Industrial Development Agency

IDA Recipients Must Do More To Demonstrate Environmental, Social & Corporate Governance (ESG)

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In 2020, Rockland County Industrial Development Agency Oversaw 32 Projects Valued At $1.84 Billion Granting $11.6 Million In Net Tax Exemptions

By Rick Tannenbaum

In Rockland County, the IDA oversaw 32 projects in 2020 valued at $1.84 billion dollars. Incentives included mortgage tax exemptions, sales tax exemptions and opportunities to negotiate and participate in PILOT (Payment In Lieu Of Taxes) programs with local school districts, towns and the county.

The total tax exemptions provided through the Rockland IDA was $23.4 million, but $11.8 million of that was recouped through PILOT programs, netting $11.6 million in tax exemptions. These net exemptions represent the amount of tax money project sponsors would otherwise be paying to local taxing authorities and the county, but for participation in the IDA programs.

Rick Tannenbaum
Rick Tannenbaum

However IDA applications ask very little (if anything) regarding the applicants’ ESG (Environment, Social and Governance) policies, including if the applicants even have ESG policies and how they have been adhering to them. Environmental, social, and corporate governance (ESG) reporting is a method of evaluating corporate responsibility beyond the corporation’s mandate to maximize profits for its shareholders.

In 2022, the Rockland IDA facilitated mortgage tax and sales tax exemptions of more than $1,100,000 to the developer of 80 apartment units on an underdeveloped parcel in Spring Valley on 1.76 acres to enable it to acquire, demolish existing structures and redevelop the property with 2-bedroom, 3-bedroom and 4-bedroom units, with a 15% set aside for affordable housing units on North Myrtle Avenue.  The exemptions applied to a $21 million dollar mortgage and $11 million in construction and equipment purchases.

Also, this year, the Rockland IDA granted mortgage tax and sales tax exemptions to the developer of a 220,000 square-foot warehouse in Valley Cottage with an unknown tenant. The exemption on the $37 million dollar mortgage amounted to $388,500 and the sales tax exemption was worth $2,520,000 on otherwise taxable purchases of $30,650,000. The project faced vocal local opposition at the planning board hearings and one local trade union demonstrated at the site for local jobs.

These are just two examples.

The IDA application doesn’t specifically ask about an applicant’s ESG policies. The IDA application does state that its policy is to encourage developers to hire local labor and pay prevailing wages on construction projects. It doesn’t encourage or discourage any level of affordable housing set asides on multifamily projects, but presumably these and other issues come into play, of should, when the IDA grants these exemptions.

Taken individually, ESG reporting reveals a company’s commitment to certain quantifiable environmental goals, support for various social movements, and an analysis of the methods in which the corporation is governed – and within the ESG, asks if corporate management adheres to stated goals of diversity, equity, and inclusion (DE&I).

Regarding environmental goals, developers should quantify their commitment to LEED construction, carbon reduction, alternative energy, wetlands preservation, reduction in harmful particulate matter emissions and responsible sound mitigation techniques. This is a short list of considerations. Others include commitments to recycling, graywater, runoff, and light pollution, in both their construction methods and ongoing management of different types of assets. And, the report examines if the company’s proposed projects fit into the municipality’s comprehensive plan.

Social goals tend to focus on the project’s impacts on the community, who gets hired (union vs. non-union), where the building materials are sourced from, how construction debris is handled, compliance with fair and prevailing wage laws, incorporation of community input and opposition to a project’s plans, local hiring, and the like.

For corporate governance, concerns around the principals, partners, and board of directors are reported. The makeup of the board is considered. What are their ages, ethnicities, biases, hiring practices, tax avoidance policies, commitments to honesty and transparency? Is there integrity in the data when the applicant relates the number of jobs the project will provide and the average wages of the anticipated jobs? Have any of the principals ever been barred from public bidding or lost a professional license?

Further, how has the company performed in meeting its ESG goals in prior years? How deep is its commitment? How, if at all, have the representations in prior IDA applications in this or other jurisdictions been tested? Have the number of jobs panned out as promised? Were the projects flipped after completion?

With millions of dollars at stake, and taxpayer subsidies for large developers being handed out, the local community has a right to know who it is giving tax breaks to. All ESG documents should be public and published on IDA websites and discussed at public hearings.

Without this level of transparency, communities and taxpayers may be skeptical of large developers who seek tax breaks at their expense. To that end, every IDA application should require the contemporaneous filing of the company’s ESG reports for the current and past few years. Failure to include the report should render the application incomplete and make the applicant ineligible for IDA benefits. The standard application for IDA benefits should be amended for all new and pending projects, and any entity still in a PILOT program or otherwise receiving abatements should have an annual filing requirement with the IDA.

Absent these requirements, it may not be possible to know if the money given in corporate subsidies has been well spent or given to marginal or bad actors — the goals being to reward good actors, protect local jobs, motivate better corporate citizenship, and protect the taxpayer.

Rick Tannenbaum brokers commercial properties with Houlihan Lawrence Commercial Real Estate. An earlier edition of this piece first appeared in the “CRE-Connect (Commercial Real Estate)” Substack