Deal Makers & Revenue Genrators: The Evolution of Build and the
Industrial Development Agency's Financing Roles for the City
November 2015
Deal Makers & Revenue Generators:
The Evolution of Build & the Industrial
Development Agency's Financing Roles for the City
PDF version available
here.
Summary
New York City created the Build NYC Resource Corporation in 2011
to restore access to the tax-exempt bond market for nonprofit
organizations in the city. The city’s Industrial Development
Agency had issued tax-exempt bonds for nonprofits as well as
for-profits until 2008, when Albany failed to reauthorize the
nonprofit bonding role for industrial development agencies
across the state. Build and the city’s Industrial Development
Agency are both subsidiaries of the New York City Economic
Development Corporation and generate millions of dollars in
profits annually, some of which can be spent by the parent
corporation outside the city’s procurement rules and without
oversight from the City Council.
IBO has examined the evolution of the roles of Build and the
Industrial Development Agency in financing economic development
deals for the city and the uses of the revenues the two entities
generate. Among our findings:
-
As a local development corporation, Build has been able to
finance a wider range of projects than are eligible under
the legislation authorizing the Industrial Development
Agency, which now focuses on economic development deals that
are mostly based on tax breaks.
-
Build benefits borrowers, who can issue debt through the
organization at a lower cost and with fewer restrictions
than bond issuers created under state industrial development
agency legislation.
-
The most frequent users of Build are private and religious
schools, which accounted for 31 deals totaling $660 million
in bond proceeds since 2011. These entities had been
frequent borrowers through the Industrial Development Agency
but after being shut out from 2008 through 2011, they have
increased their activity under Build.
-
More than half of the bonds issued by Build have been used
to refinance existing debt rather than fund new projects.
This allows borrowers to take advantage of lower interest
rates, but does little to add economic activity while still
costing the federal, state, and city governments tax
revenue.
From fiscal years 2002 through 2014, Build and the Industrial
Development Agency committed over $84 million in revenue to fund
Economic Development Corporation projects and consultant
studies. (A full list of projects funded by the two agencies
during the 2002-2014 period is included in the report.)
Build and the Industrial Development Agency play important roles
in helping to finance economic development and job creation in
the city, yet they are not city agencies. Their surplus
revenues, which totaled $56 million as of 2014, are off-budget
and allow a Mayor, who controls the agencies’ boards of
directors, to pursue initiatives without the same level of
transparency that these projects and studies would be subject to
if they were funded using money from the city budget.
Introduction
In November 2011, the city incorporated a
new local development corporation named Build NYC Resource
Corporation (Build). According to press releases announcing its
creation, Build had a simple mission: to offer the city’s
nonprofits access to the tax-exempt bond market for their
capital financing needs.1
For most of the three decades prior to Build’s creation, the
city’s Industrial Development Agency (IDA) had offered
nonprofits and private companies access to private activity
bonds—tax-exempt or taxable bonds (depending on their use)
issued on behalf of private entities—in return for doing
business in New York City. The IDA, however, lost the ability to
issue bonds on behalf of nonprofit organizations in 2008 after
the state Legislature did not renew this aspect of the agency’s
authority. The city hoped that Build could restore nonprofits’
access to bond markets without requiring the Legislature’s
approval. In the years since, Build has not only begun to issue
bonds on behalf of nonprofit groups, but has also become the
city’s sole issuer of private activity bonds for city economic
development projects.
In this fiscal brief, IBO evaluates how the city has used Build
since its creation and why the organization has played an
increasingly important role in the city’s economic development
agenda. IBO examines the state law that allowed the city to
create Build, and how its existence benefits both borrowers and
the city’s economic development agency, although at times at the
expense of the city’s general fund. We also explore Build’s and
the IDA’s finances to understand how they generate income from
fees and how the New York City Economic Development Corporation
(EDC), a not-for-profit corporation under contract with the city
that administers both Build and the IDA, uses the profits to
fund discretionary activities ranging from consultant studies to
loan programs—all outside the city’s normal appropriation
process. Finally, IBO considers the broader implications of
Build in the context of local, state, and federal policy.
Background: Legal Underpinnings of IDA and Build
In 1969, the New York State Legislature passed a law that
allowed cities and counties to create industrial development
agencies (IDAs). Government officials hoped that IDAs would help
retain the state’s industrial base at a time when companies were
leaving for locations in the South and abroad. IDAs were
designed to lower the cost of doing business in New York by
offering companies a variety of tax breaks along with access to
the tax-exempt bond market through the issuance of private
activity bonds (see sidebar). The IDA enabling law requires each
IDA to be approved by a separate act of the Legislature.
Following another round of state legislative approval, New York
City established its IDA in 1974.
What Are Private Activity Bonds?
Private activity bonds are a form of
municipal debt in which more than 10 percent of the bond
proceeds are used by a private organization. These bonds must be
approved by a public or quasi-public entity, often referred to
as a conduit issuer. The private borrower is responsible for
repaying principal and interest; the issuing agency is not on
the hook should a borrower default. Originally intended to
encourage industrial development, private activity bonds are now
used to finance projects as diverse as hospitals, airports,
charter schools, and private toll roads.
Private activity bonds can be sold on either a taxable or a
tax-exempt basis, though most bonds sold through the IDA and
Build are tax-exempt. Federal tax law limits the issuance of
tax-exempt private activity bonds to a list of “qualified
private activities,” shown in the table below. These uses
include infrastructure projects that are publicly owned but
operated by the private sector (known collectively as exempt
facilities), affordable housing projects, facilities owned by
small manufacturers (called small issue bonds), and financing
for not-for-profit groups with 501(c)(3) status.
Borrowing on a tax-exempt basis allows companies to realize
significant debt service savings relative to what they would pay
on taxable bonds or private loans because the interest paid to
bondholders is not subject to federal, state, or local taxes,
therefore allowing for lower interest rates. The Internal
Revenue Service limits the amount of tax-exempt private activity
bonds that each state can issue in a given year, a figure
referred to the “volume cap.”2
Bonds issued for certain qualified activities, however,
including airports, docks and wharves, highways, and 501(c)(3)
organizations, are not subject to the cap.
Nearly all of the IDA and Build’s bond transactions are for
qualified activities and therefore are exempt from the federal
government’s annual cap on private activity bond issuance. This
allows EDC to transfer some of the IDA’s excess bond capacity to
the city’s Housing Development Corporation to support the
construction of affordable housing, which is subject to the
volume cap.
In recent years, governments in the New York region have begun
to use private activity bonds to help finance their growing
infrastructure needs. New York City has sold private activity
bonds to finance the construction of airport terminals and waste
transfer facilities, while the New Jersey Economic Development
Agency recently issued bonds to finance a portion of the
replacement Goethals Bridge. Private activity bonds are expected
to be a part of the financing of the new Tappan Zee Bridge and
the renovation of La Guardia Airport. |
|
Types of
Projects That Qualify for
Tax-Exempt
Bonds Under Federal Law
|
|
Type of
Activity
|
Subject to Volume Cap
|
|
Exempt Facilities
|
|
|
Publicly Owned Airports
|
No
|
|
Publicly Owned Docks and Wharves
|
No
|
|
Publicly Owned Mass Commuting Facilities
|
Yes
|
|
Water Facilities
|
Yes
|
|
Sewage Facilities
|
Yes
|
|
Publicly Owned Solid Waste Disposal Facilities
|
No
|
|
Privately Owned Solid Waste Disposal Facilities
|
25% Exempt
|
|
Qualified Affordable Residential Rental Projects
|
Yes
|
|
Local Electric Energy or Gas Facilities
|
Yes
|
|
Local District Heating or Cooling Facilities
|
Yes
|
|
Hazardous Waste Facilities
|
Yes
|
|
High-Speed Intercity Rail Facilities
|
75% Exempt
|
|
Environmental Enhancements of Publicly Owned
|
|
|
Hydroelectric Generating Facilities
|
No
|
|
Public Education Facilities
|
No
|
|
Green Building and Sustainable Design Facilities
|
No
|
|
Highway or Surface Freight Transfer Facilities
|
No
|
|
Mortgage Bond
|
Yes
|
|
Veterans’ Mortgage Bond
|
No
|
|
Small Issue Bond
|
Yes
|
|
Student Loan Bond
|
Yes
|
|
Redevelopment Bond
|
Yes
|
|
501(c)(3) Bond
|
No
|
|
New York City
Independent Budget Office
|
Over time, however, local governments
across New York State came to use the IDAs for a wide range of
corporate retention and attraction projects, most of which
extended beyond the industrial sector that gave the agencies
their name. (See IBO’s 2011 report for more information about
how the New York City IDA has evolved over time.)>
In 1986, the state Legislature further
expanded the power of IDAs by granting them the ability to sell
private activity bonds on behalf of not-for-profit groups.
(Under state law, these projects are known as civic facility
bonds, while federal law refers to them as 501(c)(3) bonds. In
this paper, the terms are used interchangeably.) Federal law had
long permitted nonprofits to finance capital projects using
tax-exempt private activity bonds, but New York had never
permitted IDAs to enter this market.
Unlike other provisions in the IDA enabling law, however, the
civic facility authority was written to expire after three
years, requiring lawmakers to reauthorize the provision. The
Legislature renewed the civic facility authority three years
later and routinely did so without incident until 2008. When the
civic facility authority came up for renewal that year,
lawmakers attached several reform proposals to the bill,
including a mandate that IDA beneficiaries pay their workers a
prevailing wage. These amendments were opposed by business
groups and many local governments, including New York City’s
under then-Mayor Michael Bloomberg. Unable to reach agreement on
the proposals, the Legislature allowed the entire
reauthorization bill to die without coming to the floor for a
vote. As of the release of this report, the civic facility
authority has yet to be restored.
The state Legislature’s failure to renew
the civic facility authority left the city in a bind. Nonprofit
borrowers continued to have capital needs, even in the depths of
the recession, but the IDA lacked the legal authority to grant
them access to the tax-exempt bond market. The Legislature’s
inaction also jeopardized the fee income that the IDA earned
from nonprofit bond deals, which represented a significant and
steady source of the organization’s annual revenue. Unwilling to
wait for the Legislature to act, many nonprofits sought out
other sources of capital. Some turned to private loans. Others
sold bonds through alternative government-affiliated issuers,
both in New York and outside the state.
The Creation of Build NYC Resource Corporation.
After more than two years of waiting, the city decided it could
no longer rely on the state Legislature to act. By that time,
the city and other municipalities around the state had
identified a loophole in state law that would allow the city to
restore nonprofits’ access to the tax-exempt bond market without
legislative approval.
The state’s not-for-profit corporation code allows municipal
governments to create local development corporations (LDCs) to
perform various functions on behalf of the public, including the
buying, selling, and leasing of public property and the issuance
of debt. LDCs are intended to spur development by “lessening the
burdens of government [while] acting in the public interest.”3
In other words, these quasi-public entities allow city and
county governments to sidestep restrictions placed upon them by
other areas of state law, ranging from constitutional debt
limits and balanced budget requirements, to transparency and
procurement rules.
According to the New York State
Authorities Budget Office, there are 299 active LDCs
statewide—20 of which are in New York City—including
organizations like the Brooklyn Navy Yard Development
Corporation and the Hudson Yards Infrastructure Corporation.
Most of these organizations act on behalf of the city and are
empowered to issue bonds or incur debt to finance their
activities. The Hudson Yards Infrastructure Corporation, for
example, issued bonds to finance the extension of the 7 subway
line. The Brooklyn Navy Yard Development Corporation manages
city-owned industrial space in the Brooklyn Navy Yard and uses
private financing sources to renovate and expand its facilities.
Due to the vague wording of the enabling law, however, it
appeared that LDCs were free to issue bonds for both public and
private purposes. The law permits LDCs “to borrow money and to
issue negotiable bonds, notes and other obligations” on behalf
of private real estate projects, even though private activity
bonds had yet to be used in New York State when the LDC enabling
law was written in 1962.4
It is unclear whether lawmakers at the time intended to include
bonds backed by both public and private revenue sources. The
open-ended nature of the law, however, created a loophole in
which a city could incorporate a conduit bond issuer as an LDC,
allowing it to once again issue private activity bonds on behalf
of not-for-profit groups.
In November 2011, the city’s EDC incorporated a new local
development corporation, Build NYC Resource Corporation, to do
just that. A press release announcing its creation said that
Build’s “primary goal is to facilitate access to private
activity tax-exempt bond financing for not-for-profit
institutions,” and suggested that it already had 20 nonprofit
projects waiting to be funded.5
Build Becomes City’s Exclusive Issuer for Economic
Development Bond Deals
From the start, however, it was clear
that the city envisioned Build as more than just a conduit
issuer for the nonprofit market. Build’s certificate of
incorporation called for the organization to issue bonds “to
promote community and economic development and the creation of
jobs in the nonprofit and for-profit sectors” and “to undertake
other projects within the City that are appropriate functions
for a nonprofit local development corporation.”
By including the for-profit sector in its certificate of
incorporation, Build was poised to take on deals that could
otherwise have been financed through the IDA, even though the
IDA never lost the ability to sell bonds on behalf of that
market. In addition to its mandate to issue private activity
bonds on behalf of nonprofit and for-profit entities, Build
offers mortgage recording tax waivers, similar to the IDA.
(Unlike the IDA, however, it does not award property tax
abatements and exemptions or sales tax exemptions.)
Despite these similarities, there are some key differences
between the IDA and Build. Because Build was organized as a
local development corporation under the state’s nonprofit law,
as opposed to a public benefit corporation under the state’s IDA
enabling legislation, Build deals are not subject to all of the
restrictions that pertain to some IDA-financed projects. The
legislation enabling the IDA requires it to establish a set of
rules called a uniform tax exemption policy (UTEP) to guide its
activities. These guidelines include policies on the events that
trigger the recapture of benefits, as well as the public
benefits that must be offered by certain projects receiving
financing. Unlike the IDA, Build-financed projects are not
required to follow the rules outlined in the UTEP, which gives
Build borrowers more freedom in their activities than
IDA-financed deals. Additionally, the IDA is specifically
precluded from offering bonds on behalf of housing developers,
while Build is not.
|
Differences Between IDA and Build NYC
|
|
|
NYC Industrial Development Agency
|
Build NYC Resource Corporation
|
|
Legal Organization
|
Public Benefit Corporation under IDA enabling legislation in New
York State General Municipal Code
|
Local Development Corporation under Section 1411 of the New York
State Not-for-Profit Corporation Code
|
|
What It Can Do
|
Issue tax-exempt bonds and award tax exemptions in compliance with state
law and Uniform Tax Exemption Policy
|
Issue tax exempt bonds without restrictions placed on IDA by
state law or Uniform Tax Exemption Policy; award mortgage
recording tax exemptions
|
|
What It Is Prevented from Doing Under State Law
|
Sell bonds on behalf of housing developers, nonprofits; exercise
powers of eminent domain; deviate from Uniform Tax Exemption
Policy without board approval
|
Award property tax abatements or exemptions
|
|
Funding
|
Self-funded through fee income
|
Self-funded through fee income
|
|
Staffing
|
Economic Development Corporation
|
Economic Development Corporation
|
|
Oversight
|
Mayoral-controlled board of directors
|
Mayoral-controlled board of directors
|
|
New York City Independent
Budget Office
|
NOTES: Light blue columns represent IDA bond transactions on behalf of the New York Yankees, New York Mets and the United States Tennis Association. Stadiums are not eligible private activities under federal law, but the IDA sold bonds using alternative structures to remain in compliance with state and federal rules. See endnote 6 for more information.
|
Closed IDA
Bond Transactions by Category of Borrower, 2001-2015
Dollars in thousands
|
|
Category
|
Projects
|
Total Issuance
|
Average
|
|
Social Services
|
59
|
$527,556
|
$8,942
|
|
Health Care
|
49
|
355,516
|
7,255
|
|
Small Manufacturing
|
42
|
174,583
|
4,157
|
|
Private/Religious School
|
36
|
778,175
|
21,616
|
|
Higher Education
|
14
|
573,525
|
40,966
|
|
Cultural Institution
|
7
|
84,175
|
12,025
|
|
Advocacy
|
6
|
79,175
|
13,196
|
|
Parking
|
5
|
311,690
|
$62,338
|
|
Stadium
|
5
|
2,702,925
|
540,585
|
|
Retail
|
4
|
111,500
|
27,875
|
|
Airline
|
4
|
2,192,160
|
548,040
|
|
Youth/Community Center
|
3
|
64,485
|
21,495
|
|
Hotel
|
2
|
65,000
|
32,500
|
|
Air Cargo
|
2
|
287,135
|
143,568
|
|
Stock Exchange
|
2
|
176,610
|
88,305
|
|
General Economic Development
|
1
|
3,695
|
3,695
|
|
Office
|
1
|
90,800
|
90,800
|
|
TOTAL
|
242
|
$8,578,705
|
$35,449
|
|
SOURCE: New York City Industrial Development Agency
NOTE: Table excludes bond transactions that were granted board
approval but never closed.
New York City
Independent Budget Office
|
|
Closed Build
NYC Bond Deals by Category of Borrower, 2012-2015
Dollars in thousands
|
|
Category
|
Projects
|
Total Issuance
|
Average
|
|
Private/Religious School
|
31
|
$659,967
|
$21,289
|
|
Social Services
|
18
|
207,457
|
11,525
|
|
Higher Education
|
6
|
149,340
|
24,890
|
|
Health Care
|
5
|
301,047
|
60,209
|
|
Charter School
|
4
|
79,205
|
19,801
|
|
Cultural Institution
|
2
|
31,795
|
15,898
|
|
Retail
|
2
|
31,100
|
15,550
|
|
Senior Housing
|
2
|
91,000
|
45,500
|
|
Recycling Plant
|
1
|
96,300
|
96,300
|
|
Office
|
1
|
119,200
|
119,200
|
|
Small Manufacturing
|
1
|
7,220
|
7,220
|
|
Student Housing
|
1
|
85,000
|
85,000
|
|
Youth/Community Center
|
1
|
42,300
|
42,300
|
|
TOTAL
|
75
|
$1,900,931
|
$25,346
|
|
SOURCE: IBO analysis of Build NYC Resource Corporation data
NOTE: Table excludes projects that were granted board approval
but never closed.
New York City
Independent Budget Office
|
Although Build is technically an independent organization, it
was clear that EDC intended Build to work in concert with the
IDA. The two organizations share an executive director and
mayoral-controlled board of directors, and they conduct public
hearings and board meetings at the same time. Both organizations
are staffed by EDC employees, and each pays EDC a management fee
in exchange for professional services.
With its broad mandate to serve both the nonprofit and
for-profit sectors and its less restrictive policies, Build has
become the city’s exclusive issuer of private activity bonds for
economic development.6
Even though the IDA never lost the ability to issue bonds on
behalf of for-profit organizations, it has approved just one
bond deal since EDC created Build, and none since September
2012. The IDA now focuses solely on economic development deals
mostly based on tax-incentive packages.
Change in Mix of Bond Deals.
In the
decade before Build’s creation, when the IDA was the city’s main
vehicle for issuing private activity bonds, the bulk of the
projects financed were for social service providers (24
percent), health care providers (20 percent), small
manufacturing firms (17 percent), and private and religious K-12
schools (15 percent). While these borrowers had the greatest
number of deals, by dollar value the greatest share of the IDA’s
issuance went to stadiums (32 percent) and airlines (26
percent), including passenger terminals and cargo facilities at
John F. Kennedy International Airport (JFK Airport).7
Since its creation, Build has also taken on some similar deals,
but not in the same proportions. Both by number of projects and
by volume, private and religious schools now account for the
largest share of Build deals (41 percent of all projects, and 35
percent of total volume). In fact, by volume Build has financed
nearly as many private school bonds in three and a half years
than the IDA did over the previous decade. In terms of number of
projects, social service organizations account for the second
greatest number of Build deals (24 percent), followed by higher
education organizations (8 percent). By volume, following
private and religious schools, 16 percent of Build’s total
issuance has gone to health care organizations, followed by
social service agencies (11 percent).
EDC has also used Build to begin selling bonds on behalf of groups of
borrowers that had never issued debt through the IDA. Build has issued
bonds on behalf of five charter schools. It has also sold bonds on
behalf of a variety of housing projects, including student housing at
Queens College and assisted living facilities; in contrast, Section
917(c) of the state’s General Municipal Law seems to indicate IDA cannot
finance housing development. According to the Economic Development
Corporation, the IDA can issue bonds on behalf of for-profit developers
building assisted living or student housing projects, but it has not
done so during the period studied in this report.
In addition to these borrowers, Build’s board has approved four
large exempt facility bond deals for privately operated
infrastructure projects, which the IDA never lost the ability to
do. So far, however, only one of the four deals has closed. One
applicant, Delta Airlines, won approval for up to $210 million
in tax-exempt bonds to finance the expansion of their terminal
at JFK Airport in April 2013 but chose instead to finance the
project using other sources. Two others, Covanta Holding
Corporation in June 2013 and the Brooklyn Navy Yard Cogeneration
Partners in July 2013, were approved to issue a total of up to
$400 million, though as of this report, neither has gone forward
with their issuances.
In at least four cases, nonprofit borrowers were approved to
issue bonds through Build but opted to finance their projects
through other means, including bonds issued by the state’s
dormitory authority (which provides financing for universities,
health care facilities, and other state-related institutions),
the sale of New Markets Tax Credits, and private loans.
Since Build’s creation, EDC has also expanded the types of deals
in which it can take part. In 2013, EDC amended Build’s
certificate of incorporation to ensure that it would be able to
participate in public-private partnerships and other projects
that are located partially outside the city. This change came in
response to the IDA and Build’s inability to participate in the
public-private partnership that will replace the Goethals
Bridge, which connects Staten Island and New Jersey. The
proposed $1.5 billion bridge will be financed using a variety of
private sources, including $450 million in private activity
bonds. Build’s original certificate of incorporation permitted
it only to work on projects located within New York City. (State
law also prohibits the IDA from assisting facilities located
beyond the city’s borders.) Because the bridge spans two states,
the private consortium elected to issue the entirety of the
bonds through the New Jersey Economic Development Authority
(NJEDA), rather than issue half through Build or IDA and half
through the NJEDA. The amendment now allows the city to
participate in future projects located at least partially
outside the city. The provision could also benefit New York
City-based nonprofits that own facilities in Westchester or
Nassau Counties. To date, no organizations have issued debt
through Build for projects outside the city.
Trend Towards Refinancing
Transactions. The majority of Build’s activity to
date (58 percent by volume) has involved the refinancing of
existing debt rather than the issuance of debt on behalf of new
projects.
Many nonprofits are refinancing debt issued by other agencies or
private lenders that they took on during years that IDA could
not issue nonprofit bonds. Some borrowers are issuing new debt
through Build to unwind interest rate swaps that they entered
into as part of variable rate debt instruments in the mid-2000s.
Increasingly, Build is refinancing bonds that were previously
issued by other public entities, including the Dormitory
Authority of New York (DASNY), the city’s Housing Development
Corporation, and the federal Department of Housing and Urban
Development. Build is also refinancing bonds that were issued by
the IDA, including Liberty Bonds and Recovery Zone bonds.
(Congress approved the Liberty Bond and Recovery Zone Bond
programs to finance development projects in the wake of the
September 11th attacks and the 2009 recession, respectively. The
authorization of each program capped the value of bonds that
could be sold.)
This trend toward refinancing reflects the municipal bond market
as a whole in recent years, as borrowers take advantage of low
interest rates to reduce their annual debt service obligations.
In Build’s case, however, a number of other factors unique to
the organization (discussed below) are driving this trend. In
addition to debt service savings, Build offers borrowers a
combination of lower issuance costs relative to those of other
issuers and places fewer restrictions on borrowers’ operations.
This preponderance of refinancings means that the Build deals
create fewer new jobs and have a smaller economic impact as
compared to the issuance of debt on behalf of new projects. A
primary rationale for allowing tax-exempt financing of private
activity projects is the fiscal benefit from inducing capital
investment and job creation.
NOTES
Volume includes closed Build NYC
Resource Corporation bond transactions from fiscal years 2012
through 2015.
How Borrowers Benefit From Build
By relieving the pent-up demand for
refinancing transactions, especially from nonprofit
organizations no longer able to issue debt through the IDA,
Build offered an immediate benefit for such organizations, but
it has also benefitted borrowers by increasing competition among
bond issuers for their financing needs.
Lower Cost Option. There are several
ways in which selling bonds through Build can substantially
lower some borrowers’ cost of issuance relative to other bond
issuers. First, unlike DASNY, Build allows borrowers to
negotiate the terms of their bond deals directly with investors.
Other bond issuers have firm credit requirements that apply to
borrowers regardless of their ability to repay their debts.
DASNY, for example, requires all but the highest rated borrowers
to set aside bond proceeds for a debt service reserve fund, to
purchase bond insurance, or to pledge property as collateral.
These credit enhancements are designed to protect bondholders
against the risk that a borrower defaults. Build, by contrast,
allows borrowers to negotiate credit enhancements or security
provisions with their underwriters and the parties purchasing
the bonds, in cases where debt is privately placed. This has the
potential to reduce borrowing costs, especially for companies or
nonprofits that have sub-investment grade bond ratings or plan
to sell unrated bonds.
For borrowers that are eligible to issue bonds through the IDA,
borrowing through Build instead of the IDA can also lower their
cost of issuance due to Build’s simpler transaction structure.
The IDA requires borrowers to enter into a complex chain of
leases and subleases with the agency, an arrangement that
increases legal fees for both the IDA and borrowers. Build
structures its bond transactions more like conventional loans
and does not require borrowers to lease their properties to the
city.
A final way that borrowers can lower their issuance costs is by
avoiding a fee imposed by the state on industrial development
agencies. Since 1989, New York State has required that public
authorities, public benefit corporations, and IDAs pay the state
a cost recovery fee each time they issue debt, regardless of
whether the bond proceeds are used for a public purpose.
Typically the fee is paid by the borrower out of bond proceeds.
The cost recovery statute does not apply to Build, however,
because it is organized as an LDC. As a result, borrowers can
avoid New York State’s bond issuance fees by issuing bonds
through Build.
Avoiding this fee can save borrowers hundreds of thousands of
dollars. For example, Pratt Paper issued $96 million in
tax-exempt bonds through Build in December 2014 to purchase
equipment for its Staten Island recycling plant. If Pratt were
to have sold the same bonds through the IDA instead of Build, an
option that was available, it would have been required to pay
the state a cost recovery fee equal to 0.84 percent of the total
proceeds, or $808,920. Because Build is an LDC, and therefore
exempt from the cost recovery statute, Pratt avoided paying the
fee.
Fewer Restrictions. Borrowers can also
benefit from Build by issuing bonds that are not subject to the
provisions of the IDA’s uniform tax exemption policy, or UTEP.
As noted earlier, the IDA enabling law requires each IDA to
establish a set of rules to guide their activities. Avoiding the
UTEP provisions is particularly important to private and
religious schools that sell bonds through Build. Among other
provisions, the New York City IDA’s uniform tax exemption policy
requires these institutions to offer certain benefits to the
public in exchange for receiving tax-exempt financing. All
schools are required to set aside at least 20 percent of their
seats for New York City residents. They must pledge not to
discriminate in admissions, hiring, or financial aid, and they
must be registered and accredited with the State Education
Department.
The UTEP also places additional restrictions on high-tuition
schools, defined as those that charge tuition equal to or
greater than 75 percent of all schools that borrow through the
IDA. The high-tuition threshold was $20,184 for the 2006-2007
school year, the last year in which the IDA calculated the
figure and the year before the Legislature failed to reauthorize
the civic facility authority. High tuition schools must ensure
that at least 10 percent of financial aid be made available to
New York City residents; that at least 10 percent of financial
aid recipients who live in New York City receive aid worth at
least 50 percent of tuition; that they share their facilities
with New York City public schools; and that they adopt a
community service program.
The UTEP, however, only applies to IDA transactions. Private
schools that issue bonds through Build are not required to make
any of these commitments. Additionally, by refinancing existing
IDA debt through Build, schools have been able to undo the
pledges made when they issued IDA bonds. Many schools meet at
least some of these standards independent of requirements placed
on them by the IDA’s uniform tax exemption policy, but freeing
themselves of the UTEP mandates means that they do not have to
submit to the oversight and compliance required of IDA
beneficiaries—or to the potential consequences of noncompliance,
including the immediate repayment of their outstanding debt.
Minutes of Build’s board meetings suggest that EDC’s leadership
considered but ultimately rejected a provision that would hold
BUILD beneficiaries to the same standards that they met when
they sold bonds through the IDA. At the October 2013 board
meeting, Build’s executive director said that private schools
told EDC that the IDA “suffered from a reputation of not being
user friendly and being burdensome and cumbersome” and that
“adopt[ing] similar Private School Criteria [for Build]… would
create a substantial administrative burden on private schools
applying for benefits.” The schools also suggested that adding
similar requirements through Build “could affect private
schools’ willingness to apply for benefits with the Corporation
going forward.” EDC chose instead to eliminate the requirement
that private schools provide benefits to the public at large in
exchange for offering access to the tax-exempt bond market.
Through the end of fiscal year 2015, 23 private schools have
refinanced over $448 million in outstanding debt through Build,
representing over 40 percent of Build’s refinancing activity by
volume. By contrast, private schools have represented 27 percent
of new debt issued by Build.
How the City Benefits From Build
Just as there are advantages for
borrowers from using Build, there are advantages for the city as
well. More specifically, Build provides EDC with a source of
revenue to support discretionary activities ranging from
consultant studies to loan programs, activities that are outside
the normal city budget appropriations process. When the state
Legislature failed to renew IDA’s civic facility authority in
2009, EDC also lost a significant source of revenue. Build
allowed EDC to regain access to the nonprofit market and the
income it generates.
Revenue Generated. IDA and Build are
expected, at a minimum, to generate sufficient revenue to cover
their operating costs. Both organizations earn income from
several different sources. Federal law allows bond issuers to
charge fees to pay for the cost of issuing the bonds. Borrowers
typically pay fees out of bond proceeds. For tax-exempt debt,
issuance costs are capped at 2 percent of the amount borrowed.
In contrast, there is no cap on costs paid out of taxable debt.
The IDA records as revenue the value of funds that it recaptures
from companies that fail to meet job creation targets or violate
other provisions of their incentive deals; the IDA remits the
majority of recaptured funds to the city and state, but it is
allowed to retain some of the funds for its own use. Build also
has the ability to claw back benefits from its beneficiaries,
though it has not recaptured any benefits since its creation.
Finally, the IDA—unlike Build—collects a share of the present
value of tax abatements and exemptions that it grants and splits
fees earned on the sale of Liberty Bonds with the state’s Empire
State Development Corporation.8
Typically, Build borrowers pay a host of issuance fees. These fees pay for the city’s bond counsel, the transaction’s trustee, and ongoing administration and compliance costs. In addition,
Build charges what it calls a “financing fee” of 1 percent of
the first $5 million borrowed and 0.5 percent of proceeds above
$5 million. (The IDA has used the same fee structure in the past
for bond projects.) Build keeps this fee to cover its issuance
costs—the wages of staff and in-house counsel, the cost of
holding public hearings and board meetings, and other
miscellaneous expenses. For example, in November 2014, Build
issued $9 million in bonds on behalf of Women in Need to finance
the construction of its new headquarters. Women in Need’s total
issuance cost included $154,600 in fees that it could pay out of
bond proceeds. These fees included Build’s financing fee, which
amounted to $61,100.
|
Example of
Fees Paid on Build NYC Bond Deal
|
|
Women in Need, Inc.
|
|
|
Amount
|
|
Amount
Borrowed
|
$8,997,800
|
|
Fees Due at Closing
|
|
|
Build NYC Financing Fee
|
$61,100
|
|
Bond Counsel Fees
|
$90,000
|
|
Bond Trustee Acceptance Fee
|
$500
|
|
Bond Trustee Counsel Fee
|
$3,000
|
|
Total Due at Closing
|
$154,600
|
|
Percent of Proceeds
|
1.70%
|
|
SOURCE: Materials of the November 2014 Build NYC Resource
Corporation board meeting
New York City
Independent Budget Office
|
In most years, fee income constitutes the largest part of the
IDA’s and Build’s annual operating revenue. Because the IDA and
Build effectively function as a single unit (sharing the same
board, office space, public meetings, etc.), IBO has
consolidated their financial statements. We have also included
financial information from the now-defunct New York City Capital
Resource Corporation, another EDC-managed LDC that merged with
Build in 2013. The three organizations’ combined revenue tends
to fluctuate from year to year. Some of the spikes in revenue
result from the large fees earned on relatively infrequent large
projects, such as airport terminals and office towers. For
example in November 2005, the IDA issued $800 million in bonds
on behalf of American Airlines to finance a portion of the
renovation of its terminals at JFK Airport, which resulted in
American paying $3.5 million in IDA financing fees in fiscal
year 2006. In recent years, income from the recapture of
benefits has constituted a large share of the IDA’s revenue,
particularly in fiscal years 2010 and 2011. Recaptured benefits
accounted for $4.2 million of the IDA’s $8.0 million in revenue
in 2010 and $14.1 million of $21.3 million in 2011.
Since its creation, Build has become responsible for a
significant share of the organizations’ income. In fiscal year
2013, the first full fiscal year Build was in existence, it
accounted for $2.8 million, or 38 percent of the organizations’
$7.3 million in combined income. In fiscal year 2014, Build
accounted for $3.3 million or 33 percent of a total of $10
million in income earned by the organizations.
NOTE: Operating revenue includes revenue
generated from financing fees, annual compliance fees, and
recaptured financial benefits retained by the respective
entities after remitting amounts due to the city and state.
Fixed Expenses. Unlike revenue, the
organizations’ operating expenses bear little relationship to
the volume of projects that they approve or the fee income that
they generate. Because the IDA and Build have no staff or office
space of their own, the management fees they pay to EDC account
for the overwhelming majority of their annual expenses.9
This fee is a fixed payment that is set annually by EDC and
approved by the IDA and Build boards—a related-party transaction
noted in all three organizations’ financial statements.
NOTE:
Operating expenses includes EDC’s
management fee plus the cost of professional services, hosting
public hearings, and other miscellaneous expenses.
Because it is fixed, the fee also bears no relationship to EDC’s
actual staff hours in a given year, nor the volume or complexity
of the deals on which it works. In fiscal year 2014, EDC charged
the IDA a management fee of approximately $6 million. By
contrast, it charged Build just $80,000, even though Build fees
represented a third of the organizations’ fee income. EDC
lowered the IDA’s management fee for 2015 to $4.5 million and
increased Build’s to $2.8 million to more accurately reflect the
division of work between the organizations; the artificially low
fee it charged Build for its first three years of existence
allowed the organization to build up a positive fund balance.
Surpluses. Unlike the city, which is
required by law to balance its budget in accordance with
generally accepted accounting principles, public benefit
corporations and local development corporations are not required
to balance their budgets each year. As a result, organizations
like the IDA and Build are allowed to generate and retain
surpluses.
Except for 2009, when the city was in the midst of a recession
and the IDA had just lost its ability to issue bonds on behalf
of nonprofit borrowers, the organizations have been consistently
profitable. Since 2001, the IDA, Build, and CRC have earned a
combined $86 million in net operating income, even after paying
EDC more than $81 million in management fees. Over that period,
the organizations have had an average annual operating
margin—the ratio of net operating income to total revenue—of 43
percent. This level of profitability has also allowed the
organizations to build up considerable cash reserves. At the end
of 2014, the IDA held $50 million in unrestricted cash and
investments, while Build held $6 million.
Uses of Surplus Revenue. EDC routinely
taps into these cash reserves to pay for one-time expenses.
State law does not allow the IDA and Build to make unrestricted
cash payments to EDC or the city’s general fund, but it does
allow the organizations to enter into funding agreements in
exchange for services. Accordingly, this is how EDC structures
the management fees it charges the IDA and Build. These funding
agreements allow EDC to draw down on the organizations’ cash on
hand to pay for its own programmatic needs. The IDA and Build
refer to these transfers as “special payments” and categorize
them as non-operating expenses in its financial statements.
From fiscal years 2002 through 2014, the IDA and Build have
committed over $84 million to fund EDC projects and consulting
studies, including the preliminary work for many of the
Bloomberg Administration’s major redevelopment initiatives. It
has also funded the citywide ferry study released in 2013, the
Hurricane Emergency Loan Program to provide loans and grants to
businesses affected by Hurricane Sandy, and a Bloomberg-era
study that argued against a City Council proposal that would
have required developers and tenants of EDC projects to pay a
living wage. A full list of projects funded by the IDA and Build
can be found in the appendix.
These payments must be approved by the IDA and Build’s boards of
directors. However, because EDC, the IDA, and Build are not city
agencies, their spending is off the city budget, which means it
does not follow the same procurement rules as those used by city
agencies, and does not require City Council approval—making the
process much less transparent than is typical for city spending.
Broader Implications
Even though Build was created in response
to a particular set of local conditions, its brief history
highlights several concerns about LDCs and private activity bond
issuers, both within New York and across the country.
Issuers Are Expected to Pay for Themselves.
Municipal governments expect public benefit corporations and
LDCs such as Build to be self-sustaining enterprises. As a
result, these corporations must rely on revenue sources like fee
income from bond projects or incentive deals, or rental income
from municipal property to support their operations. The
long-term viability of conduit bond issuers relies on the volume
of deals that they approve. In particular, they may be more
likely to approve large transactions, particularly
infrastructure projects that generate significant fees, even
when those projects are feasible without the issuance of
tax-exempt debt. Similarly, because state and federal law do not
require that an agency’s financing fees bear any relationship to
the expenses that it actually incurs on a given project,
agencies have an incentive to pursue large deals.
No Balanced Budget Requirement. Even
as these organizations are permitted to raise revenue to support
themselves, there is nothing to stop them from raising more
revenue than is needed to fund their activities. Put
differently, they are not required to balance their budgets. In
fact, many generate surpluses that, over time, can grow into
substantial off balance sheet reserve funds. IDA and Build
together held $56 million in unrestricted cash and investments
at the end of 2014. Because public benefit corporations and LDCs
are not city agencies, these surplus funds are off-budget and
allow governments to pursue initiatives without the same levels
of transparency that they would be subject to if they were to be
funded using city revenue sources.
States Set Private Activity Bond Rules.
Private activity bonds are authorized by federal law, but the
tax code provides only a broad framework about how issuers can
use them. Each state is free to establish its own rules
governing conduit bond issuance, which has led to wide
variations both between different states and even within states
themselves. Some states, like New Jersey, control issuance
entirely at the state level. Others allow the creation of
extra-jurisdictional issuers, which are allowed to sell bonds on
behalf of projects well beyond their borders. Still others,
including Wisconsin and California, have allowed for-profit
companies to administer conduit bond issuers, in a role similar
to EDC’s relationship to the IDA and Build. Within New York
State, there are a wide range of conduit issuers at the state,
county, and local levels, ranging from IDAs to public benefit
corporations to LDCs, each with their own set of rules and
restrictions.
This proliferation of issuers allows for regulatory arbitrage,
in which borrowers seek out the best terms among two or more
potential issuers. Sub-investment grade borrowers, for example,
can significantly lower their issuance costs by borrowing
through Build instead of DASNY.
Increasing Competition, Diminished Public Benefits.
In places like New York, where borrowers can access the bond
market through several different issuers, there is a risk that
competition could lead to a race to the bottom, in which most of
the benefits flow to private parties rather than to the general
public. Private activity bonds are either sold on the open
market or privately placed with large investors, so it is
unlikely that issuers can compromise on credit quality without
running afoul of the market.10
Instead, this race to the bottom is more likely to come at the
expense of the public. Issuers may be pursuing projects that are
feasible without the use of tax-exempt debt, particularly for
projects that are exempt from the federal government’s annual
bond volume cap. These projects benefit the borrower, who saves
on debt service expenses, and the issuer, who generates fee
income, largely at the expense of the federal government, which
forgoes the lion’s share of the tax revenues the deal would have
generated had it been taxable. (Assuming the $1.9 billion in
outstanding debt issued by Build had been taxable debt issued at
a 5.75 percent interest rate, IBO estimates that bondholders
would have paid $27.3 million in federal income tax, as compared
with $583,000 in state taxes, and $213,000 in city taxes.) In
the case of New York City, EDC’s desire to regain fee income
from private school bond issuance likely contributed to their
decision to drop the requirement that those schools provide
financial aid and share their facilities with public schools.
The expectation that entities like Build pay for themselves and
are not required to balance their budgets, along with the fact
that they have proliferated under varying rules among the
states, comes at a potential public cost in terms of
transparency and lost tax revenue. In the case of Build and its
fellow EDC subsidiary, the New York City Industrial Development
Agency, the rules underlying their operation have allowed them
to amass and spend millions of dollars with minimal oversight
and input from the City Council or other elected officials other
than the Mayor.
Report prepared by Sean Campion
Appendix
|
New York City Economic Development Corporation Special
Projects Funded by the IDA and Build NYC, 2001-2014
|
|
Project
|
Fiscal Year
|
Commitment
|
|
Congestion Pricing Study
|
2008
|
$8,000,000
|
|
Hurricane Emergency Loan Program (IDA and BUILD)
|
2013
|
$5,000,000
|
|
Digital NYC-Wired to the World-Marketing Program
|
2000
|
$4,850,000
|
|
Cross Harbor Freight Movement Transportation Study
|
2001
|
$4,000,000
|
|
Willets Point Development Strategy
|
2007
|
$3,954,000
|
|
Pier 7-12 Development Policy
|
2006
|
$3,110,000
|
|
Urban Design Study for West Side of Manhattan
|
2002
|
$2,429,000
|
|
Citywide Environmental and Traffic Retainer
|
2003
|
$1,750,000
|
|
Citywide Environmental and Traffic
|
2004
|
$1,750,000
|
|
Seward Park Mixed-Use Development Project
|
2011
|
$1,300,000
|
|
On Call Services/Cambridge Systematics Inc.
|
2007
|
$1,275,453
|
|
Java & Kent Street Piers Project
|
2000
|
$1,200,000
|
|
On Call Services Contract/Strategic Port Plan
|
2008
|
$1,200,000
|
|
Redevelopment of Downtown Brooklyn
|
2002
|
$1,150,000
|
|
NYCEDC Business Development Study
|
2007
|
$1,000,000
|
|
Harlem Business Assistance Fund
|
2008
|
$1,000,000
|
|
Wage Study
|
2010
|
$1,000,000
|
|
Illuminate Lower Manhattan
|
2013
|
$1,000,000
|
|
Lower Manhattan Business Expansion Competition
|
2012
|
$950,000
|
|
LINK: Fast Track Entrepreneurship Program
|
2013
|
$930,000
|
|
Staten Island West Shore Study—Land and Transportation
|
2007
|
$900,000
|
|
Cruise Ship Terminal
|
2004
|
$850,000
|
|
Broadband Feasibility Study
|
2007
|
$820,000
|
|
On Call Environmental and Transportation Planning
Services
|
2007
|
$800,000
|
|
Hunts Point Peninsula
|
2004
|
$795,000
|
|
Construction Cost Reduction Study
|
2007
|
$750,000
|
|
Life Sciences Industry Desk Consulting Strategy
|
2005
|
$700,000
|
|
Hunts Point Food Distribution Center, Development
Feasibility Analysis
|
2008
|
$700,000
|
|
Staten Island North Shore Land and Transportation Study
|
2008
|
$700,000
|
|
NYC Green Sector Study
|
2009
|
$675,000
|
|
Willets Point Redevelopment
|
2006
|
$654,000
|
|
Downtown Brooklyn Relocation Services
|
2003
|
$650,000
|
|
Fordham Plaza Conceptual Design Study
|
2008
|
$650,000
|
|
Hudson Yards/Arquitectonica (Engineering Consulting)
|
2004
|
$625,000
|
|
Comparative Analysis of Financial Services of NY and
London
|
2007
|
$600,000
|
|
Immigrant Entrepreneur Business Development
Demonstration Program
|
2011
|
$600,000
|
|
Citywide Ferry Study and Environmental Assessment
Services
|
2013
|
$600,000
|
|
Harbor District Ferry Service Feasibility and Branding
Initiative
|
2009
|
$590,058
|
|
NYC Business Development Comprehensive Strategy
|
2009
|
$575,000
|
|
Study for Redevelopment of West Side of Manhattan
|
2002
|
$550,000
|
|
Long-Term Transportation Investment
|
2006
|
$550,000
|
|
Sunset Park Vision Plan
|
2008
|
$550,000
|
|
Consulting Service for Tourism Strategy
|
2004
|
$544,450
|
|
New York’s Next Top Makers
|
2013
|
$530,000
|
|
65th Street Railyard—Design
|
2000
|
$500,000
|
|
Project
|
Fiscal Year
|
Commitment
|
|
Staten Island Railroad Operational Plan
|
2000
|
$500,000
|
|
Technology Transfer Initiatives
|
2001
|
$500,000
|
|
Port Improvement Plan & Environmental Impact Study
|
2001
|
$500,000
|
|
NY Harbor Program, Land Use and Transportation Analysis
|
2007
|
$500,000
|
|
NYC Media Scenario Series
|
2009
|
$500,000
|
|
Hunts Point Food Distribution
|
2010
|
$500,000
|
|
Seward Park Development Project Engineering and Cost
Analysis
|
2011
|
$500,000
|
|
Harlem Incubator
|
2012
|
$500,000
|
|
MARSHES
|
2013
|
$500,000
|
|
Freight Investment Blueprint
|
2014
|
$500,000
|
|
NYC Commercial Waste Hauling Study/Price Regulation
|
2007
|
$490,000
|
|
NYC Electricity Resource Study
|
2003
|
$479,500
|
|
Long-Term Strategic Plan: Book and Promotional Brochure
|
2006
|
$450,000
|
|
Manufacturing and Industrial Subsectors Study/AKRF
|
2008
|
$450,000
|
|
Industrial Business Support Services
|
2012
|
$420,000
|
|
Industrial Business Zone
|
2005
|
$400,000
|
|
Incentive Program Review
|
2006
|
$400,000
|
|
West Chelsea Special District
|
2003
|
$375,950
|
|
Engineering Review for Cross Harbor Freight
|
2002
|
$375,000
|
|
River to River 125th Street Study
|
2005
|
$375,000
|
|
Conceptual Plan for BAM Cultural District
|
2002
|
$350,000
|
|
Hudson Yards/Cornerstone
|
2005
|
$350,000
|
|
Manhattanville Redevelopment
|
2005
|
$350,000
|
|
Hunts Point Vision Plan
|
2006
|
$350,000
|
|
Water Street Feasibility Study
|
2011
|
$350,000
|
|
Vertical Factory Design Competition
|
2014
|
$350,000
|
|
Empire Zone Program Administration and Market Services
|
2007
|
$326,000
|
|
NYPD Assessment Plan
|
2006
|
$310,000
|
|
Homeport Development Plan
|
2003
|
$300,000
|
|
New York Aquarium Perimeter Redesign
|
2006
|
$300,000
|
|
Community Development Finance Research Study
|
2007
|
$300,000
|
|
Fashion Industry Support Study
|
2008
|
$300,000
|
|
NYC Economic Impact Strategy for the Arts
|
2008
|
$300,000
|
|
Harlem River Waterfront/Sherman Creek
|
2010
|
$300,000
|
|
Industrial Subsector and Cost Comparison Analysis
|
2010
|
$300,000
|
|
Industrial Business Improvement Districts Development
|
2012
|
$300,000
|
|
Industrial Growth Initiative–Phase III
|
2013
|
$300,000
|
|
West Midtown Bus Parking and Storage Study
|
2004
|
$275,000
|
|
Willets Point Redevelopment–Appraisal
|
2006
|
$275,000
|
|
Maritime Support Services Location Study
|
2006
|
$275,000
|
|
LINK: Progress Networks
|
2013
|
$270,000
|
|
Piers 6-12, Brooklyn Marine Terminal
|
2003
|
$250,000
|
|
Hudson Yards/P. Habib & Assoc. and Parsons Brinckerhoff
|
2004
|
$250,000
|
|
Long-Term Strategic Plan: Land Use
|
2006
|
$250,000
|
|
JFK Air Cargo Study
|
2011
|
$250,000
|
|
Staten Island Incubator
|
2013
|
$250,000
|
|
Downtown Jamaica Workspace
|
2014
|
$250,000
|
|
Air Cargo Market Analysis and Strategic Plan
|
2014
|
$250,000
|
|
Project
|
Fiscal Year
|
Commitment
|
|
Comprehensive Industrial Plan
|
2014
|
$230,000
|
|
Job Creation in PlaNYC
|
2008
|
$225,000
|
|
Urban Planning for Redevelopment of Downtown Flushing
|
2003
|
$220,000
|
|
NY Software Industry Program
|
2001
|
$200,000
|
|
Bronx Terminal Market Tenant Relocation
|
2005
|
$200,000
|
|
Participant Tracking Study
|
2007
|
$200,000
|
|
Industrial Business Growth Assistance Program
|
2012
|
$200,000
|
|
Brownfield Tax Lien Pilot Site Investigation
|
2006
|
$180,000
|
|
Transportation Use Feasibility Study
|
2007
|
$180,000
|
|
Citywide Ferry Service Feasibility Study
|
2010
|
$175,000
|
|
Film and Television Production Study
|
2004
|
$150,000
|
|
Downtown Far Rockaway Development Plan
|
2006
|
$150,000
|
|
On Call Environmental Planning Services
|
2008
|
$150,000
|
|
Sunset Park Industrial Real Estate Market Analysis
|
2005
|
$138,750
|
|
Open Industrial Uses Study
|
2013
|
$137,500
|
|
Class B and C Market Study
|
2006
|
$135,000
|
|
Hunts Point Freight Rail and Anaerobic Digestion Study
|
2010
|
$131,705
|
|
Quality of Life Survey
|
2006
|
$130,000
|
|
WTC Tax Incentive Zone Analysis
|
2003
|
$126,500
|
|
NYC Capital Resource Corp
|
2006
|
$125,000
|
|
Study of NY Commercial Waste Removal coast
|
2007
|
$100,000
|
|
Teleport Planning Services
|
2010
|
$100,000
|
|
NYC Generation Tech
|
2013
|
$100,000
|
|
1000 Industrial Business Survey
|
2014
|
$90,000
|
|
On Call Services Contract/Traffic Impact Study
|
2008
|
$75,000
|
|
Queens Kitchen Incubator
|
2012
|
$75,000
|
|
Industry NYC Survey
|
2010
|
$65,000
|
|
Underground Railroad Historical Research Services
|
2006
|
$60,000
|
|
National Development Council Technical Assistance
Services
|
2007
|
$60,000
|
|
Curate NYC
|
2013
|
$60,000
|
|
Oil & Gas Supply Chain Study
|
2013
|
$60,000
|
|
Bond Termination Services Pier A
|
2008
|
$47,995
|
|
Ad Hoc Internal Audit Services
|
2007
|
$40,000
|
|
Grant Taxability/WTC Consulting
|
2003
|
$38,500
|
|
Downtown Jamaica Rendering
|
2007
|
$35,000
|
|
NYC New Market Corporation
|
2006
|
$30,000
|
|
Lower Manhattan Hotel Market Study
|
2007
|
$25,000
|
|
Empire Zone Benefit/Hascock and Barclay
|
2007
|
$20,000
|
|
Artist as Entrepreneur
|
2013
|
$10,000
|
|
Harris Beach Retainer
|
2004
|
$7,500
|
|
Environmental Consulting Services
|
2009
|
$5,000
|
|
SOURCES: Financial Statements of the New York City
Industrial Development Agency and Build NYC Resource
Corporation
NOTE: Commitments are funds approved by the
organizations’ respective boards of directors for
individual projects. Actual spending by project is not
publicly available.
New York City Independent
Budget Office
|
Endnotes
1All
years in this report refer to calendar years unless otherwise
noted.
2Each
year, the IRS calculates a national volume cap and apportions it
among the states based on population. It then permits each state
to determine how to allocate and apply its portion of the cap.
New York has traditionally split its volume cap equally among
three categories of issuers: one-third to industrial development
agencies (further split among cities and counties based on
population); one-third to statewide authorities, such as the
dormitory authority; and one-third to a statewide reserve fund,
to which all other issuers can apply for an allocation of bonds.
Local and regional issuers like Build NYC and the city’s Housing
Development Corporation fall into this third category. Local and
county governments are also free to move allocations from one
category to another. New York City, for example, regularly
shifts some of the IDA’s bond volume to Housing Development
Corporation.
3Excerpt
from Section 1411(a): “Corporations may be incorporated or
reincorporated under this section as not-for-profit local
development corporations operated for the exclusively charitable
or public purposes of relieving and reducing unemployment,
promoting and providing for additional and maximum employment,
bettering and maintaining job opportunities, instructing or
training individuals to improve or develop their capabilities
for such jobs, carrying on scientific research for the purpose
of aiding a community or geographical area by attracting new
industry to the community or area or by encouraging the
development of, or retention of, an industry in the community or
area, and lessening the burdens of government and acting in the
public interest.”
4NFP
Section 1411(c).
5“Build
NYC Resource Corporation Now Officially Accepting Applications
From Non-Profits For Tax-Exempt Financing” December 13, 2011.
http://www.nycedc.com/press-release/build-nyc-resource-corporation-now-officially-accepting-applications-non-profits-tax
6The
city’s Housing Development Corporation issues private activity
bonds on behalf of affordable housing developers.
7Stadiums
and arenas are not eligible private activities under federal
law. The IDA deals benefiting Yankee Stadium and Citi Field in
2007 are not technically private activity bonds because they are
backed by payments in lieu of taxes, which are public sources of
revenue. Bonds the IDA issued in 2003, 2004, and 2008 on behalf
of the United States Tennis Association, the not-for-profit
organization that runs the U.S. Open, qualified under the civic
facility program.
8Typically,
IDA and Build beneficiaries pay the financing fee at the time of
closing, though in at least one case, the IDA has allowed a
beneficiary to amortize the fee over the life of the project. In
December 2013, the IDA board approved a mortgage recording tax
exemption and a property tax abatement for Queens Development
Group, a joint venture between the Related Companies and
Sterling Equities, for their proposed redevelopment of Willets
Point. In that case, the IDA allowed Queens Development Group to
pay its $1.5 million financing fee over 25 years.
9EDC’s
contract with the city allows it to retain income it earns for
services rendered so long as those fees are payable to EDC and
not to the city.
10IDA
bond projects have defaulted in the past, most notably in the
case of the nonprofit organization that sold bonds to build
parking garages at the new Yankee Stadium. It defaulted on its
bonds after demand for parking fell significantly short of
expectations. See IBO’s July 2013 update for more information on
the Yankee Stadium parking garage deal.
PDF version available
here.
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