Steuben County and City of Hornell Industrial Development Agencies Project Approval, Evaluation and Monitoring Efforts

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EXECUTIVE SUMMARY 2006-MR-5 March 2007

There are 115 Industrial Development Agencies (IDAs) in the towns, villages, cities and counties of New York State. The powers and duties of IDAs are set forth under Article 18-A of General Municipal Law. IDAs are independent public benefi t corporations whose purpose is to promote, develop, encourage, and assist industrial, manufacturing, warehousing, commercial, research and recreation facilities. The overall goal of IDAs is to advance the job opportunities, health, general prosperity and economic welfare of the people of the State of New York.

Each IDA is governed by a Board appointed by the sponsoring municipality. To carry out their mandate, IDAs offer fi nancial incentives to attract, retain and expand businesses within their jurisdiction. Such incentives could include one or more of the following: issuance of a low interest-rate bond, abatements from real property tax, and exemptions from sales tax and mortgage recording tax. To obtain fi nancial assistance from an IDA, a business must fi le a project application that includes, among other things, the number of jobs the project will create or retain. IDA Boards should monitor and evaluate the performance of IDA project owners to determine whether the businesses are meeting these job goals. IDAs may place provisions in project contracts that allow them to “recapture” economic benefi ts if companies do not meet their project goals.

Scope and Objective

We audited two active IDAs in Steuben County: the Steuben County IDA and the City of Hornell IDA. We reviewed selected projects between April 1, 2003 and December 31, 2005 that evidenced how IDA offi cials estimated incentives; approved, monitored and evaluated projects; and utilized their recapture provision. The objective of our audit was to address the following related questions:

• Do the IDAs have criteria for selecting fi rms or businesses receiving sponsorship and economic development incentives and are those criteria consistently applied?

• Are the IDAs designing and implementing systems to evaluate and monitor job data, project performance and to recapture benefi ts for performance shortfall?

Audit Results

Both IDAs utilized the statutes and their own various policies to determine project eligibility and to provide some general guidance offi cials should consider when making project sponsorship 6 OFFICE OF THE NEW YORK STATE COMPTROLLER decisions. However, neither IDA developed and documented formal project evaluation criteria for selecting fi rms or businesses receiving sponsorship and economic development incentives. In addition, neither IDA has systems in place to adequately verify project application information.

In order for IDA offi cials and the public to evaluate the effectiveness of IDA economic development projects, IDAs need to have systems in place to monitor project performance and to determine if benefi ts should be recaptured. We were unable to determine if projects achieved anticipated employment levels since neither IDA requires that documentation of employment fi gures be submitted annually. In addition, offi cials from both IDAs informed us that they have never attempted to recapture benefi ts and that they do not have formal procedures to invoke these provisions.

IDA offi cials do not compare estimated sales tax exemptions at application to actual sales tax exemptions reported by sponsored businesses. A comparison of estimated sales tax exemptions with actual exemptions claimed would enable IDA offi cials to identify and investigate large variances, and to use the information to develop more accurate estimates. It would also improve accountability if IDA offi cials were to follow-up with those businesses that reported sales tax exemptions which signifi cantly exceeded estimates to help ensure that the sales tax exemptions were only used for the intended purpose.

Comments of Agency Officials

The results of our audit and recommendations have been discussed with officials from the Steuben County and City of Hornell IDAs, and their comments, which appear in Appendix A, have been considered in preparing this report. Except as specifi ed in Appendix A, Agency offi cials generally agreed with our recommendations and indicated that they planned to take corrective action. Appendix B includes our comments on the issues raised in the Agencies’ response letters.