The Industrial Development Agency - An essential tool for our growth on Long Island

In 1964, New York State passed legislation to form the Industrial Development Agency (IDA). The purpose was to form a local economic agency to assist with the expansion of primarily manufacturing companies throughout New York state. Counties and townships were able to apply to the state to create their individual economic development agency to promote growth and expansion. Since then, the agency has been a valuable economic engine spurring growth and development throughout New York State. The coming of age for IDAs was in the 1980's. The focus was to grant individual companies the ability to either obtain a tax exempt financing status or taxable bonds from their lender. This method of financing ignited the built-to-suit market and in some cases, it allowed companies to obtain 100% of their total project costs. Obviously, the company's financials had to support the debt service. Fast forward to when the IRS began questioning the use of tax exemption bond financing and then implemented specific guidelines. For companies to be granted the ability to secure tax exempt financing, (at rates which, in most cases, were half that of the going rate), they now had to establish that they were a "true manufacturing" company. Besides the fact of using the raw material to manufacture a completely new product within the guidelines, the majority of the space occupied by the company had to be directly related to the manufacturing process. As in most incentive programs, these new parameters were initiated as a result of abuses in the process. Additionally, it's important to understand that the costs for tax exempt financing are very high. The price, including attorney's fees, could be in the area of $150,000 to $200,000. For the most part, unless the project is in excess of $8 million, tax exempt financing, would be cost effective. Today, on Long Island, IDAs are an essential tool. The town of Babylon IDA was the first to issue 10 to 12 year real estate tax abatements from the existing tax base through which a company can enjoy 50%-60% abatement off the existing tax base with nominal annual increases. Today, other IDAs within Suffolk County, including the town of Brookhaven and town of Islip, have instituted the same real estate abatement programs in order to compete. Without question, the most important aspects of receiving the benefits are job retention and creation. These incentives have enabled companies to retain employees and prevent them from leaving the state and/or create new jobs over a three to five year period. In addition to the real estate tax abatement program, there are two other incentives available through IDAs. One is a sales tax exemption for all materials used for renovations and for a company's operating essentials such as computers, furniture, carpeting, etc. The other incentive is the elimination of the mortgage recording tax , which typically offsets the cost of obtaining the IDA. Nassau County has two aggressive agencies that have done great work for the county. Recently, the town of Hempstead IDA granted a package for Flushing Financial Corp. to expand in Nassau County. Flushing had the option to relocate to Queens or Brooklyn. However, with the assistance of the Town of Hempstead IDA, along with job retention and the expectation to increase jobs over a three year period, the town of Hempstead created an incentive program that was very favorable to Flushing Financial. Another proactive IDA is the town of Islip, spearheaded by Bill Mannix, who is now chairman of the New York State Economic Council. Within the last couple of years, the Town of Islip IDA witnessed extensive growth, primarily in the heath care field. If it were not for the assistance provided by the IDA, Ascent Pharmaceuticals would have relocated to New Jersey taking with it 400 jobs. The Islip IDA also has authorized incentives for the expansion of Invagen Pharmaceuticals for a 300,000 s/f project, as well as for Alphamed Pharmaceuticals. The expansion of these three companies represent an estimated 1,000 jobs; a fairly significant number. Looking ahead to our towns and counties, they will need some assistance for the real estate tax exemption section of the IDA program. Currently, all the exemptions for the real estate taxes are off the county and town rolls. Unfortunately, there will have to be some agreement with the school districts for participation or these municipalities will be unable to perform their roles in promoting economic growth. The towns, counties and school districts all need to join into the fight and to keep Long Island moving in a positive direction. Stay tuned... Ralph Perna is the executive managing director at Newmark Grubb Knight Frank, Melville, NY