Objectives

To determine whether the New York City Industrial Development Agency (NYCIDA) has policies and procedures in place to approve, monitor, and measure project performance and whether they were followed. We also determined whether NYCIDA recaptured public benefits in accordance with the project and/or lease agreements. The audit covered the period from July 2013 through August 2021.

About the Program

NYCIDA was created by the New York City Council in 1974 “to promote the economic welfare of its 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.”

NYCIDA provides financial assistance to companies in New York City through tax waivers of City and State sales and use tax, local property tax abatements, and reductions to City and State mortgage recording tax. Companies requesting financial assistance must provide a reason why, if not for the financial assistance provided by NYCIDA, the company would not be able to undertake the project. Businesses are also required to estimate the capital cost of the project, provide the financing sources, and project the full-time equivalent (FTE) jobs that would be created or retained if the financial assistance request is granted.

If NYCIDA determines that a business meets certain eligibility criteria, as set forth in NYCIDA’s uniform tax exemption policy, it engages with the company to discuss potential projects. The business must be able to show that its project would not occur without NYCIDA’s assistance as well as make a commitment to hire under the HireNYC program, a workforce development program that creates local employment opportunities.

Key Findings

NYCIDA did not have policies and procedures in place that address factors related to the projects selected for financial assistance. Specifically, NYCIDA did not:

• Maintain detailed records of prospective projects and intake actions, resulting in a lack of assurance that the financial assistance process is fair and equitable to all businesses seeking assistance. Information on businesses deemed ineligible or whose applications stalled prior to award either is not kept or is incomplete. Additionally, not all required application documentation was maintained.
• Obtain required supplementary application documents from 21 of the 23 projects sampled. These documents could have provided more information about the businesses applying for financial assistance. For example, among the missing documentation was the past 3 years’ financial statements (13 applicants) and copies of certificate of liability insurance (10 applicants). Two businesses were not required to submit an application because their projects were a continuation of benefits from another project.
• Perform accurate financial feasibility analysis. We selected 17 of the 23 projects in our sample to review NYCIDA’s financial feasibility analyses. For 15 of the 17 projects, either NYCIDA did not do an analysis or the analysis was done incorrectly. For the remaining two projects, NYCIDA did not provide any documentation to show whether an analysis was performed, as NYCIDA relied on demand and development studies provided by third parties for these development projects instead of performing the analysis. NYCIDA officials stated that there is a 0% rejection rate of formal applications presented to the Board because NYCIDA staff performed due diligence on every application.
• Focus on creating or retaining jobs. The 23 projects we sampled had 2,517 employees and anticipated hiring an additional 4,559 FTEs within 3 years of project completion. However, two projects that expected to hire 472 FTEs were granted multiple extensions (8 months and 36 months) for completion of construction. As the projects have not yet completed construction, the City has not received any of the expected benefits. These two projects received approximately $2.67 million in sales tax, property tax, and mortgage recording tax exemptions. Additionally, two projects that were terminated had the same number of employees as when they started, yet they received benefits of $113,950.
• Collect the appropriate recapture or repayment amount. Of a judgmental sample of 28 projects with recapture payments, 15 had multiple recapture or repayment calculation errors. These errors resulted in a net under collection by NYCIDA of $674,894 in 15 recaptures and repayments.

Key Recommendations

• Document and retain application inquiry, intake, and approval decisions regardless of applicant status.
• Revise NYCIDA’s lease agreement to include penalty clauses that reduce benefits to projects that do not create the anticipated number of jobs.
• Revise the financial analysis template to ensure the template formulas are correct and capture all relevant information to determine a project’s financial feasibility.