Eligibility of Residential Developments for IDA Benefits
March 22, 2017
A court decision upholds what has long been understood to be the rule: Residential developments are eligible to receive IDA benefits.
It has been nearly 50 years since the New York State Legislature enacted legislation authorizing industrial development agencies (“IDAs”) for the purpose of promoting economic development. Now, towns, cities, and counties throughout the state have created their own IDAs under General Municipal Law (“GML”) Article 18-A (the “IDA Act”) and use them to encourage – and to financially assist – a wide variety of real estate developments, often to great success.
In many instances, however, an IDA’s efforts are met with objections, both in and out of court. Recently, for example, tax benefits afforded by a town’s IDA to the Green Acres Mall on Long Island aroused community criticism, and led New York State Comptroller Thomas P. DiNapoli to announce that he would audit the IDA to determine its compliance with policies and procedures related to its approval of the project.
There also continue to be disputes over the scope of projects that may receive IDA benefits. Last August, the Supreme Court, Seneca County, rejected a challenge to a decision by the Seneca County IDA to provide tax benefits for a casino being built in the county. Nearpass v. Seneca County Industrial Development Agency, 53 Misc. 3d 737 (Sup.Ct. Seneca Co. 2016). The petitioners argued that the casino was not a project defined in the IDA Act and, therefore, that it was ineligible for IDA benefits. They pointed out, among other things, that when the IDA Act first was enacted, casinos were prohibited in New York, and after casinos were allowed by amendment to the New York Constitution, the IDA Act was not amended to include casinos as a project entitled to IDA benefits.
The court was not persuaded and decided, instead, that the casino facility was a commercial project under the IDA Act and, in particular, that it also was a recreation facility within the purview of GML Section 854(9).
Perhaps more surprising than a dispute over the eligibility of a casino to receive IDA benefits was a recent court case that asked whether a residential development could qualify for IDA benefits – an issue of statewide significance. In Matter of Ryan v. Town of Hempstead Industrial Development Agency, Index No. 5324/16 (Sup.Ct. Nassau Co. Jan. 27, 2017), the Supreme Court, Nassau County, held that a residential apartment building project fell within the definition of a project for which IDA benefits may be granted.
After first providing background on the IDA Act, this column will discuss the court’s decision in Matter of Ryan and its implications.
The IDA Act
When the legislation governing the governing the creation, organization, and powers of IDAs in New York State was enacted in 1969, it provided that its general purpose was “to promote the economic welfare of [the state’s] inhabitants and to actively promote, attract, encourage and develop economically sound commerce and industry through governmental action for the purpose of preventing unemployment and economic deterioration.” This intent was further evidenced by the original provision of GML Section 858, which provided that:
The purposes of the agency shall be to promote, develop, encourage and assist in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing industrial, manufacturing, warehousing, commercial and research facilities and thereby advance the job opportunities, general prosperity and economic welfare of the people of the state of New York and to improve their standard of living.
In approving the bill, then-Governor Nelson Rockefeller noted that “industrial development agencies provide one means for communities to attract new industry, encourage plant modernization and create new job opportunities.” McKinney’s 1969 Session Laws, Vol. 2, p. 2572.
The original legislation has been amended a number of times since 1969 to broaden the scope of permissible IDA activities. For example, the definition of project was expanded to specifically include construction of industrial pollution control facilities (L 1971, ch 978), winter recreation facilities and then recreation facilities generally (L 1974, ch 954; L 1977, ch 630), horse racing facilities (L 1977, ch 267), railroad facilities (L 1980, ch 803) and educational or cultural facilities (L 1982, ch 541).
As noted above, however, it has not been amended to specifically include casinos. And it also does not specifically include residential developments.
In 1985, however, the New York State Comptroller’s Office was asked by the village attorney for the village of Port Chester whether construction of an apartment complex was a commercial purpose within the meaning of GML Section 854(4) and, thereby, whether it was a proper project for industrial development bond financing. In response, the Comptroller issued Opinion No. 85-51, 1985 N.Y. St. Comp. 70 (Aug. 16, 1985) (the “Comptroller’s Opinion”).
In the Comptroller’s Opinion, the Comptroller’s Office explained that, at its inception, the IDA Act’s primary thrust was to promote the development of commerce and industry as a means of increasing employment opportunities.
The Comptroller’s Opinion then reasoned that for an apartment complex to qualify as an eligible project under Article 18-A, it had to promote employment opportunities and prevent economic deterioration in the area served by the IDA.
The Comptroller’s Opinion added that the Comptroller’s Office was “not in a position to render an opinion” as to whether a project that consisted of the construction of an apartment complex was a commercial activity within the meaning of Article 18-A. Rather, it continued, such a determination “must be made by local officials based upon all the facts relevant to the proposed project.”
Any such determination, the Comptroller’s Opinion concluded, had to take into account the stated purposes of the IDA Act: “the promotion of employment opportunities and the prevention of economic deterioration.”
When this issue reached the court in Triple S. Realty Corp. v. Village of Port Chester, Index No. 22355/86 (Sup.Ct. Westchester Co. Aug. 19, 1987), the Westchester County Supreme Court held that residential construction may be eligible for industrial development agency benefits if such construction “would increase employment opportunities and prevent economic determination in the area served by the IDA.”
The decision by the Nassau County Supreme Court in Matter of Ryan provides further confirmation that residential developments certainly are eligible to receive IDA benefits.
Matter of Ryan
The case arose after the Town of Hempstead Industrial Development Agency (TOHIDA) granted financial and tax benefits and assistance to Renaissance Downtowns UrbanAmerica, LLC, with respect to the construction of a new 336-unit residential apartment complex in the village of Hempstead on Long Island. That was Phase 1 of a multi-phase revitalization project that was planned to include additional mixed-use buildings and parking facilities.
The financial benefits and assistance granted by the TOHIDA included:
- exemptions from mortgage recording taxes for one or more mortgages
- securing the principal amount not to exceed $70,000,000;
- a sales and use tax exemption up to $3,450,000 in connection with the purchase/lease of building materials, services, or other personal property for the project; and
- abatement of real property taxes for an initial term of 10 years pursuant to a Payment in Lieu of Taxes (“PILOT”) Agreement.
- The court then pointed out that the TOHIDA had approved Renaissance’s application for assistance with respect to the first phase of the revitalization project based on the TOHIDA’s findings, that, among other things:
- In its decision, the court noted that the Comptroller’s Opinion had observed that the determination of whether construction of an apartment complex was a commercial activity within the meaning of the IDA Act had to be made by local officials based on facts relevant to the proposed project.
- The court agreed with the respondents and dismissed the petition.
- For their part, the respondents contended that the development of a residential rental building fell within the ambit of the statutory definition of a project entitled to receive an IDA’s financial assistance and benefits in that it promoted “employment opportunities” and prevented “economic deterioration” in the area served by the IDA.
- Six petitioners, including a trustee for the village of Hempstead, challenged the TOHIDA’s resolution in an Article 78 proceeding, arguing that an IDA could not grant benefits for a project that was residential, either in whole or in part, in nature.
- the town of Hempstead was in need of attractive multi-family housing to retain workers in the town and attract new business;
- a healthy residential environment located in the town was needed to further economic growth;
- there was a lack of affordable, safe, clean multi-family housing within the town; and
- the facility would provide the nucleus of a healthy residential environment, and would be instrumental and vital in the further growth of the town.
Moreover, the court continued, the TOHIDA also found that the development of the first phase of the facility would “promote and maintain the job opportunities, health, general prosperity and economic welfare” of the town’s citizens and “improve their standard of living.”
Given that the project promoted employment opportunities and served to combat economic deterioration in the area served by the TOHIDA, the court upheld the TOHIDA’s decision as rationally based and not arbitrary or capricious, an abuse of discretion, or an error of law.
IDA benefits can play an important role in real estate development. For nearly five decades, they have benefited New Yorkers in numerous situations. As the Comptroller’s Office and the courts have recognized, a project – including a residential project – that demonstrates that it promotes employment opportunities and prevents economic deterioration is eligible to receive IDA benefits.
Reprinted with permission from New York Law Journal, March 22, 2017 issue, vol. 257, No. 54
Anthony S. Guardino, a partner with the law firm of Farrell Fritz, P.C., practices in the areas of land use, zoning, and environmental law. Resident in the firm’s office in Hauppauge, Long Island, he can be reached at firstname.lastname@example.org.
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