New York City Industrial Development Agency
(IDA) provides tax breaks to businesses, the impact is felt in city and state coffers. But that’s not where the IDA will direct “participation payments” under a new plan in which taxpayer money will effectively be shifted away from public control.
At the Agency’s last board meeting, it approved subsidies for the
office development and its tenant Major League Baseball, and also
cleared the way for a new type of profit-sharing agreement. The
Vornado Realty-led project states
that the company, “has agreed
to provide a participation in the cash flows of the property to the Agency.” Per the agreement, once Vornado achieves an 18% internal rate of return on its investment, it will pay the IDA 1% of all excess cash flows. This means taxpayer money will subsidize the project and, at a certain point, Vornado may return part of it – except the money will go to the IDA to use at its discretion rather than return to taxpayers.
The amount of funding this agreement brings into the IDA may be small, but as we stated in our
public hearing testimony
on the Vornado subsidies, this profit-sharing proposal sets a troubling precedent of shifting tax dollars to an agency subject to limited legislative and public oversight.
Practically all of the IDA’s funding comes from project fees. According to the Agency’s most recent
, fee income paid by applicants accounted for 99.6% of its operating revenues in Fiscal Year 2007
This creates an incentive for the IDA to prioritize large firms that can cough up the large fees over the need to prudently use New Yorkers’ tax dollars.
Interestingly, the IDA has recently been listing application fees as a benefit to the city (see page 1 of Vornado’s
for an example)
But, like any revenues brought in through the new profit sharing plan, this money never makes it to the city’s coffers and instead stays within the Agency.