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Economic development corporations aren’t entitled to sovereign immunity, according to the Texas Supreme Court

April 19, 2019

The Texas Supreme Court ruled in March that local development corporations aren’t entitled to claim sovereign immunity. The issue arose in the context of a contract dispute involving the Rosenberg Development Corporation (RDC) and a performance agreement it entered into with Imperial Performing Arts, a nonprofit performing arts organizationThe RDC challenged the court’s jurisdiction to hear any of Imperial’s claims, contending that it was immune from liability for damages under the Texas Local Government Code. The court, however, didn’t agree. Rosenberg Development Corporation v. Imperial Performing Arts, Inc., 2019 Tex. LEXIS 242, 2019 WL 1090918(3/8/19).

The court first explained that the Texas Development Corporation Act authorizes municipalities to create local economic development corporations like the RDC, noting the legislature’s findings that establishing and funding economic development corporations is “in the public interest” and “serve[s] a public purpose.” Significantly, while the Development Corporation Act requires economic development corporations to comply with open meetings and public records laws, it classifies economic development corporations as nonprofit corporate entities with “the powers, privileges, and functions of a nonprofit corporation.” The law further specifies that economic development corporations are not “political subdivisions” and it prohibits municipalities from granting them any “attributes of sovereignty.”

Next, the court discussed the doctrine of sovereign immunity, which protects the states and their agencies from liability for damages. In Texas this immunity takes two forms: “(1) immunity from suit even when the sovereign’s liability is not disputed and (2) immunity from liability even though the sovereign has consented to the suit.” As the court explained: “Immunity from suit recognizes the judiciary’s limited authority over its sovereign creator and thus implicates the courts’ subject-matter jurisdiction to resolve a dispute against the state. In comparison, immunity from liability only protects the state from money judgments, is not jurisdictional, and must be raised as an affirmative defense rather than by jurisdictional plea. As a common-law doctrine, the judiciary determines whether immunity exists in the first instance, and if it does, we defer to the Legislature to waive or abrogate it.” The court also explained that “political subdivisions” such as municipalities are not stand-alone sovereigns and therefore are not generally entitled to sovereign immunity, but under the doctrine of governmental immunity they’re deemed to share the state’s immunity whenever they act in the performance of state functions. As the court cautioned, however, “governmental immunity extends ‘as far as the state’s [immunity] but no further,'” and thus “no immunity exists for acts performed in a proprietary, non-governmental capacity.”

In determining that the RDC was not entitled to immunity from suit under the governmental immunity doctrine, the court emphasized that economic development corporations were not the sort of “political subdivision” typically eligible for this type of immunity. Rather, the Development Corporation Act “explicitly rejects an economic development corporation’s political-subdivision status.” The court also declined to find any implied legislative intent in the nature of economic development corporations that would be sufficient to grant them governmental immunity, and it distinguished an earlier case involving a self-insurance fund on the basis that the self-insurance fund, unlike economic development corporations, was specifically defined as a “local government.” While the RDC emphasized that economic development corporations aren’t “ordinary” nonprofit entities because they’re subject to open meetings and public records laws, as well as other restrictions and requirements not usually applied to private nonprofits, the court found this argument unpersuasive. As it noted, “heavily regulating an entity does not equate to conferring governmental-entity status.”

The court also emphasized that governmental immunity is a common law rule “exclusively for the judiciary to define,” and thus even if economic development corporations were defined as “political subdivisions” this might not be sufficient for immunity to attach. In this respect, the court explained that “granting immunity to economic development corporations is not necessary to satisfy the political, pecuniary, and pragmatic policies underlying our immunity doctrines. Governmental immunity benefits the public by preventing disruptions of key governmental services, but economic development corporations are not tasked with performing essential services. Rather, these entities are authorized for the limited purpose of promoting and developing enterprises to encourage employment and the public welfare.” The court similarly found that immunity wouldn’t be justified on the basis of public fisc concerns, noting that “sovereign immunity is ‘designed to guard against the unforeseen expenditures associated with the government’s defending lawsuits and paying judgments.'” Economic development corporations simply do not present this sort of risk of unforeseen governmental expenditures, the court explained, since they typically operate by developing projects in accordance with prearranged plans and performance agreements, and because the statutory scheme contains other restrictions on liability and financial exposure.

“Governmental immunity,” the court concluded, “does not extend like ripples from a pebble tossed into a pond but, instead, is limited to those entities acting as an arm of state government. Despite fulfilling public purposes, economic development corporations do not exist quite like an arm of the state government, imbued with aspects of sovereignty such as immunity from suit. Moreover, the fundamental purposes of governmental immunity do not countenance immunizing economic development corporations like RDC from suit nor does the Development Corporation Act purport to contemplate the same.”

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NY Court of Appeals affirms ABO’s separate reporting requirement for IDA and affiliated LDC

March 27, 2019

The New York Court of Appeals released an opinion last week dealing with public authority reporting requirements. The case, Madison County IndustrialDevelopmentAgency v. NYAuthoritiesBudget Office, involved the ABO’s determination that separate annual reports had to be filed by the Madison County IDA and a local development corporation that it was closely affiliated with. The court affirmed the ABO’s determination, finding that it wasn’t arbitrary or capricious, and it also discussed some broader issues related to the ABO’s powers and the classification of LDCs as “affiliated” or “subsidiary” public authorities. While the court emphasizes how narrow its holding is, the discussion of LDCs is still pretty significant give that the Court of Appeals has only considered LDCs in two previous cases (one holding that they’re subject to FOILand the other dealing with property taxes).

The court noted at the outset that Madison County IDA is a local public authority, which makes it subject to the reporting requirements in the Public Authorities Law. The LDC involved in this case was the Madison Grant Facility Corporation (“MGFC”), which the IDA had incorporated to administer certain grant funds and limit its liability for any violations of the grant conditions caused by third-party contractors. This “affiliation” between the IDA and the MGFC was enough to classify the MGFC as a local public authority, but its certificate of incorporation also expressly acknowledged its status as a local authority under the Public Authorities Law. When the ABO sent a notification to the MGFC that it was required to submit annual financial reports, however, the IDA responded by claiming that the MGFC was its “subsidiary” and requesting permission to file consolidated reports. The IDA didn’t provide any legal basis for this sort of exception from the reporting requirements, and the ABO explained in a subsequent letter that it had concerns about the “loss of transparency and accountability” implicit in this sort of consolidated reporting. The ABO was also skeptical about the IDA’s ability to create “subsidiary” corporations, and the Attorney General issued a formal opinion upon referral of the matter that confirmed the ABO’s suspicion that IDAs have no legal authority to create “subsidiaries.”

Despite the ABO’s concerns and the questions raised by the Attorney General’s findings, the Madison County IDA nevertheless filed consolidated reports in 2015 with the MGFC. It explained in a letter to the ABO that the MGFC had no financial activities due to delays in the grant funding, and it also referenced the FAQs on the ABO’s website, which explained that in some circumstances subsidiaries would be permitted to file consolidated annual reports. The ABO did not agree, and it sent an final letter determination at this point and denied the IDA’s request for consolidated reporting. The ABO’s decision was subsequently affirmed by both the Supreme Court and the Appellate Division.

The Court of Appeals also affirmed the ABO’s determination as reasonable and neither arbitrary nor capricious in light of the statutory reporting requirements for public authorities, which apply to “each” and “[e]very” state and local authority. More persuasively, the court also emphasized that the statutory reporting requirements had to be interpreted in light of the purposes of the Public Authorities Law to provide financial transparency and public oversight. The court specifically recognized the importance of the the Public Authorities Accountability Act of 2005, which was intended to “”promote public confidence in the financial and operating integrity of these institutions” by expanding the information required to be disclosed to the government and public.” The court also noted that additional reforms were enacted in the Public Authorities Reform Act of 2009, which expanded the powers and resources of the ABO so that it could “better “police” state and local public authorities. As the court, explained, “the ABO was given broad authority to “request and receive from any state or local authority… such… information, books, records, other documentation and cooperation as may be necessary to perform its duties.” In light of this context, the ABO’s insistence on separate reporting was reasonable and fully consistent with its statutory grant of power.

The court also concluded that ABO’s decision was not ultra vires, as it limited its denial to the narrow issue of separate reporting requirements and if did not make any final determination as to whether MGFC was a “subsidiary” or not. While the ABO explained in its letter determination to the IDA that it would not treat the MGFC as a subsidiary for purposes of its consolidated reporting request, the court explained that this decision fell far short of making any specific determination that the IDA “lacked authority” to incorporate the MGFC as a subsidiary. As the court explained: “a local development corporation such as MGFC, which is “affiliated” with a local IDA, is also a local authority subject to the PAAA and, as such, has reporting obligations. Regardless of whether MGFC is also a subsidiary, it is clearly an “affiliate” of MCIDA within the meaning of the statute. The PAAA does not contain a reporting exception for subsidiaries of local authorities, and petitioners have not identified any other statute or regulation that excused MGFC from its obligation to separately report.”

See also:

Links Roundup: NYS IDAs

November 4, 2016

Taxed Off: Millions in breaks for IDAs, but few jobs

Press & Sun-Bulletin

… Rochelle Industrial Development Agency that has them paying a combined … An analysis by the New York State Authorities Budget Office found “little … “Very few projects of any significance are done in New York, completed in …

Mixed-Use Development Supports Downtown New Rochelle

Hudson Valley News Network

Additionally, the New Rochelle Industrial Development Agency provided an exemption from sales tax on … construction loan and a SONYMA-insured permanent loan through the New York State Common Retirement Fund (CRF).

Notable tax-exempt land in New York

The Journal News | LoHud.com

Stegner pointed to New York state law, which provides property-tax … the land over to the New York City Industrial Development Agency, which in turn …

Fulton County pushing tech park

The Daily Gazette

… Executive Director of the FUlton County Industrial Development Agency. … The Tryon Tech Park already has one tenant, Vireo Health of New York, …

NYSEDC hosts Technology-based conference

Corning Leader

… director of the Steuben County Industrial Development Agency (SCIDA). … NYSEDC represents 900 member throughout New York to promote the …

MVCC Foundation names board officers

The Central New York Business Journal

Zogby is also a member of the Oneida County Industrial Development Agency board, president of the board of Central New York Health Home …

After Decades as a New York City Landlord, the Port Authority is Going Back to Its Roots

Commercial Observer

“There were times when they saw themselves as an industrial development agency,” said Barry Hersch, a clinical associate professor at the NYU …

Federal Suit Challenges NY Nuclear Subsidies

RTO Insider

Despite its best efforts to avoid litigation, the New York Public Service … The suit, filed in U.S. District Court for the Southern District of New York in … said Gary Toth, vice chair of the County of Oswego Industrial Development Agency

Senator Schumer announces $17 mil unlocked

WGRZ.com

… loan funds that exist through the Erie County Industrial Development Agency. That money will be used for projected throughout Western New York

The Agency breaks ground on construction of new headquarters, business-development center

The Central New York Business Journal

The Agency is the rebranded name of the Broome County Industrial Development Agency (IDA). Its board of directors oversees both the IDA and the …

Michaelle Solages to represent New York’s 22nd Assembly District

Newsday

In response to outrage over the Hempstead Industrial Development Agency’s tax break for the Green Acres Mall, she wants to hold the IDA more …

Expansion, 160 new jobs coming to Coast Professional in Geneseo

The Livingston County News

Bill Bacon, director of the Livingston County Industrial Development Agency, confirmed news of the expansion and estimated new job figures Monday …

Bartlett Dairy deal to develop site near JFK

Queens Chronicle

A 24-page cost/benefit analysis prepared by the New York City Industrial Development Agency said Bartlett would receive just over $15 million in city …

Utica council: Hire local

Utica Observer Dispatch

The city of Utica Common Council recently approved a resolution urging the city’s Industrial Development Agency to consider a policy where project …

MVCC Foundation names board officers

The Central New York Business Journal

Zogby is also a member of the Oneida County Industrial Development Agency board, president of the board of Central New York Health Home …

NYSEDC hosts Technology-based conference

Corning Leader

… director of the Steuben County Industrial Development Agency (SCIDA). … NYSEDC represents 900 member throughout New York to promote the …

After Decades as a New York City Landlord, the Port Authority is Going Back to Its Roots

Commercial Observer

“There were times when they saw themselves as an industrial development agency,” said Barry Hersch, a clinical associate professor at the NYU …

Federal Suit Challenges NY Nuclear Subsidies

RTO Insider

Despite its best efforts to avoid litigation, the New York Public Service … The suit, filed in U.S. District Court for the Southern District of New York in … said Gary Toth, vice chair of the County of Oswego Industrial Development Agency

 

Public Authorities

November 4, 2016

Public authorities ‘must consider trade-offs’ before setting Internet of Things regulation

PublicTechnology.net

The government must proceed with caution when considering regulation of the Internet of Things and realize a one-size-fits-all approach may not be …

Digital Economy Bill lacks clarity on data sharing, experts say

ComputerWeekly.com

The changes to be introduced cover a number of aspects of data management, including plans to allow public authorities to share personal data with …

Privatizing, partnerships future of public transit

Toronto Sun

In 1951, public authorities took control of Montreal’s transit system by municipalizing the private company that was until then offering transit services

Digital Republic Bill Uses Crowdsourcing To Promote Data Protection, Net Neutrality And …

Techdirt

… policy to include public and private entities, public service concession holders or entities whose activities are subsidized by the public authorities.

How much should we know about Jayalalithaa’s health?

Daily News & Analysis

… are of sound mental and physical health, isn’t it in the ‘interest of the public’ to ask the same of public authorities whose decisions impact the nation?

Links Roundup: NYS LDCs

November 4, 2016

SEC Fines Firm for ‘Fraudulent’ Audits of Ramapo, Ballpark

Patch.com

The SEC announced fraud charges back in April against Ramapo, its local development corporation, and four town officials, alleging that they cooked…

SEC Brings Two Proceedings Naming Auditors

JD Supra (press release)

The firm served as the outside auditors for the Town of Ramapo, New York and the Ramapo Local Development Corporation, established to engage in…

SEC settles with auditor in NYC suburb’s bond fraud case

Reuters

By Jonathan Stempel | NEW YORK … the town of Ramapo, New York, and its local development corporation, which were charged with fraud in April…

BRIEF-GE, Baker Hughes deal has $1.3 billion breakup fee-exec

Reuters

… issued fraudulent audit reports in connection with municipal bond offerings by the town of Ramapo, New York, and its local development corporation …

Broome funding more temporary Willow Point staff

Press & Sun-Bulletin

EIC is a New York State nonprofit local development corporation funded in part by the New York State Energy Research and Development Authority …

RE: Draft Environmental Impact Statement for the Redevelopment of the “East Parcel”

River Journal Staff

This statement is submitted pursuant to the provisions of the New York State … SEQRA, New York’s Environmental Impact Assessment legislation, … that the Sleepy Hollow Local Development Corporation (“LDC”) and Village Board …

CWC awards stormwater funds

Oneonta Daily Star

The CWC is a non-profit, local development corporation responsible for … economic development and education programs in the New York City …

The Agency breaks ground on construction of new headquarters, business-development center

The Central New York Business Journal

… the IDA and the Broome County Local Development Corporation (LDC). … National Development Council and the New York Business Development …

Ceresney Warning: Expect Continued SEC Enforcement Activity Regarding Municipal Securities

The National Law Review

On April 14, 2016, the SEC brought civil fraud charges against Ramapo, New York, its local development corporation and four town officials, alleging …

Broome funding more temporary Willow Point staff

Press & Sun-Bulletin

EIC is a New York State nonprofit local development corporation funded in part by the New York State Energy Research and Development Authority …

County Exec Mahoney’s scathing response to Syracuse mayor: Good riddance

Syracuse.com

In today’s letter, Mahoney accused Miner of reneging on an agreement not to form a local development corporation to compete with the Onondaga … the $500 million that Central New York won in the Upstate Revitalization Initiative.

Links Roundup: NYS Public Authorities

March 10, 2015

New Yorkers Foot The Bill For Billions In Public Authority Spending

News Written by Kate Gurnett

Spending by New York’s largest public authorities jumped $3.5 billion since last reported in 2013, with  state and local authorities reporting nearly $60 billion in spending in their latest annual filings, according to a report released today by State Comptroller Thomas P. DiNapoli. Meanwhile, the combined debt of state and local authorities topped a quarter of a trillion dollars.

“Public authorities borrow and spend billions of dollars outside the state budget,” DiNapoli said. “And from Buffalo to Brookhaven, New Yorkers foot the bill. These shadow governments are responsible for the bulk of our hefty debt burden and are used to provide hundreds of millions of dollars annually in non-recurring resources to support the state budget. Recent authority actions suggest that authorities must do more to open their doors to public accountability.”

Of the nearly $60 billion spent, DiNapoli found that state public authorities spent $38 billion in their last reported fiscal year, while local authorities reported spending $21.5 billion. Of the 1,180 public authorities in New York, 325 are state authorities, 847 are local authorities and eight are interstate or international authorities, according to DiNapoli’s report.

DiNapoli’s report found that New York now relies on public authorities to undertake most of its borrowing -dubbed “backdoor borrowing” because it circumvents a state constitutional provision restricting the issuance of general obligation debt without voter approval. In addition, the state uses authorities to provide hundreds of millions of dollars annually to support the state budget, which disguises state spending levels and weakens transparency and accountability. The last two enacted state budgets combined anticipated more than $650 million in budget relief from the Metropolitan Transportation Authority, the New York Power Authority and others, essentially shifting costs from the general tax base to those who use authority services.

Just five years after the last major legislative public authority reform, DiNapoli’s report identified troublesome issues at several public authorities. They include:

  • The investigation of the Port Authority of N.Y and N.J. by the U.S. Attorney’s Office, the Manhattan District Attorney, the U.S. Securities and Exchange Commission and others, related to matters including the 2013 George Washington Bridge access lane closures;
  • The Thruway Authority’s indication in late 2013 that a toll and finance task force would be created to identify new resources to help pay for the new Tappan Zee Bridge. To date, however, the Authority has not established such a task force, and the financing plan and toll impact of the new bridge are unclear. Moody’s Investors Service and Standard & Poor’s Rating Services lowered their credit ratings for the Authority, citing factors that included uncertainty about funding of the new bridge and adequacy of overall Thruway toll revenues in coming years;
  • Findings by the Authorities Budget Office that the Environmental Facilities Corporation board made inappropriate use of executive session, dismissed concerns raised by the federal Environmental Protection Agency without proper consideration, and engaged in only limited discussion and participation in meetings regarding its approval of a $511 million loan to the Thruway Authority for projects associated with the Tappan Zee Bridge replacement; and
  • The Long Island Power Authority’s reduction of oversight for its service provider. Audits and reports on LIPA in recent years have identified areas requiring improvement, including adequacy of regulatory oversight, rate relief, financial management and debt, customer service, and storm preparation and response.

In total, public authorities employed 153,578 people at a cost of nearly $10 billion a year in total compensation, with more than 19,000 employees (nearly 13 percent) receiving total compensation of $100,000 or more. By comparison, less than 8.7 percent of state employees and 14.7 percent of New York residents earned as much.

Public authorities’ spending and activities — including purchases, personnel expenditures, contracts and other transactions — are not subject to the same independent review, oversight and reporting requirements as state agencies. The Comptroller’s audits of public authorities’ have revealed numerous examples of deficient contracting practices, improper expenditures and inadequate oversight. While the Public Authorities Accountability Act of 2005 and the Public Authorities Reform Act of 2009 established accountability mechanisms, authorities remain largely exempt from many day-to-day controls that apply to other government agencies.

The report is based on self-reported data by public authorities to the Office of the State Comptroller. The data, which is not independently verified by the Comptroller’s audits, represents the authorities’ most recently reported fiscal years, and does not reflect a common fiscal year or the state’s fiscal year.

Links Roundup: NYS LDCs

March 10, 2015

Businesses Push On With Plans To Grow Medical Marijuana

WAMC

Under New York’s medical marijuana law, up to five businesses may be … to meet with the Washington County Local Development Corporation.

Hyde: State wants to ‘put more handcuffs on IDAs’

The Daily News Online

Hyde was referring to the economic development slogan Cuomo’s adopted, “New York is Open for Business.” … is $10,000 for the EDC and $25,000 for the agency’s financial arm, Genesee Gateway Local Development Corporation.

Ex-New York State Senator Malcolm Convicted of Bribery

National Legal and Policy Center

The first story, in the New York Post of January 31, 2010, focused on a nonprofit called New Direction Local Development Corporation, which …

Kaiser Appointed Senior Vice President of Arrow Financial Corporation

PR Newswire (press release)

… Warren County Local Development Corporation Loan Review Committee, … Falls, New York, serving the financial needs of northeastern New York.

Mangano Announces Free Business Seminar To Assist In The Hiring Of Developmentally Disabled

LongIsland.com

The Nassau County Local Economic Assistance Corporation (NCLEAC) is a local development corporation, created by the Nassau County Legislature …

Lucky Blue Smith And Kristina Bazan Get Schooled

Look To The Stars

According to the New York City Department of Education, for the Class of 2013 … Hills Local Development Corporation, and Make the Road New York.

Energize NY Offers Funding for Businesses

ithaca.com

Joe Del Sindaco of Energy Improvement Corporation, the local development corporation that offers Energize New York, explained some of the …

Batavia Town Board approves agreement with developer

Buffalo News

… Industrial Development Agency, New York Green Inc., and Genesee Gateway Local Development Corporation. … not covered by a $175,000 grant issued by the New York State Energy Research and Development Authority.