http://www.osc.state.ny.us/localgov/audits/ida/2015/schenectadyco.pdf
The Schenectady County IDA (SCIDA) was created in 1978 for the
purpose of encouraging economic growth. The benefits available
to companies who receive SCIDA support include New York State
mortgage and sales tax exemptions, real property tax abatement
and low interest bonds. In return, many of the projects that benefit
from SCIDA assistance create new jobs or retain existing jobs in the
community and make annual payments in lieu of taxes (PILOTs)1
to help offset the loss of revenues from tax exemptions provided to
the projects.
SCIDA reported benefits totaling approximately $1.5
million for 29 projects for 2013. These benefits were in the form
of reducing taxes that the projects would have paid if the projects
occurred without assistance from SCIDA.
SCIDA is governed by a seven-member Board of Directors (Board)
appointed by the Schenectady County Legislature.
The Board is
responsible for the general management and control of SCIDA’s
financial and operational affairs. The Metroplex Development
Authority (MDA) performs all the administrative and accounting
services for SCIDA in exchange for service fees paid by SCIDA. The
Executive Director of the MDA also serves as the Executive Director
of SCIDA, and the MDA’s Director of Finance serves as SCIDA’s
Chief Financial Officer
SCIDA officials monitored job creation performance by collecting
data from businesses on an annual basis, but because they did not
include recapture provisions in their PILOT agreements, they were
unable to recover economic benefits if companies did not meet their
job creation goals. Our review of 10 projects disclosed that one
business met its job creation goal, five businesses did not meet their
goals and we were unable to determine whether four businesses
met their goals. Additionally, because SCIDA did not adequately
monitor PILOT payments, SCIDA was unaware that affected taxing
jurisdictions were underpaid $94,341 from 2003 to 2014.
SCIDA’s PILOT agreements make the businesses responsible for
remitting PILOT payments directly to the affected taxing jurisdiction.
SCIDA does not have a process in place to adequately monitor these
payments. According to SCIDA officials, they attempted to gather PILOT billing information from the affected taxing jurisdictions
by requesting the information from them and relied on the taxing
jurisdictions to contact them if they have questions or concerns
regarding the billing or collection of PILOT payments.
We reviewed
the PILOT agreements for 10 projects and obtained and reviewed
all available PILOT payment information from the various affected
taxing jurisdictions from 2003 to 2014. Payments for nine projects
were made accurately or had only minor variances, totaling $94,341
in underpayments. However, one project agreement provides for the
payment of a 7.5 percent fee6
for the business’ failure to construct a
building.
Although the County and the affected town each billed the
business for and received this 7.5 percent fee, the affected school
district did not. As a result, the school district did not receive $91,814
to which it was entitled. While SCIDA notified the affected taxing
jurisdictions of the PILOT provision requiring the business to pay the
7.5 percent fee,SCIDA did not subsequently verify that each affected
taxing jurisdiction did in fact bill for and receive this fee.
These underpayments occurred because SCIDA did not adequately
monitor PILOTs billed and collected by taxing jurisdictions. In
addition to the financial impact these errors had on municipalities,
PILOT billing errors may cause municipalities and the public to have
an unfavorable view of future SCIDA tax exemption and PILOT
proposals.
If municipal officials conclude that they are not receiving
all required tax and PILOT payments, they may be less likely to
support current or future projects.
The Board should:
1. Ensure that all project agreements contain a recapture clause
that would allow SCIDA to recover the financial incentives
provided if businesses do not produce the intended benefits
and should invoke the recapture provision, as appropriate, if a
recipient does not meet performance expectations.
2. Provide project benefits directly to the businesses providing
jobs and not to leasing agents.
3. Establish and implement procedures to ensure that PILOT
payments are made accurately and timely
;;;;;
SCIDA officials were given the opportunity to provide us with adequate documentation to support their
job creation figures, but the documentation that was provided to us by SCIDA officials was inadequate.
For example, SCIDA officials provided us with an internal document detailing job creation numbers;
however, there was no source documentation to support all of those figures.
As noted in the report, providing PILOT benefits to a property management and development business
rather than directly to the businesses leasing the properties increases the risk that the PILOT benefits
may not be received by the intended businesses.
As noted in our report, the business paid the penalty to only two ofthe three affected taxing jurisdictions.
Furthermore, this penalty is associated with the business’s failure to construct a building as agreed to
in the PILOT agreement. The business has not paid any penalty associated with its failure to meets its
job creation and retention goals.
