Riverhead IDA’s broken processes make for bad decisions

This is the second of three essays on the Riverhead Industrial Development Agency, by an agency watchdog and former member. Read the first essay here.

We’ve looked at several examples of specific tax abatement awards by the IDA, along with what counted (or didn’t) as justification for those decisions.  This segment will focus on IDA procedures and practice.  It includes some discussion of specific projects…not their merits, but the agency’s decision-making process.

Predetermined

John Wesley Village 3, a for-profit residential apartment complex, had already received a massive 10-year tax abatement, but in 2018 sought a new 10-year abatement—over $125,000 per year at the outset, then slowly decreasing—in order to perform $1.4 million in routine improvements and repairs.  No jobs would be created. The company also made clear that if they didn’t get the abatement, they’d make the same improvements “as operating cash became available” — you know, like most businesses and homeowners.  The IDA would also help the owners refinance their $10 million mortgage on the property (no benefit to the town, but more fees for the agency).

In the public comments session, I offered numerous reasons this tax relief was unjustifiable.  At the follow-up hearing—for the first time anyone could remember—the application was rejected.

Soon after, I was appointed to the IDA board of directors.  At Chair Tom Cruso’s customary and cordial get-acquainted lunch for each new member, I inquired about this project;  I applauded the board’s decision, but was confused by the process.  The routine is to present a resolution to approve the application, following which board members vote for or against.  That didn’t happen.  Instead, the director presented a document—obviously prepared by IDA counsel—headed: “A RESOLUTION DENYING THE PROVISION OF FINANCIAL ASSISTANCE BY THE RIVERHEAD IDA…”  All Board members present then voted in favor.  

How did this happen?  I attended the only prior meeting at which this application was discussed, and there had been no public meetings since.  Board discussions in between would have violated the Open Meetings Law.  Yet—some person or persons, in advance, decided to draft a resolution which plainly telegraphed that the application was being denied.  

When I asked Tom how this came to pass, he replied, “That’s a very good question.”  He offered no answer, then or ever.

I have a pretty good idea what happened and who made the call, but won’t speculate here because the details don’t matter.  As I wrote to the two Town Board members who nominated and interviewed me for the IDA board: “Make no mistake: I’m happy with the decision.  However, the fact that the board did a total about-face between the public hearing and today’s vote isn’t right. The board clearly conferred, discussed, and decided…in secret.  That’s not supposed to happen.”  In fact, it violates state law.

Through my service on the IDA, I later learned that decisions are also made without the input of IDA board members…at least, not all of them.

The Screening Myth

IDA supporters often say rejections are incredibly rare because they so carefully screen applicants before scheduling a hearing.  If that’s true — which I dispute — then how did John Wesley Village 3 get a hearing?  There was never any risk the apartments would be shut down, tenants evicted, or buildings and jobs picked up and moved out of town.  No conceivable benefit to the town from IDA tax breaks here was ever suggested.

The resolution itself (a third draft of which was circulating more than a week prior to the meeting at which the matter was up for a vote) said in part: “The repairs listed…should have been performed on a routine basis and paid for from existing established funds…available to the Applicant;”  “The change in ownership of the Project…does not constitute a public purpose for which Agency inducement is appropriate;”  “This expense serves no public purpose which requires Agency involvement to induce this current Application and Project.”  

Further—on one of the draft resolutions, someone had penciled in “NO NEW JOBS.”

I was flattered, as the resolution essentially repeated the laundry list of objections I’d made at the public hearing, but dismayed that so much time, energy and money had been wasted…by the applicants, as well as by the agency.  In any case, it wholly disproved the claim prospective applicants are so carefully vetted the IDA almost never needs to say “no.”

Requests for Information

Notice of the February 5John Wesley Village 3 hearing was published January 25.  I saw an agenda on the IDA website and electronically submitted a FOIL request three days prior.  On January 29, the IDA responded: “The estimated time for a response in whole or in part will be the end of March 2018.”

The info about this proposed IDA tax award would have reached me well after the hearing, after the public comment period had closed, and after the agency had acted on the application.  

The stated excuse was pro forma: “the necessary time to generate the records for submission, the limitations of a one staff member and the reporting period of the Agency.”  Others report similar experience.

However, I’d asked only for documents which already existed, none requiring preparation.  This was confirmed at the hearing, when I asked if Board members had received a CBA (cost-benefit analysis) on this project. They had.

The public is entitled to receive this info to become informed about how tax dollars are spent…BEFORE the window for public comment closes, and obviously before the vote takes place.

The Files

After joining the IDA Board, I asked to review files on three projects to “get up to speed.”  I coordinated with the executive director to arrange a time, and came to the agency’s nice new office on East Main.  

On my previous outing—via FOIL request as a concerned taxpayer—I was instructed to meet the director at Town Hall.  On arrival, I was instead greeted by IDA attorney Dick Ehlers, who put me at a table in the main corridor with the massive files I’d requested.  When I asked why I couldn’t examine the files in their nice office down the street, he said only “I think this is a better place.”  Dick proceeded to sit nearby, read, and chat with people passing by—as though he had nothing else to do—for the entire two hours it took me to study the project files.  (I never checked, but presume he billed the agency at his usual rate.)

At the IDA office a couple of months later as a board member, I was surprised to find Chair Tom Cruso was my host/babysitter.  He steered me to a table with a stack of project files, then sat at a desk nearby.  We had a nice chat when I finished, and Tom asked if I’d like a tour of the office.  I said I’d be delighted, and he proceeded to show me around the entire space.  I thanked Tom for the tour and the access to files, and went on my way.

I hadn’t discussed with Tom what was missing. The large ground-floor office was lined with long, low bookshelves…which were empty.  The spacious second-floor file room was equipped with tall, heavy-duty steel shelving units…and all were empty.  I knew the agency had dozens of active projects on the books—a consequence of abatements which typically last 10 years or more—and that there were many more archived projects, but none were present.  Every IDA file I’d ever seen was a stack of papers in a red, expandable legal folder, and they probably averaged 6-8” thick…but the only files in the office were the three I’d asked to review.

That’s when I began to understand why FOIL requests take so long, why agency reporting seems so inefficient and is often tardy, and why the IDA website is perpetually out-of-date.

The most recent agency operating budget, posted under “2023 Disclosures,” was printed in March 2022, but shows actual data only through October 2021, with the balance of that year estimated.  And, of the several specific abatements I’ve referenced or discussed in this column, none are mentioned on the agency’s “Projects” page.

Guidance and control of IDA activities appear to happen elsewhere.  Accountability seems non-existent.

As a board member, I asked where files were kept, but never got a straight and satisfactory answer.  I inquired about off-site backup of agency records and was assured “I.T. has that covered.”  Personally, I don’t believe that agency project records were ever digitized…meaning they couldn’t be backed up offsite, by I.T. or anyone else.

For my own business, I have a shoebox-size device that automatically scans, in high-resolution color, thousands of pages an hour.  Significantly, OCR (optical character recognition) makes all scanned documents electronically searchable in a heartbeat; the administrative and research benefits are huge.

Perhaps more relevant: a FOIL response can be easily prepared, and distributed—to as many people as have filed requests—immediately, by pushing a button, and at negligible cost.  Most modern agencies, of course, allow (or require!) that applications be completed and submitted online, so there are no paper records at all.

Office Hours

Once, with a public hearing imminent, I stopped by the IDA office to ask whether I could look at the file and perhaps take a quick photo of the cost-benefit analysis.  I drove to the W. Main address, found the office upstairs, and knocked on the closed door; my timing was off—no answer.  

Curious, I stopped by another half-dozen times over the next few months, always on weekdays and always between 9-5.  No luck.  On my last try, I walked in the open door of an office across the hall, and asked a worker there if she knew when I might catch the IDA executive director.  She glanced back at a co-worker, they exchanged eye-rolls, and then said “she’s usually not here in the afternoons.”

Shortly thereafter, the agency moved its office to the present East Main Street location. I tried that 3 or 4 times, but couldn’t get the timing right; that door was always locked, too.

With no files and no staff, I couldn’t help but wonder why the IDA maintains a physical office at all.

The ABO

All IDAs in NY are governed by the Authorities Budget Office, based in Albany.  Immediately on joining the board, I signed up for ABO’s remote training for new IDA appointees statewide.  By the time the first available session rolled around, I’d already served for two months.

The training was well-organized and informative, discussing everything from IDA mission statements to website requirements. (I couldn’t help but laugh at that one.)  We were educated on our role as fiduciaries, how to gauge performance, and the importance of an ethics code.

It was a solid orientation…but I had questions that weren’t answered, and that didn’t seem appropriate to ask in that public forum.  Our instructor had encouraged us to contact the ABO anytime for advice and assistance;  a week later, I directed a confidential letter to the ABO —as a sitting IDA Board member—seeking guidance on 10 specific issues I’d witnessed.  These included:  

• Failure to investigate need   [the meaningless letter from Browning’s mortgage broker]
• Decisions out of public view   [the John Wesley Village denial]
• UTEP (Uniform Tax Exemption Policy) ignored   [double benefits to the brewery]
• Director recourse when information is insufficient   [ABO training instructed members to simply ask that a vote be tabled.  I watched the board vote on a mortgage refinance when no one knew the terms and counsel couldn’t provide, but claimed “bank pressure;”  the board chairperson refused to postpone.]

I informed the ABO that I could document each of the 10 issues reported.  A week later, I received this unsigned letter from info@abo.ny.gov:

Mr. Simms,

Thank you for sharing your concerns concerning the Riverhead IDA. Our office will review the items enumerated in your attachment and provide feedback as time permits.

Thank you.

It’s now been over five years, but that was the last I heard from the ABO.  So much for government oversight.

Conclusion

At one IDA hearing I attended before joining the agency, I told board members during public comments: “You don’t have a tax exemption policy; you have a tax exemption habit.”  I stand by that statement.

Politicians and others who reflexively claim “IDA tax abatements don’t cost taxpayers any money!” are either grossly misinformed…or lying.

RCSD Board President Colin Palmer recognizes that this isn’t just a Riverhead problem, and recently called for all IDAs in the state to be shut down. He’s not wrong. 

My personal knowledge, however, is limited to the operation of Riverhead’s own IDA;  I’ll therefore restrict my recommendations to this one local agency:

1. Halt all new applications for tax relief.
2. Hire an outside auditor to review all active abatements, examine client performance, and claw back taxes due (including exempted sales tax) wherever applicant promises haven’t been kept or obligations haven’t been fulfilled.
3. Shut it down.

Development won’t be impacted, and the town’s fiscal health will improve.

Read the third essay here.

Larry Simms, a former South Jamesport resident, served on the board of directors of the Riverhead Industrial Development Agency in 2018, after several years as a frequent critic of the agency’s operations. He lives in Pittsburgh, Pennsylvania.