Opportunities with Industrial Development Agencies: How much can they lower your tax burden?

"Pro-business." "Cost saving." "Promote development." "Fast track approval process." These are not quotes from a developer, rather they are just a few of the many positive attributes advertised by Industrial Development Agencies. It has been difficult to ignore the increased activity of Industrial Development Agencies (IDAs) in recent years. Once thought of as available to only a few select applicants, IDAs have opened their doors and are willing to work with anyone who can help promote economic growth. Developers who recognize the benefits of IDAs have been approaching them with increased regularity. IDAs' efforts to assist with projects that will create jobs and prosperity in their respective town or county have not been limited to attracting new companies. In fact, IDAs have been instrumental in keeping businesses that are considering a potential move and helping those businesses expand. One feature of the IDA structure that allows them to be so effective in attracting and maintaining development is their ability to tailor an agreement specific to each transaction. Where one company may desire a set tax payment to eliminate future uncertainty, another may want sales tax exemptions for tenant improvements associated with their project. The IDA has the unique ability to discuss each item and come to an agreement that best meets the developer's needs. While a custom agreement is an advantage in many ways, it can create problems if its terms are not thoughtfully and carefully drafted. Many issues can arise over the life of an agreement that may have been unforeseeable or deemed unlikely at the agreement's inception. For this reason, the matter of recourse to review the property's assessment and tax burden becomes critical. Generally, a Payment in Lieu of Taxes (PILOT) agreement is entered into with the property owner, with the manner in which the property taxes are to be levied outlined in the PILOT. PILOT agreements typically mirror the assessment roll's figure while applying an exemption to that assessment. Often the exemption applied to the PILOT assessment is similar to a new construction exemption where the amount of exempt assessment descends from 50% by 5% each year. Many owners think that because they are agreeing to a negotiated assessment, they may not be able to protest their taxes; but this is not the case. Within the PILOT agreement it is critical that the owner protect his rights, outlining and specifying his right to file a grievance and protest his taxes. This enables the owner to review his assessment and ensure that the PILOT agreement remains beneficial or within the market range. PILOTs with a set tax payment structure can pose a particular problem for property owners. Contracted amounts that seem wildly advantageous at present may prove to be anything but after several years have elapsed. Clients have come to me years into a PILOT agreement, seeking to unburden themselves of a contracted amount that once seemed like a tremendous value. Unless agreements are carefully crafted at the outset, owners can find themselves trapped without any mechanism to reduce the amount during the life of the agreement. The method in which successful grievances are processed should be outlined as well. Some of the boilerplate PILOT language states that refunds may only be received in the form of credits during the duration of the agreement. However, a situation can arise where the credits exceed the remaining tax burden and thus, overpayment for which the owner is rightfully entitled is lost at the expiration of the agreement. This is another provision that, if drafted carefully, can allow that either the PILOT agreement be extended to compensate the owner until the credits expire or the remaining credits be transformed to a refund payment at the expiration of the agreement. Just as in any real estate transaction, terms that appear superficially favorable at the agreement's inception may not have the intended impact years into a PILOT agreement. Precisely for this reason, it is critical for owners to consult with their property tax counsel in order to be certain their rights are protected so that they may not only enjoy the intended benefits of their arrangement with IDA, but also be protected from any events that may arise in the future. This will allow both the property owner and the IDA to enjoy a mutually beneficial relationship and promote true economic growth. Brad Cronin, Esq., is an attorney and partner and Sean Cronin, Esq. is an attorney at Cronin, Cronin & Harris, P.C., Mineola, N.Y.