How the New Rochelle IDA Works…or Doesn’t Work…And for Whom

 

[Editor’s note:  This series includes a Glossary to help readers understand the city agencies, incentives, and subsidies that are fueling development in downtown New Rochelle.  Links to the Glossary are in red; links to outside sources are in green.]

The New Rochelle Industrial Development Agency (IDA) is the key local agency that authorizes public subsidies to developers. These subsidies generally consist of a package of tax exemptions intended to encourage real estate projects that will promote local business growth and job creation. When developers pay less taxes, other taxpayers often need to pay more. What do local taxpayers get in return for subsidizing these tax breaks?

New York State authorized the creation of local Industrial Development Agencies (IDAs) in 1969.  According to the NYS Comptroller’s Office:

Local governments establish IDAs, a type of public benefit corporation under State law, to encourage local economic development projects by offering financial incentives to private companies with the goal of increasing job opportunities and overall economic welfare in the area. … In general, IDA projects are eligible for exemptions from property taxes, mortgage recording taxes, and sales taxes on some purchases. … IDAs generally fund their operations by charging fees to the businesses that are receiving their financial assistance. They do not impose taxes themselves. However, the tax exemptions they grant to their projects can reduce the tax base of local governments and school districts. This does not necessarily reduce the revenue received by these local entities, but it may result in increases to taxpayer’s bills. Therefore, it is vital that New Yorkers are aware of these costs along with the benefits realized by these authorities. (emphasis added)

The New Rochelle IDA (NRIDA) is described by the City in its 2022 Annual Financial Report (page 36) as:

…a public benefit corporation created by State legislation to promote the economic welfare, recreation opportunities, and prosperity of the City’s inhabitants. …  Members of the Agency are appointed by the City Council.  Agency members have complete responsibility for management of the Agency and accountability for fiscal matters. … The governing board of the Agency serves at the pleasure of the City Council and, therefore, the City is able to impose its will on the Agency. 

Since 2018, New Rochelle’s IDA has granted huge tax breaks for $2.5 billion in private development projects for three purposes:  to promote economic development (jobs), to enable projects that would not otherwise be feasible financially, and to “address the goals and objectives of the City.”   

Who runs the IDA?  How do they make their decisions about these enormous tax breaks?  And how does the public know if these incentives are meeting the  IDA’s goals and objectives?

The Mission and Tools of the New Rochelle IDA

The NRIDA is governed by a seven-member Board appointed by the City Council and is staffed by the city’s Development Department.  The Executive Director of the IDA, currently Adam Salgado, is also New Rochelle’s Commissioner of Development and the Deputy City Manager.  The Chair of the Board of the NRIDA is Kathleen Gill, the City Manager.  Ms. Gill previously served as Deputy City Manager, Chief of Staff to the City Manager, Interim Development Commissioner, and Corporation Counsel during the time that the Development and Planning Departments designed and the City Council authorized most of the city’s financial and development programs and tax breaks.  Funding for the NRIDA comes from fees charged to developers when they make their applications for benefits.

Two members of the IDA Board will complete their terms on February 28, 2024. The City Council will appoint their successors.

benefits.  Without verifying the developer’s cost data, NDC generally agrees with  the developer that without the requested benefits, the project would not be financially feasible. The IDA Executive Director then presents the request to the IDA Board for discussion and a vote in a public hearing. 

For starters, the total amount of the upfront sales tax exemption is significant, at 8.375% of building material costs (aka “hard costs”).  Hard costs are generally 40% of the total development costs, or about $1 billion on $2.5 billion in projects over the last six years.  Developers therefore saved (and taxpayers lost) 8.375% of $1 billion, or around $84 million. The City’s 30% share of this amount would have been about $25 million.

The mortgage tax is 1% of the amount of a mortgage.  Typically, 60% of costs for big real estate projects are financed with mortgages; 60% of $2.5 billion is $1.5 billion, so the mortgage recording tax exemption probably cost taxpayers (and saved the developers) about 1% of $1.5 billion, or $15 million.

The PILOT tax relief program discounts annual property taxes by 50% to 70%, on a graduated schedule, for 10 to 30 years. When the City grants PILOT tax relief, no effort is made to quantify the impact of the tax cuts on the City, County and Schools budgets and services over the many years going forward.  Tax increases for ordinary taxpayers, who in effect must compensate for the developer subsidies, also are not projected.  One justification for PILOT tax discounts is that they subsidize apartment operating costs, keeping rents low.  However, this is neither verified nor proven over time.  Low operating costs and high rents produce more profit for developers and investors.  It is ironic that the City does not forecast tax rates and municipal budgets in order to plan for the long term operation of a growing city, yet it takes at face value developers’ claim that they need long term contractual relief from property taxes. 

The gatekeepers of the IDA incentives

Incentivizing $2.5 billion in development projects in New Rochelle is a heady job, especially since the largest projects — the 28-story luxury and market rate high rise apartment buildings — are developed by major regional developers like RXR and Cappelli and funded by national lenders and investors.  Analyzing and questioning the financial constraints, resources and objectives of private national developers requires expertise in both private development and institutional finance.  NDC, the consultant that evaluates developer benefit packages, does not generally question the developers.  Nor does it advise New Rochelle’s IDA, though the IDA pays for its services.  In fact, at the end of its reports to the IDA the NDC states:  “it is expressly understood by all parties that NDC is not acting as your agent, advisor, municipal advisor, or fiduciary.  NDC may have financial and other interests that differ from yours.”

Why doesn’t the IDA hire a firm that can advise on the long-term marginal costs and benefits to the City of providing the UTEP benefits to developers?  Without such advice, the IDA is acting as a rubber stamp, furthering some but not all of the economic development goals of the City, and some but not all of the goals of the Department of Development, whose overriding mission is to add 10,000 apartments to New Rochelle’s housing stock. Who is advocating for New Rochelleans and their desire for local family-supporting careers in construction and affordable housing so that generations of families can live as a community in New Rochelle?    

With the current incentive packages, the City has given away  over $100 million dollars in one-time tax subsidies to developers since 2017. This “investment” in development comes with the likely erosion of the property tax base through the PILOT program, and the sale of most or all public land – the public parking lots and, potentially, Peter Bracey apartments, the historic Pugsley Hollow public housing in downtown New Rochelle – to private developers.   

In its recommendation to the IDA for approval of Cappelli’s tax subsidies for its Huguenot Towers projects, NDC counts the loss of public lands as a benefit:  “The Project will play a contributing role in the City’s vision for redevelopment of the downtown area and will ensure that the City’s goal of developing city-owned land is met.”

Is this really what the citizens of New Rochelle want or need?  Is the IDA protecting the interests of the community, or shoveling tax dollars into the pockets of wealthy developers?  Where is the transparency and accountability that will assure New Rochelle residents that the city’s government is on their side as its skyline is transformed by mushrooming luxury real estate?

There is currently a debate in the New York State legislature over proposed requirements for a more rigorous review of UTEP programs so that they are not an automatic tax give-away.  State Sen. James Skoufis, an Orange County Democrat, chairs a committee that found that IDAs may be giving away unnecessary tax breaks and other public subsidies to companies that would build their projects without them. 

“…There needs to be more ‘scrutiny and due diligence’ when determining whether a project would proceed without taxpayer-funded incentives,” the Senate report said.  “The committee takes a strong position that attempts to help a community’s economy should not come at the expense of the individual taxpayer, schools or municipalities.  The truth behind an applicant’s claims and an agency’s analysis of returns on investment (including accurate depictions of job retention and growth) should be fully explored and investigated.”