by Stephen Kimball
Taxing Industrial Development Agencies Undercuts the Crucial Goal of Economic Growth
The 2009 – 2010 State Budget contained a maximum $5 million statewide “cost recovery” tax on Industrial Development Agencies (IDAs). The purpose of the tax is to “…reimburse to New York State an allocable share of state governmental costs attributable to the provision of services to industrial development agencies.” Notices of the assessments were received by Industrial Development Agencies beginning Monday, February 8, 2010. The tax was calculated by multiplying the gross revenues of each IDA for 2008 by 4.7 percent. This assessment is arbitrary at best, punitive, unfair, and severely flawed.
Tompkins County’s IDA, funds Tompkins County Area Development, the County’s Economic Development Agency. In addition, out IDA has funded the Workforce Strategy and the Sewer and Water study that has recently been completed.
1. The “cost recovery charge” is unfair and flawed: The tax is applied against 2008 revenue for 2009 - 2010 services provided to IDAs. As such, there is no conceivable way an IDA could have budgeted for this charge. In fact, revenues received in 2008 by an IDA may already have been reinvested in 2009 or 2010 in other economic development projects and activities. Consequently, the revenue New York is taxing may not exist now. Also, the statute had as a condition precedent that DOB notify IDAs by November 1, 2009 (the date IDA budgets were due under PARIS) of the costs to be recovered and methodology for the charge. By failing to give notice by November 1, 2009, we do not believe that charges can be assessed against IDAs under this statute for the 2009-2010 fiscal year.
2. Trust revenues are taxed: The fee is being imposed upon "revenues" that, either by statute or agreement with another government, are required to be passed along, either to another government or a contractor. “Pass through” revenues of an IDA are not revenues of the IDA. The IDA is the temporary custodian until such revenues are redistributed to the beneficial entities, usually local taxing jurisdictions. Consequently, pass though revenues that are simply bookkeeping entries are being taxed as if they were actual revenue, even though IDAs derive no financial benefits from them. Some types of “pass through” revenues include:
· PILOT payments collected by an IDA and redistributed to local taxing jurisdictions. If IDAs collect PILOT revenue from benefitting businesses, they are required to distribute those revenues to local taxing jurisdictions on a pro rata basis.
· State and/or federal grants.
· Special district tax assessments where an IDA is the designated holder and/or distributor of the special assessment taxes.
· PILOT revenues used to pay for infrastructure through agreement with local taxing jurisdictions.
· “Clawbacks” recaptured by IDAs that are either partially or completely redistributed to local taxing jurisdictions.
· Affiliated LDC income that may have been reported as IDA revenues in 2008 because the Authority Budget Office was not letting LDCs into PARIS.
3. The “cost recovery charge” is arbitrary and redundant: IDAs already are required to pay the Bond Issuance Charge,” which was enacted as a cost recovery source of revenue for the state, thereby making the subject tax duplicative in purpose and excessive in application. Additionally, the cost recovery applied to state agencies under a similar statutory provision (PAL § 2975-a) already is meant to cover the costs of the ABO. PAL § 2975-a states in part 3-a: “A direct portion of these funds shall be allocated to fund the authorities budget office established by section four of this chapter.” If the cost of the ABO is funded by the state agency cost recovery what possible costs can the state have that need to be “recovered?”
Furthermore, the $5 million collected from the “cost recovery” charge is more than 300 percent greater than the total budget of the Authority Budget Office, the administrative agency that oversees IDAs. Consequently, the charge does not reflect any rational basis for actual costs incurred by the state for providing “services” to IDAs.
4. The “cost recovery charge” is punitive: The assessment will require sponsoring municipalities to either make larger contributions to support their lead economic development organizations and offset this tax, or reduce economic develop services. Neither outcome should be acceptable to the State of New York.
5. Future impact: The lack of economic activity in the state due to the recession, the state’s uncompetitive business climate, and the sunset of the IDA nonprofit law in 2008, has caused income of IDAs to fall significantly in 2009. Consequently, next year’s assessment on IDA gross income will have to apply a much greater percentage tax in order to generate $5 million.