A New Way to Cloud Transparency

by

When the 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 “Harlem Park” office development and its tenant Major League Baseball, and also cleared the way for a new type of profit-sharing agreement. The cost/benefit analysis for this 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 audited statements, 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 analysis 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.

One Response to “A New Way to Cloud Transparency”

  1. Maybe some subsidies for MLB are not meant to be « Says:

    […] MLB Network is supposed to serve as the anchor tenant in the “Harlem Park” office tower that Vornado Realty Trust wants to build on 125th St. and Park Ave. In March the city […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: