IDA Benefits Fuel Job Growth and Employee Retention

September 17, 2002


Publication: New York Real Estate Journal – Long Island
Sep 17, 2002
Author: Peter L. Curry

As widely reported, the Long Island commercial and industrial marketplace has proved particularly resistant to the recent economic recession. A key factor in the Island’s stability has been the use of Industrial Development Agencies to foster job growth and retention. Each of Nassau and Suffolk Counties, the Towns of Hempstead, Babylon, Islip, Brookhaven, and Riverhead, and the Cities of Glen Cove and Long Beach has established an IDA. All are actively pursuing the grant of economic development packages to expand and diversify employment on Long Island. These benefits are available whether the applicant employers seek tax-exempt or taxable bonds issued through the Agencies, or become involved only in “straight lease” transactions.
IDAs are public benefit corporations of the State of New York. Under the General Municipal Law, they are permitted to issue bonds and acquire industrial and other facilities. Upon the acquisition of a site from an applicant for benefits, it is leased back or resold to the applicant on an installment sale basis. During the period of Agency ownership, the property is off the tax rolls, and is thus exempt from real estate and other taxes. When the agreed-upon benefits are exhausted and any bonds are repaid, the property is reconveyed to the applicant for a nominal sum. Notwithstanding legal title being in the IDA, equitable ownership is in the employer, and it receives all benefits and undertakes all obligations of ownership.

The possible economic benefits of this arrangement are numerous. Manufacturers and light industrial companies, office tenants and owners, assisted living facilities and affordable housing, and real estate developers have all partnered with IDAs to achieve complete abatements on the sales tax payable on the construction materials used to construct new industrial, warehousing, residential and office buildings and to improve existing buildings. Sales tax abatements have also been utilized to acquire the telecommunications, computer and other equipment, and the furniture and furnishings used to outfit these buildings. Further, the Agencies’ involvement has resulted in the full abatement of the one percent mortgage tax normally charged in connection with real estate mortgage financings.

Perhaps most importantly, the IDAs have granted long-term abatements in the real estate tax assessments that would normally have been chargeable on the increase in property values due to construction of new buildings or alterations and additions to existing structures. The typical abatement has been a ten-year program based upon Real Property Tax Law Section 485-b, which results in a 50% abatement in increased assessment, decreasing annually by 5%. However, the Town of Brookhaven IDA has, in certain circumstances, granted full ten year abatements in increased assessments, leaving only taxes due as if the property were vacant land. The Town of Babylon IDA, where the vast majority of commercially and industrially-zoned property has already been built upon, has when necessary reduced the assessed value of applicants’ properties in order to bring tax payments in line with other communities and make operating costs more competitive.

Contrary to popular impression, IDA’s do not lend money. Rather, when requested, they issue taxable or tax-exempt bonds on a “non-recourse” basis. For those companies that qualify for tax-exempt financing, usually manufacturers and assisted living developers, this financing results in long-term, high loan-to-value debt. The applicants are responsible for obtaining a purchaser for the bonds, and for making all payments on the bond during the term of the loan. These financings are typically secured by mortgages and an assignment of other collateral in a manner similar to conventional real estate financing.

Any company contemplating relocating or expanding its operation on Long Island is well-advised to investigate possible benefits that may result from an application to an IDA. These agencies will provide a variety of assistance to qualified employers to enable them to remain competitive in this unsettled economy.

Printed with permission: New York Real Estate Journal-Long Island, 2002

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