LI Herald – September 20, 2102
As the New York Times recently reported, residents of Moberly, Mo. were shocked to learn that they had guaranteed $39 million in bonds, sold by a local government agency to help a Chinese company build a plant that will create a few hundred jobs.
In upstate New York, the Chautauqua County Industrial Development Agency (CCIDA) authorized the purchase of three IDA bonds totaling $6 million to fund the construction of speculation buildings and the financing, maintenance and development of an existing facility. An audit report found the investments “imprudent” with losses (in general fund balances, revenues and property taxes) in excess of $2.3 million.
The Moberly project fell apart in a matter of months when a bond payment came due. The company involved did not have an operational plant in China; nor, did it have the money to meet the debt obligation. Construction stopped and a handful of employees were laid off.
When the city’s guarantee was called, the Moberly City Council announced “The city’s taxpayers, under the circumstances evident, should not bear the burden of the company’s failures or be asked to ‘bail out’ their shareholders or investors.” Market analysts warned that the town’s failure to pay might tarnish the credit of other town’s in Missouri and Standard & Poor’s cut its bond rating to “junk” level.
The occurrence of such folly suggests a need to examine the ongoing sustainability of public benefit corporations; and, in particular, Industrial Development Agencies. Why? To quote a spokesperson from the Office of State Comptroller Thomas DiNapoli, “Taxpayers need to be assured that if something goes off the tax rolls and they foot the bill, they’ll benefit from that.” This declaration raises two basic questions. One, are we, the ultimate source of funding, getting enough bang for our buck? Two, are the tax deferment incentives provided, to encourage economic development actually creating more jobs? The answer to both question’s, is hardly.
Let’s do the math. To encourage economic development, IDAs offer assistance in the form of tax-exempt debt financing and exemptions from local property, sales and even mortgage recording taxes. In return, payments-in-lieu of taxes, PILOT’s are anticipated to help offset the loss of revenues from the exemptions provided. So much for intent, with a $483 million shortfall, the average homeowner will pay $140 more in taxes each year to make up the difference. Bang, bang!
Job wise, don’t pack your lunch. Job gains, with few project exceptions, are not at all as robust as one would expect considering the investment involved, and $54.3 million in operating expenses. Of the five largest new IDA projects on record in 2010, one (in the City of Schenectady) created 310 jobs of which only 5 were retained. The remaining four projects created 11 jobs, none of which were retained.
The issues described in this column are well documented in reports issued by both the Office of State Comptroller and Authorities Budget Office. The former now suggests the need for yet more legislation to provide (you and me) more information concerning the delivery of promised economic benefits. The later, suggests we need “to consolidate, eliminate, or restructure authorities, at the state and local level, with similar missions or common public purpose.”
My recommendation.. Enforce the basic tenets of Public Authorities Law and weed out the poor performers before they do even more damage; and, reconsider the economic development model that currently permeates government intervention in free enterprise planning.