The proliferation of LDCs in New York in recent years ”“ including at least 30 created in the first half of this year and 52 in the previous two years ”“ has raised alarm at a state oversight agency, the Authorities Budget Office. In its recently released annual report on public authorities in the state, the ABO said the “growing dependence” of municipalities on local development corporations, whose financial dealings for projects can avoid some of the public scrutiny and public input of IDA and municipal transactions, “should be a public policy concern.”
An advocate in Albany for economic development agencies disagreed. Local development corporations formed in recent years provide less costly and speedier financing for nonprofit institutions in communities and contribute to a “more customer-friendly economic development environment,” said Brian T. McMahon, executive director of the 900-member New York State Economic Development Council.
Since 2000, the number of LDCs formed by local governments has risen by 150 percent, the ABO reported. State officials said the initial surge stemmed from the $206 billion master settlement agreement reached in 1998 between the nation”™s four largest tobacco companies and the attorneys general for New York and 45 other states. Several counties and New York City created LDCs to raise bonds backed by their tobacco settlement payments.
The spike in LDCs in recent years in large part has been a response to the state Legislature”™s failure to extend authorization for IDAs to finance nonprofit and civic facilities projects, such as libraries, hospitals and schools, as well as retail projects when their bonding authority expired in early 2008. The bonding provision was the victim of a political battle between economic development advocates and organized labor over setting prevailing-wage requirements for financed projects.
The ABO said at least 40 LDCs incorporated since 2005, including 20 in 2010, were created primarily as a means for municipal governments to back civic and nonprofit projects. IRS rules allow LDCs formed by local governments to issue tax-exempt debt.
For nonprofits, said McMahon, that alternative comes with much lower financing charges and capital reserve requirements and shorter waits for issuance than their other source of tax-exempt state bonds, the Dormitory Authority of the State of New York.
In Westchester County, the LDC recourse was pursued this year by County Executive Robert P. Astorino and by city officials in New Rochelle.
In its first action, the Westchester County Local Development Corp., whose board members and executive director, Eileen Mildenberger, are shared with the county Industrial Development Agency, last month approved bonding for expansion and improvement projects at Northern Westchester Hospital and the Rippowam Cisqua School. Astorino, when announcing the tax-free financing, said “it comes at no risk to the county or to taxpayers.”
In June, New Rochelle officials formed the New Rochelle Local Development Corp. to help finance an approximately $35 million medical office building construction project and hospital expansion at Sound Shore Medical Center, said New Rochelle Development Commissioner Michael Freimuth. Freimuth said a previously formed LDC, created to finance the approximately $19 million purchase of the New Roc City parking garage, is being dissolved since the city in 2011 instead floated less costly municipal bonds for the acquisition.
In Yonkers, city officials three years ago launched a local development corporation to help a private for-profit developer, Struever Fidelco Cappelli L.L.C., move forward on its planned River Park Center mixed-use development with an infusion of state funds.
The New Main Street Development Corp., however, has been inactive and unfunded since its creation in 2009 as the recipient and administrator of an expected $24 million grant from the state Dormitory Authority. Now city officials instead expect to receive an $8 million grant from the state this year for downtown property acquisitions needed for a Saw Mill River daylighting and riverwalk project at the site of the stalled River Park Center project near Getty Square.
Lacking the authority to condemn private properties, the LDC, appointed by former Yonkers mayor Philip Amicone and headed by the city”™s former deputy mayor, turned to the Yonkers Industrial Development Agency to use its power of eminent domain if needed to acquire nearly a dozen commercial properties.
The ABO said the rise of LDCs as a source of tax-free bonds has come at a price to the state in the form of lost bond issuance charges. The state could have reaped at least $2 million and as much as $9 million from the issuance of $1.2 billion in debt in 2011 by LDCs, which, unlike IDAs and other public authorities, are not subject to the charges.
The bond issuance charges are taxes paid by nonprofit and civic employers undertaking projects, McMahon noted. “To us, that”™s not a bad thing,” that the state cannot collect those charges from local development corporations, he said. “It reduces the cost to the customer, and we believe there should not be a bond issuance charge if you”™re going to have a customer-friendly economic development environment.”
McMahon said he sees “some interest”™ among state legislators and “an opportunity” in Albany to restore the bonding authority that expired for IDAs in 2008. But local governments should have the flexibility to offer IDAs as one-stop financing solutions and to form local development corporations to assist nonprofit employers in their communities, he said.
