Riverhead IDA board member lashes out at school district’s lawyer during public hearing

The tension that’s been building between the Riverhead school district and Riverhead Industrial Development Agency over property tax exemptions was on full display at Monday’s RIDA meeting, where one RIDA board member lashed out at the school district, accusing it of hating subsidized housing and failing to control its own budget.

School district officials and teachers have been increasingly vocal in its criticism of the RIDA, complaining that the economic development incentives offered by the IDA to developers and businesses deny the district of significant property tax revenues. IDA board members counter that the agency’s incentives work in the long term to increase property tax revenues by inducing development and expansion in the town. 

In September, Riverhead Board of Education President Colin Palmer called on the RIDA to voluntarily stop exempting school property taxes as part of the agency’s inducement offerings. District officials and the teachers union have come out in support of legislation pending in Albany that would prohibit industrial development agencies from exempting school property taxes.

On Monday, an attorney for the Riverhead school district raised questions during a public hearing on the application of Riverhead Housing, owner of the RiverPointe Apartments at 821 East Main Street. He didn’t get very far. 

Riverhead IDA Executive Director Tracy Stark-James was answering the lawyer’s questions about a cost-benefit analysis for the proposed project, when RIDA Chairperson James Farley interrupted to say she didn’t “need to jump into specifics here.”

“Let the man continue with what other demands he has,” Farley told her.

“No demands. Just asking questions,” replied the school district’s lawyer, Anthony Fasano, a partner in the Farmingdale-based Guercio and Guercio law firm. 

Fasano tried to continue with his questions, but was interrupted again, this time by RIDA board member Lee Mendelson, who is also an attorney..

“You know, I’m actually gobsmacked that you’re here grandstanding this evening,” Mendelson told Fasano. 

“The proposed PILOT is more than what is currently being paid,” Mendelson said, referring to the proposed payment in lieu of taxes detailed in the Riverhead Housing’s application for assistance. “And there are no additional units being added to the project,”  Mendelson continued. The increase “obviously” benefits the school district, he said.

“What I’m curious about is the fact that, as you’re aware, this is a project that deals with subsidized housing. And I’m curious as to why the Board of Education or the Riverhead Central School District hates subsidized housing, because that’s the only reason I can see that you want to grandstand,” Mendelson told Fasano.

The property in question is a 135-unit low-income apartment complex on East Main Street. According to the application, all the apartments are subsidized under the Section 8 program. Residents pay 30% of their income towards rent, while the Section 8 subsidy pays the rest. 

The complex  was built around 1961 and was last renovated in 2006, with the renovation at that time financed with Riverhead IDA bonds. The property is being transferred from Riverhead Village Preservation, L.P., which took title in 2005, to Riverhead Housing L.P. Both are single-purpose entity affiliates of The Related Companies, an international real estate company headquartered in New York City. 

Riverhead Housing will acquire the property and partly finance proposed renovations and improvements to the apartments, common areas and exterior with mortgage-backed tax-exempt bonds issued by the Riverhead IDA Economic Job Development Corporation in the approximate amount of $31.8 million, not to exceed $37 million. The bonds are “conduit debt,” meaning they are issued by an authority to finance a project for a third party. According to the State Authorities Budget Office, the authority is the issuer of the debt, but has no obligation to repay the debt beyond the resources provided by the third party. 

The Riverhead IDA Economic Job Development Corporation held a hearing on the proposed bonding on Oct. 23 and, at its meeting Monday evening, held immediately after the Riverhead IDA meeting, the RIDA Economic Job Development Corporation approved a resolution authorizing the issuance of the tax-exempt bonds.

Separately, Riverhead Housing is also seeking financial assistance from the Riverhead IDA, including a real property tax abatement based on a “10% shelter rent calculation.” That abatement is different from the standard property tax abatement offered by the Riverhead IDA. It is not based on the property’s assessed value. Rather than calculating the abated tax amount as a percentage of the property’s tax assessment — which is the way the standard abatement works — the proposed property tax amount is calculated at 10% of the “net shelter rent,” a sum equal to rent revenues less utility costs. According to Riverhead Housing’s application, the company will pay just over $390,000 in year one; the amount will increase after that as rents increase. The current property tax bill on the property is $324,787, according to town tax records.

Since the proposed PILOT (payment in lieu of taxes) is more than the current property tax bill, and since the applicant is not adding more apartments — which could increase the number of students enrolling in Riverhead schools — Mendelson criticized the attorney for the school district for raising objections or questioning whether the IDA should grant the assistance being sought. 

“What I’d like to do is ask you a few questions,” Mendelson said. He then posed questions based on misleading or incorrect statements.  

“What is the school district doing about the 1,400 or so students that live outside the school district and yet are educated by the Riverhead Central School District?” Mendelson asked, referring to students who live in the portion of the school district that lies within the Town of Southampton. That area encompasses the hamlets of Flanders, Riverside and Northampton.

While the hamlets of Flanders, Riverside and Northampton are outside the Town of Riverhead, they are not outside the Riverhead Central School District as Mendelson stated.

“What steps has the district taken to get rid of the compact that exists between Riverhead and Southampton, that is ancient at this point. As far as I can tell, they haven’t taken any steps to cancel that compact,” Mendelson said. 

A compact is an agreement, a contract.. There is no agreement between the Riverhead Central School District and the Town of Southampton, which has no role in education, or with any other school district requiring RCSD to educate students who live in Flanders, Riverside or Northampton. 

The Riverhead Central School District was formed in 1956, when the Riverhead Village Union Free School District consolidated with 10 other smaller school districts, including the Flanders Common School District. Riverside was already part of the Riverhead Village school district — and had been part of the Riverhead Village district since the Civil War era, according to “Riverhead: The Halcyon Years” by the late Thomas Stark, of Aquebogue. 

The consolidation that established the Riverhead Central School District was the result of a referendum approved by voters in the 11 affected school districts in May 1956. The consolidation took effect July 1 of that year.

District boundaries — including school, fire and ambulance districts often cross town lines. For example, the Riverhead Fire District encompasses the hamlets of Riverside and Northampton. Portions of Riverhead Town lie within the boundaries of the Mattituck-Cutchogue and Shoreham-Wading River school districts.

Some town officials have argued that the Riverhead school district should work to get “Southampton” to educate the students who live in the Town of Southampton, which would, they say, alleviate overcrowded schools in Riverhead and lower property taxes. Council Member Bob Kern, a former Riverhead IDA board member and the current Town Board liaison to the IDA, has made that argument on several occasions. 

Under current N.Y. State Education Law, school district boundaries may be changed by the order of the District Superintendent of Schools, but only with the written consent of each board of education. Each school board would have to pass a resolution consenting to the change. Then a boundary alteration request, with copies of the draft order, the board resolutions and other required information must be submitted to the State Education Department. After review, a final order is prepared by the State Education Department’s counsel and signed by the commissioner of education. 

To make the changes to the Riverhead school district’s boundaries suggested by Kern and Mendelson, the Riverhead school board and the school board of at least one other district adjoining the Riverhead district would have to approve it. 

None of that has happened. Kern said in a phone interview Wednesday he thought there was one meeting at some point in the past with the Town of Southampton. Despite his advocacy for the boundary alteration as a solution to Riverhead school district’s overcrowding problems, he did not have a clear understanding of how the alteration would be accomplished. 

“My understanding is [that] it’s incredibly difficult. There’s some office in New York State that would be in charge of doing that. I forget what it is because this was almost two years ago,” he said. “I know the Town of Riverhead went to a Southampton Town work session to ask about it,” Kern said.

At Monday’s IDA meeting, Mendelson asked the school district’s lawyer what the district’s stance is on the proposed redevelopment of Riverside. He said the redevelopment could mean the construction of 2,000 new housing units. “Where would a student be educated?” he asked.

Southampton Town, after a community engagement process as well as a review process required by the State Environmental Quality Review Act, in 2015 adopted an overlay zone in Riverside that would allow for multistory, multifamily housing in the hamlet. The zoning could result in as many as 2,267 residential units under the Theoretical Development Scenario analyzed in the impact statement. The eventual implementation of the plan is contingent on the construction of a wastewater treatment plant. The impact analysis found the maximum buildout would add 238 students to the Riverhead school district. School district officials, including the then-school board president, participated in the SEQRA process and spoke at the hearings, raising concerns about additional students and funding to accommodate increased demands on the district — as district officials have done at hearings on proposed new residential housing in Riverhead Town.

Mendelson also said RiverPointe representatives stated that students waiting at the school bus stop outside the apartment complex were not all residents of the complex. 

“What steps has the school district taken to find out where those students are coming from and whether or not they are being educated as a member of the district?” Mendelson asked. 

Mendelson then misrepresented the school district’s budget growth over the past five years.

“Five years ago, the school district had a $90 million budget. Now it’s $190 million,” Mendelson said. 

Five years ago, the school district’s budget was actually $140 million, not $90 million. In fact, the Riverhead Central School District’s annual operating budget has not been under $100 million since before the 2010-2011 school year, when it was nearly $110 million. State aid to the school district has increased substantially since then as well, with the state recently restoring full foundation aid funding. (Foundation aid was cut during the “Great Recession” of 2007 to 2009.)

Mendelson continued. “The district still needed to increase the school taxes by two and a half percent at the last budget,” he said. That was also false. The school district’s property tax levy actually went down by 1.7%, thanks in part to a 21% increase in state aid this year and the use of reserves to offset expenses.

“You’re receiving $100 million more per year than you did five years ago. And yet you come up here when we have a proposal dealing with improving a subsidized housing project to complain,” Mendelson said.

Confronted with discrepancies between his statements and the facts of the district’s boundaries, and budget numbers, Mendelson said in a phone interview Wednesday that he misspoke.

“Referendum, compact. You can call it what you like. Referendum probably would have been a better word to use, but I used compact,” Mendelso said. 

As far as his statements that the district is educating students who don’t live in the district, Mendelson did not yield. “They do not live in the town,” he said, continuing to conflate the town and the district, which are separate legal entities with different boundaries.

Of his misrepresentation of the five-year growth in the school district’s budget, Mendelson said,

“You’re saying I made a mistake. Won’t be the first time. Won’t be the last time,” he said. 

“I don’t have the facts in front of me. I don’t have them. I’m taking your word for it. And if I am off by a few years from when it was 90 to 140 to 190, the school budget has increased considerably over the last several years. In fact, you know, the school budget is larger than the budget for the town,” he said. “And the school educates 5,700 or so students are 5,400 — again, I don’t have it in front of me— students for $190 million and the town takes care of a town of 35 or 36,000 for $111 million, based upon the new budget. The point was not about the exact numbers,” he said.

“If I’m wrong, I’m wrong. It wasn’t done with malice. It was done to make a point,” he said. He said he still considers the increase in school spending “outrageous.”

Mendelson said he “got heated” Monday night when “the attorney for the school board had suggested that members of the Riverpoint View Apartments [sic] should sign some sort of agreement to not have any children or not increase the amount of children they were going to have. That to me was one of the most outrageous things that I’ve ever heard. Absolutely outrageous to suggest that they signed something along those lines,” he said. “Not only was it impossible, it was, to me, downright racist.”

Fasano on Monday asked whether the district can be assured that the number of students living in the complex will remain at the current level over the proposed 30-year term of the PILOT. 

Currently the district spends $1.8 million to educate students who live at the RiverPointe complex, Fasano said. At the end of the 30-year pilot agreement, the annual tax payment will be $686,000, he said, drawing on numbers in the proposed PILOT submitted by the applicant. 

He also questioned why the PILOT would be for 30 years when the bonds will be repaid over 17 years.

Palmer, the school board president, said Fasano was there Monday to obtain information because the RIDA has not been forthcoming. “Mr. Fasano was incredibly professional. He did what a public hearing is meant to do,” which includes providing the public with information it’s entitled to, Palmer said..  

Palmer said the school district does not object to the RiverPointe project. 

“I think it’s actually that these are improvements that need to be done,” he said. “However, I don’t know why a company — and this is and this is my own personal feelings, not the feelings of the school board — but I don’t know why a large housing organization like this should be making so much of a profit off of the people who live in this housing,” he said. 

“My main question is, who, at the end of the day, is truly benefiting from these IDA abatements? Is it the people who live there? Is it the people in the community? Or are they out of town venture capitalists, or whoever is actually investing in these companies, who just see our community, this housing, as figures in an Excel spreadsheet?”

The IDA did not take any action on the application of Riverhead Housing at the conclusion of the hearing.