We found that
the results were mixed:  while property values and sales tax revenues in
Schenectady County have increased, so too has the unemployment rate for the
County.  
Percentage Increase from 2005 to 2010
Growth in
Unemployment
Rate
Growth
in
Property
Values
Growth in
Sales Tax
Revenue
Schenectady County 85% 54% 94%
Region 82% 50% 77%
Upstate New York  73% 40% 70%
As indicated, the unemployment rate increased by 85 percent in Schenectady
County from 4 percent in December 2005 to 7.4 percent in December 2010.  This
compares to an increase of 82 percent in the unemployment rate for the region
(from 3.9 percent in December 2005 to 7.1 percent in December 2010), and a 73
percent increase in  the  unemployment rate for all upstate counties (from  4.7
percent in December 2005 to 8.1 percent in December 2010.)  This increase in
unemployment is more than likely due to the nationwide recession that has
occurred since 2008.  However,  in regard to unemployment,  the economic
development authorities in the County do not appear to have been as effective as
other economic development organizations in the region or within the State in
addressing this recession.
Authority officials provided other data that shows different results.  For example,
they cite U.S. Census Bureau Data to show that while the employment rate for
the County has fallen, the decrease is less than that of the region or upstate New
York.   They explained that the census data  provides a broader picture, rather
than just measuring jobs, and  also provided data that shows that the annual
payroll of employers in the County has increased by 23 percent between 2004
and 2009.  This increase is  a  much higher  rate  than that of the region (15
percent) or upstate New York (11 percent.)  These officials also indicate that the
August 2011 unemployment rate for the County was lower than  the December
2010 rate we used, and that it is below the State and national average.  We
reviewed the August 2006 to August 2011 unemployment rates cited by authority
officials, and found that while the County unemployment rate increased less than
the region’s unemployment rate, the increase was about the same as the upstate
counties.
Based on the data from 2005 to 2010, it appears that Metroplex has been
relatively successful in its mission.  Property values have increased at a rate
above that in the region and much greater than the increase in the rest of the 9
State.  Sales taxes have also increased during the period at a much higher rate
than the rest of the region or upstate New York.  Yet, the economic development
data regarding jobs and employment rates are not as consistently positive.  
No Evidence to Conclude that Existing Structure Produced Results
While Schenectady County has achieved some recent economic development
success, there is no reason to conclude that seven different authorities were
necessary to produce those results.   Under current law, the same economic
development results could have been achieved with one authority to issue tax
exempt debt or provide other forms of tax incentives, and acquire property, and a
second authority to fund civic facility and not-for-profit projects and offer grants
and loans.  Therefore, it is just as probable to conclude that the  County would
have realized the same level of success with a more streamlined economic
development structure that relied on fewer and less redundant organizations. The
three IDAs provide various tax exemptions, issue tax-exempt debt for some
projects, and negotiate PILOT agreements.  Metroplex, SLDC, CRC and CBC
provide grants and loans, and  certain tax exemptions. This raises the question
why are each of these entities necessary.
Lack of Coordination
Authority officials  described the  existing economic development structure as  a
unified economic development team  that  has saved money and achieved
significant results. They characterize the current structure as a planned approach
to consolidate operations and streamline the number of economic development
agencies in the County.  They emphasize that there is substantial coordination
between entities as part of the unified economic development team.
However, our review concludes that  this structure was not planned. It simply
evolved, and that whatever degree of coordination does exist cannot be
attributed to a cohesive administrative and programmatic approach to economic
development.   Instead, this coordination exists because Metroplex staff, under
the guidance of the County Commissioner of Economic  Development, and in
accordance with administrative agreements with the IDAs and CRC, are involved
in all economic development projects, regardless of which authority provides
financial assistance to a project.
A unified economic development approach would be expected to establish a
standard application for financial assistance that is used by all of the authorities.
Developers and businesses applying for financial assistance would only need to
complete a single form, which could then be presented to the authorities that
provide the type of assistance requested.  All involved agencies would have
information concerning total project costs, the level of financial assistance being
requested from each authority, justification for the cost and necessity of the 10
project, the potential economic impact of the project on the community, and the
financial commitment of the applicant.
However, we found that separate applications are used by the various
authorities, and that information provided on one application is not always shared
with the other involved authorities.   As a result, the boards of directors of the
various authorities are not provided with and do not review or evaluate the total
scope and financial assistance provided to projects.  Instead, information
provided to the boards, and their subsequent reviews are generally limited to the
specific financial assistance requested of the authority, without context of the full
scope of the project and the total financial assistance being provided.
For example, one project we reviewed was part of several improvement projects
for one area within the City of Schenectady.  The project received sales tax,
mortgage recording tax and property tax exemptions from the City IDA and loans
and grants from Metroplex, as well as a loan from SLDC.  The information
provided to the Metroplex board for this project identified the estimated cost of
the project and the source of funds, but did not reflect the estimated tax
exemptions of $360,000.  The summary data provided to the City IDA board did
not identify that $650,000  was  provided by Metroplex or the purpose of that
funding, but only indicated that Metroplex was participating in the project.
Further, as part of this project, the information provided to the Metroplex board
indicates that the business owner was considering relocating the business to
another county.  Although Metroplex staff told us that this information was
discussed with the City IDA board, the information is not included in the project
description that was provided to the City IDA board, nor is it included in the City
IDA board meeting minutes.  It would seem prudent that if a unified economic
development team approach was being followed, the same relevant information
would be provided to every authority  that provides financial assistance to the
project.
Contrary to the concept of a unified economic development team, we found that
board members of the different authorities do not always understand the roles
and functions of the other entities.  For example, one City IDA board member
stated that the board member was aware of the SLDC, but not  its role in
economic development.  Yet, there are projects that received financial assistance
from both the City IDA and the  SLDC.   We spoke with  a County IDA board
member who was aware that the County IDA gave money in 2010 to the CBC,
but could not recall the purpose for which those funds were given.  And an SLDC
board member  could not explain  why the SLDC would provide funds  to CBC,
since the SLDC was short on funds itself.  11
Lack of Formal Planning
Having different authorities responsible for economic development necessitates
that  a coordinated economic development plan be in place to minimize
duplication of effort, ensure resources are used efficiently, and that all entities are
working toward a common goal.    The County Department of Economic
Development and Planning reports in its adopted budget that it is responsible for
coordinating job creation and retention activities in the County, however it has not
developed or established a county-wide economic development plan.  The plans
developed by the County Department  address only specific areas or functions,
such as riverfront revitalization or development of bike paths in the county.
Individual municipalities have  also  developed their own economic development
plans,  but  there is no single plan that  reflects a county-wide economic
development strategy.  Further, Section 2655-c of Public Authorities Law requires
Metroplex to develop a rolling five-year capital plan.  Metroplex has not updated
the plan since it was last prepared in 2003.
Authority officials responded that a plan has been established to remove blight,
create jobs, establish business parks and promote smart growth principles
throughout Schenectady County.    Metroplex staff stated that this plan was
developed with input from municipal officials, and identifies the specific projects
that need to be  undertaken.   We compared the projects identified in these
documents to the economic development plans established by some of the
municipalities, and found that the projects generally did fall within the problem
areas identified in the municipal plans.
While the plan identifies specific problem areas to be addressed, it is not a
comprehensive or cohesive development plan.  The document identifies many
vacant properties that need to be developed, but  does not identify strategies for
accomplishing this, such as determining potential uses or business types for the
property, and does not articulate a marketing strategy for attracting developers.
Further, the document does not address how the seven authorities are to work
together to accomplish the projects.   Another objective cited in the document is
the expansion of training programs at local colleges to build workforce skills.
However, the plan does not identify any projects or specific steps for developing
or funding these programs.  Authority officials responded that development plans
and strategies were prepared in the past, but that they believe it is too expensive
and time-consuming to keep these plans current and operational.
Finally, officials stated that the existing plan  fulfills the obligation  of Metroplex
under its authorizing statute. We do not agree, since it does not include many of
the components required of the capital plan that are cited in Metroplex’s
governing statute.  For example, the legislation requires that the capital plan
include  the proposed amount and sources of funding for each project, an
explanation of the financial feasibility of the project, and a description of the 12
impact of the project on the communities’ natural resources.  None of these
aspects are addressed in the plan provided to us.
Inefficient Use of Resources
We identified instances where reliance on the seven different authorities involved
in economic development has contributed to an unnecessary or inefficient use of
economic development funds.  
Metroplex provided a $250,000 grant to the SLDC in 2004 so that the
SLDC could establish a revolving loan program.  In 2010, the SLDC
loaned $15,000 from this fund to the CBC, in order for the CBC to meet its
operating costs.  Upon the request of the Metroplex Chair, the SLDC did
not require the CBC to repay this loan.  A second loan of $7,500 was
provided in 2011.  In addition, Metroplex has granted over $570,000 to the
CBC since 2003 and the County IDA granted $25,000 to the CBC in 2010.
In total, over $600,000 of economic development funds  have been
provided to the CBC since 2003 to meet its operating costs. These costs
consist primarily of payroll related expenses, a significant portion of which
is compensation to Metroplex and City employees for administrative
services.
Authority officials responded that only a small fraction of the grant
proceeds were used for employee compensation, with much of the grant
used to support the operations of the CBC.  They further clarified that nonpayroll operating costs generally consist of professional services such as
legal and accounting, insurance costs, and grounds and landscaping.  To
support this contention, they provided us with detailed financial reports to
identify the costs incurred by CBC.  However, these reports contain
contradictory information. Some indicate that payroll related costs range
from 80 percent to 96 percent of total costs, while others exclude payroll
related costs altogether.
BIDs are established under provisions of General Municipal Law, and are
created to provide enhanced services within a specific business area.
These enhanced services are funded by special assessments on the
businesses located within the area.  However, we found that since 2001
Metroplex has provided  about  $2 million  in grants to one  BID, with the
funds used to subsidize the BID and minimize the assessment on the
businesses that benefit from its services.  For example, financial data for
the BID shows that from 2006 through 2010 the costs of providing
enhanced services to the area have increased from $446,000 to
$725,000, while the total amount of the assessment on businesses has
remained stable at $221,000.  Since Metroplex funds are derived from
county-wide sales taxes, we question whether these funds are appropriate
for offsetting the special assessment charged to businesses in the district. 13
We noted that similar subsidies are not provided to the two other BIDS in
the County.
Authority officials indicated that Metroplex grants to the BID provide
funding for the façade program and downtown clean up and beautification
process, and are not used to reduce the special assessments. However,
the $2 million in grants is in addition to $2.4 million provided for the façade
program.  While we acknowledge that the special assessments have not
been reduced, it appears that the Metroplex grants provided to the BID
have enabled the BID to provide an additional $280,000 worth of services
to the businesses in the  district without a corresponding increase in the
assessment on those businesses.
Metroplex funds three separate façade improvement programs, each
focused on different  areas of the County.  For the period of our review,
over $4 million was approved for use for these three programs.  However,
we found that only $2.6 million, or about 64 percent of all program funding,
was used for making actual improvements.  The  balance was used for
architect and design and program administrative costs.  Architect and
design costs are generally considered appropriate, to ensure that projects
meet desired standards.  However, administrative costs  appear to be
higher than necessary since Metroplex contracts with other organizations
to administer the programs, and these organizations use a portion of the
funds to cover their own administrative costs.
The  primary operating costs for  each of  the three IDAs  consist of the
agreement for Metroplex staff to provide administrative services.   Each
IDA pays Metroplex $24,000 annually regardless of the level of services
actually needed or provided.   We noted that, for the most recent fiscal
year, none of the IDAs generated sufficient administrative fees to pay this
fee, and  each drew on reserves to meet its contractual obligations to
Metroplex.  Further, the CRC was created by the County in 2010, and it
also agreed to pay Metroplex for administrative functions.  Using such an
approach may be a viable way for  Metroplex to provide administrative
support to these organizations.  We question why this funding model  is
necessary since it  is simply a re-shuffling of funds among supposedly
unified team members.
We found that economic development  staff are often shared among the
municipalities and authorities, and receive additional compensation
beyond their full time salaries, although all the work is done during normal
work hours.  For example, at the time of our review the CBC had two
employees.  One individual is employed full time by the City of
Schenectady, but is also paid $6,000 annually by the CBC to perform
collections, maintain financial records and prepare quarterly CBC reports.
This work is done during the individual’s normal work hours for the City of 14
Schenectady, and we question whether a City employee can be assigned
to work for another entity as a condition of employment.  This individual
also performs administrative and book keeping functions for the SLDC and
the SLDC reimburses the City for the  employee’s salary and benefits.
Since the City is reimbursed for the time this employee  works for the
SLDC, we question whether the City should treat that individual as a fulltime employee. Authority officials responded that this is a cost saving
measure, but did not address why it would be appropriate to allow full-time
municipal employees to work for other entities during the municipal work
day.
The other CBC employee is employed full time by Metroplex, but is paid
$15,000 annually by the CBC in addition to the salary paid by Metroplex.
Although the Rotterdam IDA relies on Metroplex staff  to perform
administrative functions, it continued to pay town employees for these
functions as well during the period covered by our review.  Metroplex staff
coordinate projects, attend Board meetings, keep the financial books of
the IDA, and  are responsible for property maintenance, reporting,
promoting IDA activities and complying with applicable laws.  Yet
Rotterdam IDA paid Town staff $2,000 a year for similar duties.  Authority
officials indicated that although two Town employees were being paid, this
is a reduction in the number of Rotterdam IDA staff that were paid prior to
2010, when Metroplex  took on the administration of the IDA.   However,
the number of staff being paid is not of significance.  For 2009, Rotterdam
IDA paid a total of $11,000 for staff services, and for 2010, fewer staff
were paid a total of $6,266.  Yet, in addition to these costs Rotterdam IDA
paid Metroplex $24,000 to provide essentially  the same services that its
staff continued to provide.  Metroplex also reported that this arrangement
was ended subsequent to our on-site work.
In general, these Town employees performed IDA functions concurrently
with their Town responsibilities, during normal Town work hours.  As such,
there is the appearance that IDA functions are considered part of the
governmental responsibilities of these Town employees. It is questionable
why additional compensation is provided to perform IDA functions.  As the
Rotterdam IDA participates in the New York State Retirement System,
these earnings were reported to the Retirement System, in addition to the
individuals’ earnings as Town employees.  Authority officials responded
that the compensation is reported to the State Comptroller in accordance
with guidance provided by the State Retirement System. The IDA could
not explain why it is appropriate to provide additional compensation for
IDA functions performed as part of the  individual’s  normal Town work
hours.  We have referred the matter to the Office of the State Comptroller
for review.  15
Board members of IDAs are to receive no compensation for their services
but shall be entitled to the necessary expenses incurred in the discharge
of their duties.  Yet, we found that prior to 2010 the members of the
Rotterdam IDA received annual stipends for serving on the board.  From
2006 through 2009, over $29,000 was paid to board members.  Authority
officials point out that this practice was discontinued in 2010.
A business received a $30,000 grant funded by Metroplex to make façade
improvements, with the requirement that it contribute at least $30,000 of
its own funds to the estimated total costs of $60,000.  This business also
received a $5,000 grant from Rotterdam IDA for façade improvements,
which appear to be for the same work funded under the Metroplex grant.
As a result, this business may have been able to reduce its required
matching contribution, in violation of the grant agreements.  Authority
officials responded that the Rotterdam IDA board was presented with
information that the business had applied to two  façade  programs, and
was assured that no duplication would occur.  However, this presentation
was  made by the County Chamber of Commerce  and  only addressed
information about the  façade  programs in general, not the specific
application.  Further, this presentation took place more than one year prior
to the business applying for the façade grants.  As such, there is limited
assurance that the terms of the grant agreements were adhered to by the
applicant.
IDAs  have the power to  provide financial assistance to private entities.
Section 854 of General Municipal Law defines the financial assistance that
IDAs can provide as proceeds of bonds issued, straight leases, or tax
exemptions claimed by a project occupant as a result of the  IDA taking
title or possession to the property or the occupant acting as an agent of
the IDA.  An IDA is not allowed to award its funds as grants or loans, if the
purpose for which the grant would be used is unrelated to the IDA’s
corporate purpose of if the IDA does not receive a direct benefit or
property interest in return.  However, all three of the IDAs awarded grants
during the scope of our review.  The County IDA awarded a $25,000 grant
to the CBC in 2010.  The Rotterdam IDA issued over $70,000 in grants
through 2010 as part of  its façade  program, in addition to providing a
$60,000 grant to a private developer to assist in site development for a
project.   There is no indication that either IDA provided the grant in
exchange for a benefit, as required  by law or any contractual
arrangement.     We  also  question why IDA funds were used for these
grants when other economic development authorities in the County, such
as SLDC or Metroplex, are able to provide  similar  grants.  Authority
officials indicate that IDA counsels were consulted prior to awarding each
of these grants, but do not explain why IDA funds were used rather than
the funds from another authority.16
Poor Management Practices
As part of our review we attempted to obtain information  and review
documentation supporting the financial assistance provided to  economic
development projects, but were hindered by inaccurate, conflicting, and missing
records.  For example, we attempted to determine the number of loans provided
by the SLDC.  SLDC officials gave us a listing of 53 loans made between 1996
and 2010 totaling $1.3 million, resulting in the creation of 90 jobs.   We compared
this to the information reported by the SLDC in its annual report under Section
2800 of Public Authorities Law, and identified numerous discrepancies.  We were
able to reconcile the discrepancies, and identify 69 loans made to 63 different
recipients, totaling $1.8 million.  This information also indicated that just over
$500,000 of these loans  has been repaid.  In response to our draft report,
authority officials provided us a list of 143 loans awarded between 1996 and
2010 totaling almost $3.7 million, resulting in the creation of 164 jobs.  However,
we also identified numerous discrepancies in this data.  For example, three of the
53 loans are not included in the list of 143 loans, another loan was reported as
$25,200 in the original data, but as only $7,200 in the listing of 143 loans.  Due to
the discrepancies in the data provided, we are unable to place any reliability on
the accuracy of the records maintained regarding these loans.  The lack of
adequate record keeping raises the question as to the management controls put
in place by the SLDC.
As another example, we reviewed information provided by Metroplex regarding
façade projects it had funded, and identified two projects that appeared to have
excessively high architect costs.  Both of these projects consisted of simply
creating signs for businesses.  The total cost for one sign was $6,700 and the
total cost for the other sign was $11,000.  Yet,  the records indicated that the
architect’s costs for  these projects  were $3,000 and $2,500, respectively.   In
responding to our draft report,  Authority officials  stated that the  architectural
costs for these projects may have been filed inappropriately, and actually
pertained to another, larger project.  Such discrepancies are not characteristic of
an efficient and centralized team approach.
As previously stated, all three IDAs and the CRC have entered into agreements
that  call for Metroplex staff  to provide administrative services.  The City IDA’s
agreement calls for the IDA to pay $750 per month. The County IDA’s agreement
calls for it to pay $1,000 per month for the services.  Neither of these agreements
were amended or updated, yet at the time of our review, both of these IDAs were
paying Metroplex $2,000 per month for the services.  Metroplex officials
responded that this was correct and entirely appropriate for Metroplex to increase
these fee levels due to increased activity, and that the increases were noted in
the annual budgets adopted by each IDA.  While we do not disagree that activity
may have increased, any changes to the fees stipulated in the written
agreements should be incorporated within revised or updated agreements, and 17
not unilaterally imposed.  Moreover, these budget decisions do not abrogate the
terms of a written contract.
Further, it appears that Metroplex has not been fulfilling all of its requirements
under these agreements.  As part of the agreement, Metroplex staff are to
maintain all financial books and records and prepare and file all required reports.
Section 2800 of Public Authorities Law requires each IDA to submit an annual
report within 90 days of the end of its fiscal year, yet this report was not
submitted for the Rotterdam IDA’s 2010 fiscal year until July 2011, over three
months delinquent.  There has been no annual report submitted for CRC for
2010, although over $15 million of debt was issued and over $150,000 of
revenue received.  Lastly, the annual report submitted for the Rotterdam IDA’s
2010 fiscal year failed to report the only project that received financial assistance
from the IDA during 2010.
IDAs are to submit a report of all active procurement contracts with a value in
excess of $5,000, and maintain a list of all real property owned by the IDA.
However, we found that none of the  submitted  procurement reports were
accurate,  since each of the IDAs had active contracts valued  at  over $5,000.
Furthermore,  the real property reports maintained for each of the IDAs  did not
adequately describe the size and value of property owned by the IDA.  Authority
officials responded that contracts were not reported for legal and auditing
services because the contracts were negotiated several years ago, and the
contracts were not reported for the intervening two years.  Yet, there have been
no procurement  contracts reported for either the County IDA or City IDA since
online reporting was implemented in 2007.  Authority officials responded that
they believe that recording the size and value of property owned is not required
and not useful unless the property is ready for disposition.   However, knowing
the size and value of real property owned is critical for proper and accurate
valuation of authority assets, as well as for ensuring adequate insurance
coverage.  18
Recommendations
1. Reduce the number of authorities involved in economic development in
the County to eliminate the authorities providing redundant and duplicative
types of financial assistance.  
2. Counsels to the Rotterdam IDA and the Town of Rotterdam should
determine how to effect the provisions of Section 882 of General Municipal
Law and advise  the entities on  the appropriate actions to take in
complying with the provisions in this section of law.
3. All participating authorities should agree on and implement a truly unified
approach to economic development that utilizes a streamlined application
process, ensures that all relevant information is shared among all
authorities, fully identifies all financial assistance being provided, and
relies on fewer and less redundant authorities to execute.
4. The existing authorities should develop a comprehensive multi-year plan
that coordinates economic development throughout the county, fosters a
full understanding of the role and purpose of all involved authorities, and is
updated annually.
5. Consistent with this plan, Metroplex should develop and update annually
its five-year capital plan, as required by Section 2655-c of Public
Authorities Law.
6. Discontinue the practice of using economic development funds to pay for
administrative and operating costs of the economic development
authorities.
7. Metroplex, as the central administrative support agency, should provide
such services directly to the other authorities, without charging fees.
8. Reconsider the practice of providing economic development funds to other
organizations  to allocate, since the use of these funds for administrative
and support activities reduces the funds spent on economic development.
9. Metroplex should discontinue the practice of subsidizing Business
Improvement  Districts with proceeds from the County sales tax to offset
special assessments charged to businesses located within the District.
10.Neither the County nor the City should not assign municipal employees to
work for public authorities during the municipal work day  or provide
additional compensation for this work without a determination from the
Office of the State Comptroller.    19
11.The Rotterdam IDA or Town of Rotterdam should recover the stipends
paid to past board members, since they were to serve without
compensation as stipulated in Article 18-A of General Municipal Law.
12.Each authority should restrict the financial assistance it provides to
projects to those enumerated in its enabling legislation.
13.Each authority should establish and adhere to appropriate procedures and
controls to ensure that all economic development records are accurate,
complete, and maintained appropriately.
14.Authorities should only make payments for contractual services that are in
accordance with the terms of a contract.  No payments should exceed
those amounts unless the contract has been properly amended and
adopted.
15.Authority boards should ensure that all financial and operating information
is correctly and accurately reported in PARIS by Metroplex, since it is the
authority that is legally obligated to be in compliance with all reporting
requirements. This includes ensuring that all projects and contracts are
properly reported, and that property reports accurately describe the
property owned.