This opinion represents the views of the Office of the State Comptroller at the time it was rendered. The opinion may no longer represent those views if, among other things, there have been subsequent court cases or statutory amendments that bear on the issues discussed in the opinion.

INDUSTRIAL DEVELOPMENT AGENCIES -- Officers and Employees (serving as staff of not-for-profit corporations) -- Powers and Duties (hiring employees to serve as staff of not-for-profit corporations)

GENERAL MUNICIPAL LAW § 858 (7), (9), (17): An industrial development agency lacks authority to hire employees and assign them to serve as the staff of not-for-profit corporations.

This is in reply to your request for our opinion as to whether an industrial development agency ("IDA") may hire individuals as IDA employees and assign them to serve as the staff of several not-for-profit local development corporations and similar entities (individually, a "development corporation" or "corporation"). The issue arises in connection with questions concerning the individuals' status, by virtue of such employment, as being eligible for membership in the New York State and Local Employees' Retirement System. For the reasons set forth below, we conclude that an IDA may not assign its employees to serve as the staff of a development corporation.

Facts

Each of the development corporations was incorporated under the Not-For-Profit Corporation Law. In general, the corporations were established for purposes that include relieving and reducing unemployment, promoting and providing for additional and maximum employment, bettering and maintaining job opportunities, and encouraging the development or retention of industry. The corporations' certificates of incorporation and by-laws do not appear to vest control in the IDA.

The IDA has entered into variously titled "services agreements" with each of the development corporations. Pursuant to these agreements, the IDA assigns a total of seven "fulltime employees" and two "part-time employee[s]" to perform certain functions for the corporations. Four of these individuals appear to be responsible for the day-to-day activities or operations of the corporations for which they serve; another two are responsible for maintaining financial records and performing other administrative duties; and the remaining three individuals are responsible for providing maintenance services in connection with a specific commercial development or property.

Each of the services agreements provides expressly that the individuals assigned to the development corporations "shall be and shall at all times remain employees of the [IDA], subject to its direction and control," but in exercising such direction and control, the IDA "shall give due consideration to the recommendations of and seek assistance from" the corporations' boards of directors. Similarly, each of the agreements provides for the IDA to be responsible for recruiting, hiring, assigning, evaluating, supervising, managing, promoting, disciplining and or discharging the individuals assigned to the development corporations, "with due consideration of the recommendations of and assistance from" the corporations' boards.

Under the services agreements, the development corporations are required to pay to the IDA a fixed annual fee as consideration for the services provided by the IDA to the corporations. In addition to the annual fee, the agreements obligate the corporations to reimburse the IDA on a bi-weekly basis for the IDA's gross payroll expense on account of the individuals assigned to the corporations including, but not limited to, the individuals' salary, workers' compensation premiums, social security taxes, health insurance expenses, and travel or other personnel expense reimbursements for the period.

Finally, although the services agreements provide that the individuals assigned to the development corporations are IDA employees and under the control of the IDA, the agreements require the corporations to indemnify the IDA from most claims made against the IDA in carrying out the agreements. The agreements also require the corporations to defend the IDA in actions brought in connection with the employment of the individuals.¹

IDAs - Generally

IDAs are formed for the benefit of municipalities by special act of the State Legislature (see General Municipal Law § 856 [1] [a]; see also NY Const, art X, § 5). With limited exceptions, these special acts establish IDAs for the purposes specified in Article 18-A of the General Municipal Law, and require their operations and activities to be governed in all respects as provided by that statute (see General Municipal Law, art 18-A, title 2 [§ 890 et seq.]). The special act establishing the IDA in question contains no express authority for the IDA to hire individuals to staff the development corporations.

Article 18-A of the General Municipal Law provides that IDAs are established to promote, develop, encourage and assist in the acquiring, constructing, reconstructing, improving, maintaining, equipping and furnishing of certain types of facilities (General Municipal Law § 858). By fulfilling these purposes, IDAs are intended to advance the job opportunities, health, general prosperity and economic welfare of the people of the State of New York, and to improve their recreation opportunities, prosperity and standard of living (id.).

In furtherance of these purposes, Article 18-A provides IDAs with certain powers and duties. An IDA, however, is a "creature of statute" (AG-II Acquisition Corp. v Board of Assessors of County of Nassau, 21 Misc 3d 543, 545, 871 NYS2d 590, 592 [2008]). As such, an IDA "lacks powers not granted to it by express or necessarily implicated legislative delegation" (see e.g. Abiele Contracting Inc. v New York City School Construction Authority, 91 NY2d 1, 10, 666 NYS2d 970, 974 [1997], quoting from Matter of Flynn v State Ethics Commn., 87 NY2d 199, 202, 638 NYS2d 418 , 420 [1995] ; see also 1999 Ops St Comp No. 99-4, at 6; 1991 Ops St Comp No. 91-32, at 91).

Express Powers

Article 18-A provides for IDAs to fulfill their statutory purposes through the exercise of express authority to provide "financial assistance" for certain types of "projects" (see e.g. General Municipal Law §§ 854 [4], [14], 859 [1] [b], 864, 874), and "[t]o acquire, construct, reconstruct, lease, improve, maintain, equip or furnish one or more projects" (General Municipal Law § 858 [10]). Additionally, insofar far as here relevant, Article 18-A provides IDAs with express authority "[t]o … use agents, employees and facilities of the municipality" (General Municipal Law § 858 [6]), "[t]o appoint officers, agents and employees" (General Municipal Law § 858 [7]), "[t]o make contracts" (General Municipal Law § 858 [9]), and "[t]o do all things necessary or convenient to carry out its purposes and exercise the powers expressly given in [title 1 of Article 18-A]" (General Municipal Law § 858 [17]).

Article 18-A, however, does not provide IDAs with express authority to assign IDA employees to serve as the staff of another entity. In fact, IDAs' express authority to use municipal employees (General Municipal Law § 858 [6]) lends support for reading article 18-A as not authorizing any other personnel sharing (see McKinney's Statutes § 240), such as the use of IDA employees by a development corporation.

Implied Authority - "Necessary or Convenient" Clause

The lack of express statutory authority for an IDA to assign its employees to serve as the staff of another entity is not necessarily dispositive of an IDA's authority to do so. In construing a "necessary or convenient" clause like the one applicable to IDAs (see General Municipal Law § 858 [17]), the courts have indicated that "the negative inference approach is a disfavored interpretative tool, especially in the face of a broad delegation of appropriate discretion and authority to effect … stated legislative goals" (Citizens For An Orderly Energy Policy, Inc. v Cuomo, 78 NY2d 398, 412, 576 NYS2d 185, 191 [1991]; see also e.g. Gerdts v State, 210 AD2d 645, 620 NYS2d 512 [1994]; compare Wells v Town of Salina, 119 NY 280 [1890]). Nonetheless, "a narrow grant of power to make and execute contracts coupled with a general exhortation to do all that is necessary or convenient" is not an unlimited grant of authority (see Abiele Contracting Inc. v New York City School Construction Authority, 91 NY2d 1, 11, 666 NYS2d 970, 974). Instead, an IDA's power to contract and to do things "convenient" must be construed in relation to its purposes and its express powers (see General Municipal Law § 858 [17]; see also 1991 Ops St Comp No. 91-32, supra; 2007 Ops Atty Gen No. 2007-F4).

To the extent that the statutory purposes of an IDA and the corporate purposes of a development corporation are similar, it certainly can be argued that a contract pursuant to which the IDA staffs a development corporation is a "convenient" way to accomplish those shared purposes. Thus, it can also be argued that an IDA has implied authority to enter into such contracts based on its express powers to appoint officers, agents and employees, to contract, and to do all things necessary or convenient to carry out its purposes and exercise its express powers
(see General Municipal Law § 858 [7], [9], [17]).

In our view, however, this argument ignores the limitation inherent in an IDA's express power to appoint officers, agents, and employees. That power is clearly intended to enable an IDA to carry out its own functions, not those of another entity. While an IDA and a development corporation may have common purposes, they are separate corporate entities (see General Municipal Law § 856 [2]; General Construction Law §§ 65 [a] [1], [2], [b] [3], [c] [4], 66[1], [4], [7]), the operations and activities of which are separate and distinct. Therefore, although an IDA may have authority to contract to provide certain services to a development corporation, and to use its employees to perform the services provided by the IDA under the contract, we do not believe that an IDA can simply contract to make its personnel available to a carry out a development corporation's separate and distinct operations and activities. This is particularly true when a development corporation's corporate purposes are broader than the IDA's statutory purposes. Any other conclusion would permit an IDA to serve as a staffing agency for any organization engaging in at least some activities that are consistent with the IDA's statutory purposes, a role which we believe that IDAs were never intended to play.

Indeed, an IDA's express powers make clear that the primary means by which IDAs fulfill their statutory purposes is by providing certain types of "financial assistance" to "projects," or itself acquiring, constructing, reconstructing, leasing, improving, maintaining, equipping or furnishing one or more "projects" (see e.g. General Municipal Law §§ 854 [4], [14], 858 [10], 859 [1] [b], 864, 874). For this purpose, the term "project" is defined essentially as certain land, buildings, improvements, and other real and personal property (see General Municipal Law § 854 [4]). Providing IDA personnel to staff a development corporation, however, is not a "project," and not even necessarily related to any particular "project." Therefore, we do not believe that providing IDA employees to staff a development corporation bears a sufficient relationship to an IDA's express powers to be considered "convenient" to the exercise of those powers.

Conclusion

Accordingly, in our opinion, an IDA lacks authority to hire individuals as IDA employees and assign them to serve as the staff of not-for-profit local development corporations or similar entities.

March 21, 2011

Kevin Murray
Executive Deputy Comptroller

¹ Independent of any inference that may be drawn from the conclusion reached in this opinion, we believe that there is a plausible basis for questioning the status of the individuals in question as employees of the IDA. The services agreements provide for the individuals to provide services in furtherance of the operations and activities of the development corporations, not those of the IDA. The direction and control over the individuals vested by the agreements in the IDA, if not illusory or violative of the fiduciary duty of the development corporations' directors, is at best qualified materially by the requirement that the IDA "give due consideration to the recommendations of and seek assistance from" the development corporations' boards of directors. The agreements also impose on the development corporations the full cost of the employment relationship, including the costs incurred in connection with claims asserted against the IDA by third parties, notwithstanding the purported status of the individuals in question as IDA employees and under the control of the IDA.