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ABO Final Report of Carthage Industrial Development Corporation
The Authorities Budget Office (ABO) is undertaking a series of reviews of selected local development corporations (LDCs) across the state to better understand the public purposes for which each LDC was formed, and to gain insight as to how these corporations function and expend public funds. These reviews will also increase public awareness of the operations of LDCs. The ABO has completed its limited scope review of the Carthage Industrial Development Corporation (CIDC). The report concludes that although CIDC has undertaken various economic development projects in the area, it also funds activities that are not related to its core mission, such as subsidizing municipal operations and managing residential housing. This report is posted on the ABO web site at http://www.abo.ny.gov/reports/compliancereviews/CarthageIndustrialDevelopmentCorporationFinal%20Report2013.pdf and available to the public at: www.abo.ny.gov.
From the Rochester Democrat and Chronicle
Questions about investigations into LDCs answered
Gary Craig and David Riley :: 6:50 p.m. EDT October 21, 2013
The current investigations into corporations tied to Monroe County sound more like a helping of alphabet soup than a political scandal of any significance. But hundreds of millions of dollars of taxpayer money — and questions of whether it is being spent properly — are at the core of the controversy.
That said, the investigation is admittedly confusing. With that in mind, here are answers to some of the questions that are commonly asked.
What is an LDC?
A local development corporation, or LDC, is a private nonprofit company, usually established to handle public projects. They have their own governing bodies and rules, though they are quasi-governmental in nature. Local governments typically help create and then use LDCs because they see them as a vehicle for significant cost-savings. As state Comptroller Thomas DiNapoli has noted in reports, “LDCs generally are not subject to the same requirements and procedures as local governments with respect to borrowing, procurements and certain other matters that relate to implementing a capital project.”
Who is investigating them and why?
There are two investigations into Monroe County LDCs — one by the New York Office of the Attorney General and the other by the FBI. (The FBI has not discussed its investigation, but officials with the LDCs have acknowledged the probe.) The Attorney General’s Office in late July impaneled a grand jury for up to six months to consider whether individuals connected to the LDCs have broken laws.
The investigations are the offspring of work by DiNapoli’s office, which has been particularly critical of LDCs here and elsewhere in the state. While the comptroller has acknowledged the benefits of LDCs, he has concluded in numerous audits that they too often operate out of the public eye and can be hotbeds of favoritism in the awarding of contracts. “There’s no way for taxpayers at the end of the day to be assured their money is being used properly,” Brian Butry, a spokesman for the comptroller’s office, said recently.
What are the different LDCs used by the county and what do they do?
Central to the investigations are two LDCs created under the administration of County Executive Maggie Brooks. The county established Upstate Telecommunications Corp., or UTC, in 2004 to upgrade and maintain county computer and phone systems. In 2009, Monroe Security and Safety Systems, also known as M3S, was launched to improve public safety radio and security systems. The operations of both have been criticized by DiNapoli in audits. Other LDCs established by current and past county administrations are the Civic Center Monroe County LDC, which maintains and operates the Civic Center garage; the Monroe Tobacco Asset Securitization Corp., set up to give the county an infusion of cash by issuing bonds and buying rights to the county’s expected share of a major settlement among tobacco companies and states; Monroe Newpower Corp., which provides power to county facilities; and the Renaissance Square LDC, created for the downtown project — one combining a public transit bus garage, performing art center and Monroe Community College campus project — that was never built. County officials have contended that the LDCs have saved taxpayer millions, while DiNapoli has claimed in some audits that weak oversight with some has cost residents.
Who’s been criminally charged?
Daniel Lynch, 50, of Chili, a former sales executive at Siemens Building Technologies. UTC contracted the Rochester company to manage its project for the county. Lynch worked for Siemens for 13 years and left in March 2009, according to a statement from the company. He left to help form Navitech Services Corp., a company created by former Siemens employees that went on to work on two major LDC contracts, as well as his own company, Treadstone Development Corp., the state Comptroller’s Office said in an audit last year. Lynch was charged in an indictment unsealed Tuesday with second-degree grand larceny and two counts of first-degree falsification of business records.
What did Lynch allegedly do?
First, some backstory. One of UTC’s responsibilities was upgrading and maintaining the county’s copy machines. It contracted with another company, Toshiba Business Solutions, for the job. Fast forward to 2008, when a Toshiba employee, who is not named in the indictment, and Lynch allegedly decided to rent a hospitality “chalet” tent at the PGA Championship at Oak Hill Country Club in Rochester. They allegedly agreed that their employers would split the $100,000 cost, but there was a problem: Siemens would not allow that type of entertainment expense, the indictment says. Lynch and the employee are accused of coming up with an illegal solution: To have Toshiba submit false invoices totaling $75,000 to Siemens that looked as if they were legitimate expenses for the copier project, when in fact the money would be used to pay for the tent. Other false documents, including business records of UTC and Siemens, were used to mask the true purpose of the money, according to the indictment.
How was the money Lynch allegedly stole public money?
Attorney General Eric Schneiderman made a point in a statement he issued on Lynch’s indictment that the charges involve theft from a publicly funded entity. LDCs do receive public funds — the county’s 16-year contract with UTC totals about $99.2 million, though county leaders insist that the project saves taxpayers money. While the indictment does not explicitly say so, the cost of false invoices in a county copier project left taxpayers footing the bill.
What do Siemens and Toshiba have to say about this?
Not much. Toshiba spokesman Rick Havacko said his company is cooperating with the Attorney General’s Office, but does not comment on pending legal matters. Alison Lewis, a Siemens spokeswoman, said in a written statement that the company is aware of Lynch’s indictment and that it too has cooperated with the Attorney General’s Office. The charges against Lynch deal with one specific incident. Is the investigation looking at other possible issues with LDCs? Yes. While the scope of the charges against Lynch is narrow, investigators have seized thousands of pages of documents from multiple locations and reportedly are looking more broadly at allegations of bid-rigging and preferential treatment with LDCs.
What are Lynch’s connections to LDCs and the county?
Lynch has been a key player in LDCs and the companies that work for them for years. An audit from the Comptroller’s Office last year said he worked for Siemens during the creation of Monroe Newpower Corp., an LDC that was created in 2002 and contracted with Siemens for a project involving a county power plant. Minutes of meetings of the UTC board from 2006 through 2008 also frequently listed Lynch as an attendee. Lynch and his company, Treadstone, have been well-paid through LDC projects. A comptroller’s audit of M3S said Treadstone received $822,000 in consulting fees from January 2010 to Sept. 30 from Navitech, and Lynch was paid $369,000 directly. Annual reports from UTC for 2009 to 2011 also list about $175,000 in payments to Treadstone in those years, though it is not clear if they are related to or separate from the money mentioned in the comptroller’s audit. Lynch also has been generous in campaign donations to county and state candidates. From 2005 to 2011, he donated at least $41,000 to the Monroe County Republican Housekeeping Committee, and from 2006 to 2010, a little more than $12,000 to County Executive Maggie Brooks’ campaign account, among other recipients, according to state campaign finance records. It is clear Lynch has been generous in other ways, too. He and his wife, Karen, founded the Generosity Store on South Goodman Street in Rochester. Its sales benefit Golisano Children’s Hospital and the School of the Holy Childhood, whose president and CEO, Donna Dedee, said the store gave students an outlet to sell goods they make at the school and valuable work experience. “We found their entire family to be incredibly generous and innovative,” Dedee said of the Lynches last week.
Has anyone in county government been implicated?
No. Nelson M. Rivera, a county official closely tied to LDCs, resigned earlier this month, but he has not been accused of doing anything wrong. However, Rivera, who was the county’s chief information officer, has retained a criminal defense attorney. Rivera filed a formal defense of the UTC contract when the Comptroller’s Office questioned it in a 2011 audit. County Democrats have questioned if he had a conflict of interest in the selection of Navitech for the M3S contract, noting the company listed him as a reference while he also sat on a selection committee for the contract. The county has contracted with former U.S. Attorney and former state Attorney General Dennis Vacco for legal assistance with the LDC investigation. Vacco, now in private practice in Buffalo, has not returned calls for comment. The Monroe County Water Authority also has retained the law firm Burke and Burke.
Are more indictments likely?
Yes. Even Lynch’s attorney, Michael Schiano, said more indictments are expected. When Lynch was arraigned, Schiano noted in court the expectation of “other (indictments) that will be coming down the line in the next few weeks.” And sources knowledgeable about the investigation have told the Democrat and Chronicle the same thing. Predicting who will be indicted is a crapshoot, and unsurprisingly, rumors are hot and heavy in political circles. At least 15 local lawyers have been retained, but that does not mean that many people are likely to be charged. Some of those hiring lawyers are people involved with the LDCs who have testified or will testify before the grand jury and want legal advice and assistance.
In a typical investigation, prosecutors and authorities would look for someone with knowledge of malfeasance, if, in fact, any occurred. It’s likely prosecutors with the Attorney General’s Office are doing just that, hoping someone can provide helpful information that clears up the unquestionably murky picture about the LDCs.
The Authorities Budget Office (ABO) is undertaking a series of reviews of selected local development corporations (LDCs) across the state to better understand the public purposes for which each LDC was formed, and to gain insight as to how these corporations function and expend public funds. These reviews will also increase public awareness of the operations of LDCs. The ABO has completed its limited scope review of the City of Kingston Local Development Corporation (KLDC). The report concludes that much of what KLDC does is consistent with its statutory purpose, however it has also taken on projects and activities that are city functions. The final report is posted on the ABO web site and available to the public at: www.abo.ny.gov.