Audit reveals Riverhead IDA anticipates October closing with Calverton Aviation & Technology, for major boost to agency’s sagging bottom line

While the Riverhead Industrial Development Agency may have just begun its due diligence review of an application that will make or break the town’s $40 million sale of a vast tract of vacant industrial land in Calverton, the agency already expects to approve the application and close its deal with the applicant this fall.

The Riverhead Industrial Development Agency told its independent auditors, Jones, Little & Co. CPAs, that the Calverton Aviation & Technology project “has an anticipated closing date of October 2023,” according to the audited financial statements prepared by the auditors and filed with the Riverhead Town Clerk on March 31. 

According to the Riverhead IDA’s fee schedule — as recited in its application form — the agency would collect from CAT an administrative fee of $662,500 on CAT’s phase-one project cost of $245 million — more than the agency’s total operating revenues in the past three years combined. The money is payable to the IDA at closing, less the $4,000 application fee that was due at the time of application.

The revenue influx would come as the cash-strapped agency finds itself facing “substantial doubt” about its “ability to continue as a going concern,” according to its audited financial statements. 

Last year was the third consecutive year the auditors raised the “going concern” issue in notes to the Riverhead IDA’s financial statements, and the third year that IDA management prepared a “going concern evaluation,” looking ahead to the upcoming year and each time deciding it would be able to continue in business.  

“This audit information is really disturbing,” said Kathy McGraw of Northville, who is a member of the EPCAL Watch group, which has been critical of the town’s intended sale to CAT. 

“It erodes all confidence that the IDA will objectively vet CAT’s financial status,” McGraw said. “From the audit reports, it is clear that the IDA is fighting for its life,” she said.  

“So before vetting of CAT has even begun, the IDA told the auditors it expects to close on this project this October. The IDA is relying on this project to financially justify its own continued existence,” McGraw said.  “It’s a done deal, a foregone conclusion,” she said. 

Neither IDA Executive Director Tracy Stark-James nor IDA Chairperson James Farley responded to an email sent Tuesday posing questions about the agency’s “anticipated closing date of October 2023” on the CAT project.

The primary source of revenue for the Riverhead IDA are the administrative fees collected when project closings take place. Additionally, the agency generates income through an annual compliance reporting fee for each active project in its roster, which in 2023 is set at $1,500 per project. When amended applications show an increase in total project cost compared to the initial projections, the IDA also charges a fee equivalent to 1% of this cost difference.

In 2022, the IDA received $118,535 in fees associated with completed projects, according to its audited financial statements. It also had revenues of $11,020 in other fees, such as compliance reporting fees and a professional consulting fee of $50,000 from the Town of Riverhead. That payment was in connection with a marketing agreement authorized by the Town Board in December 2021. 

Stark-James said the $50,000 fee was not “economic relief” from the town, which, as noted in the 2020 financial statements, the IDARIDA had discussed with its auditors as part of its “going concern” evaluation in response to the 2020 audit. 

The payment was compensation for assisting the town “in its strategic planning in areas of economic development that were not directly linked to a specific application to the IDA,” Stark-James said. “These included the Town Square and the Transit Oriented Development and other designated Urban Renewal areas downtown,” she wrote in a Feb. 22 email responding to questions posed by email a week earlier. 

The agreement memorialized the practice that was already in place, she said. “As the Agency board discovered that staff time was being spent more on town matters than on the daily operating needs of the Agency, considering its limited resources, it needed to be compensated,” Stark-James wrote. 

The IDA does not receive any direct financial support from the town. 

Its expenses in 2023 were projected at $249,358, according to the adopted budget IDA filed with the Town Clerk in December. Payroll expenses, including salaries, health care buyback, NYS retirement contribution, workers compensation and disability insurance and payroll taxes, totaled $199,150, or 80% of its operating expenses. 

At no time did the “going concern” notes negatively affect the financial statements, Stark-James pointed out.

“Just like other companies and industries, the RIDA experiences ebbs and flows in new business; it is not unusual for the agency, given its reliance on application fees,” Stark-James wrote. “In addition to the normal highs and lows, the timeframe you reference [2020, 2021 and 2022] was during the pandemic time period. Beyond certain thresholds, the auditors need to identify these concerns as a matter of normal practice,” she said.

Riverhead Town is resting its hope for closing the $40 million sale with CAT on an unusual arrangement that involves the IDA vetting the applicant’s finances. 

When the town was unable to finalize the land subdivision needed in order to sell the property to CAT, the town and CAT agreed to jointly apply to the IDA for financial assistance for CAT’s development — real property, mortgage and sales tax exemptions. If the application is approved, CAT will pay the town the balance of the purchase price and the town will convey all of its remaining property at the Calverton Enterprise Park to the IDA. The IDA will then lease back to the town properties that won’t eventually be conveyed to CAT and it will lease to CAT the rest. CAT will then finalize the subdivision. Once the subdivision is completed, the IDA will transfer titles to CAT and the town. 

Town officials have said the IDA is ideally suited to thoroughly examine CAT’s finances, a matter of special concern because CAT is an affiliate of the Triple Five Group, whose affiliates developing the American Dream megamall in New Jersey have suffered multi-million dollar losses that some analysts have said could threaten the Triple Five conglomerate. Triple Five insists any legal or financial issues faced by American Dream have not affected or will not affect any of its other companies,including CAT.

If the IDA denies CAT’s application for financial assistance, the town will have the right to cancel the 2018 contract of sale. 

Some residents, including members of the EPCAL Watch group like McGraw, have been skeptical from the beginning about the thoroughness of the review IDA will perform. The disclosure of the IDA’s statement to its auditors early this year about an anticipated closing in October validates such skepticism, McGraw said.

“This is not about what’s right for this town,” McGraw said. “It’s about making sure the IDA has the financial wherewithal to continue to exist.”