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The Comptroller’s 2024 Annual Report Exemplifies The IDA’s Primary Mission Of Inspiring Economic Growth Through Tax Incentives
By David Carlucci
In New York State, an Industrial Development Agency (IDA) is a government entity that utilizes various tax exemptions to plan and complete local economic development projects. IDAs help incentivize private businesses to expand in specific geographic areas and maintain healthy tax bases for the localities where the projects are based.
IDAs are labeled “public benefit corporations,” a term used to describe entities constructed by the State Legislature but overseen by an appointed board of private citizens. In 1969, the State Legislature passed legislation establishing IDAs to support local economic development projects and tax bases. Since then, over one hundred IDAs have been established across New York counties, cities, towns, and villages.
BENEFITS OF AN IDA
IDAs are prominent statewide because of the financial incentives they provide to businesses looking to expand in New York State. IDAs are unique government entities that may extend tax benefits to private project operators, also known as agents.
IDAs carefully construct project agreements with agents outlining the scope and benefits of the local economic development project. Throughout the project process, agents may make tax-exempt purchases on behalf of the IDA. The main tax benefits of partnering with an industrial development agency fall into three categories:
Mortgage Recording Taxes
First, IDAs and agents are exempt from mortgage recording taxes throughout a project’s lifespan. The state imposes a mortgage recording tax when a county clerk or recording office records a mortgage. Basically, it is a registration fee for mortgaging or transferring ownership of a property.
Mortgage recording tax rates vary across county and municipal governments. Generally, a basic tax of 50 cents per $100 on mortgage debt or obligation is secured by additional city- or county-specific mortgage taxes of 25 to 50 cents per $100 in debt. Rates may differ depending on the year and jurisdiction.
Sales & Use Taxes
Similarly, IDAs and agents may be exempt from certain sales and use taxes at the state and local levels. Depending on the project’s scope, agents may purchase acquisition, construction, equipment, and maintenance. That said, agents may not make tax-exempt purchases beyond the project’s scope, including operational costs.
Real Property Tax Abatement
Real property is often subject to taxation based on the assessed value of the land plus any buildings and fixtures permanently attached to it. These taxes apply to agricultural, commercial, industrial, and residential properties. However, Industrial Development Agencies (IDAs) can offer significant property tax benefits through abatements, potentially reducing taxes on real property. This exemption does not include additional property fees such as water and utility bills and payments to local fire or library districts.
Benefits to the Community
IDAs work to serve the communities they operate within. Economic development, job creation, and improved infrastructure are their most significant benefits. By attracting businesses with taxation and financing incentives, IDAs help bolster residents’ career opportunities and quality of life.
Critical to this mission is sustaining the community’s tax base through Payment In Lieu of Taxes (PILOT) agreements. PILOT agreements compensate for any lost local tax revenue due to the tax-exempt project through direct payments from the developer over a determined period. IDAs act as the managers of these payments within the ten to thirty years following the project’s tax exemption. As a result, local governments simultaneously benefit from the economic activity brought about by IDA projects while maintaining a steady tax base long after the project’s completion.
THE NUMBERS: COMPTROLLER DINAPOLI’S 2024 ANNUAL REPORT
The New York State Comptroller releases a report annually on the current state of IDAs. Comptroller DiNapoli released his 2024 Annual Report last May. The data in this report reflect the numbers from 2022.
From a bird’s-eye view, the 2024 Annual Report exemplifies the IDA’s primary mission of inspiring economic growth through tax incentives. The Comptroller estimated that IDA projects soared to an all-time high value of $132 billion in 2022, achieved through over $1 billion in net tax exemptions. In terms of jobs, the 4,320 active projects are estimated to create and retain 213,887 new jobs throughout their lifespans.
The Mid-Hudson region continues to shine as a leader across IDAs. Out of the 336 new projects from 2021 to 2022, the Mid-Hudson region had 47, the third-highest number in the state. That said, the Mid-Hudson jumped to first place regarding value. According to the report, these 47 new projects total over $2.9 billion. This is chiefly due to the $1.4 billion Westchester County Regeneron project, which is estimated to add 700 permanent jobs to the region.
CHANGES & CHALLENGES TO IDA LAW
IDAs and how they function in New York State have undergone significant changes since their conception in the 1960s. Three years ago, the prevailing wage was introduced as one of the most significant additions to the law.
As part of the 2022 Fiscal Year State Budget, the New York State Legislature instituted Section 224-a of the Labor Law, which subjects specific IDA projects to prevailing wage. Prevailing wage is a standard for hourly rates and benefits paid to workers in particular trades. Under Section 224-a, projects valued at more than $5 million and receiving publicly funded tax benefits for at least 30 percent of the total cost must pay prevailing wages to their workers.
Although the Legislature’s move was initially intended to standardize workers’ benefits across IDA projects, some argue that loopholes in the prevailing wage law have muddy the waters of fairness. As the Labor Law currently stands, developers receiving certain tax credits may be exempt from providing prevailing wage, even if the project meets the value threshold.
This loophole has caused great controversy regarding public works projects. Some major developers argue that it makes projects more accomplishable, while pro-labor advocates find that it contradicts the law’s original intent.
Pro-labor advocates have made multiple attempts to close the loophole since 2022. Most notably, in 2023, Senator Pete Harckham and Assembly Member Harry Bronson introduced a bill to remove the exemption for brownfield remediation projects. The bill passed the Legislature but was inevitably vetoed by Governor Hochul, who was concerned that it would disincentivize participation in community brownfield cleanup projects.
PARTNERING WITH AN IDA
After carefully reviewing the necessary state IDA policy, businesses and developers looking to partner with an industrial development agency (IDA) must first identify the appropriate IDA to work with. This involves determining which IDA has jurisdiction over the project and reviewing its policies.
After this, the organization must review and submit the IDA’s application. Although applications vary from jurisdiction to jurisdiction, it is essential to identify the scope of the project and the financial need for its completion. The IDA board will then review the applications and documentation.
If a project is approved, partnering organizations must adhere to state and local IDA laws. As government entities, IDAs are held to an extremely high standard regarding ethics, compliance, recording, and other practices. Agents partnering with IDAs are held to the same legal standards.
