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An overview of New York’s Local Development Corporations

September 8, 2011

Local development corporations are similar to Industrial Development Agencies, but unlike IDAs, LDCs can be created by any county, city, town, or village without the enactment of special enabling legislation. Under section 1411 of the Not-for-Profit Law, LDCs can be created for the following purposes:

  • relieving and reducing unemployment;
  • promoting and enhancing employment opportunities;
  • instructing or training individuals to improve or develop skills;
  • conducting scientific research to attract or retain industry; and
  • lessening the burdens of government and acting in the public interest.

Like IDAs, LDCs have a wide range of powers. They include the ability to construct and acquire development projects and the power to issue bonds without voter approval.

LDCs are classified as either local public authorities or private nonprofits depending on how closely they’re related to local governments. The leading court decision on this issue is Griffiss Local Development Corporation v. N.Y.S. Authority Budget Office, which held that the LDC was a local authority based on a number of factors including the county’s sponsorship and funding of the LDC, the county’s redevelopment contract with the LDC, the LDC’s use of certain local tax funds, and the overall close relationship between the LDC and the county and municipal government. The ABO has recommended that LDCs should be considered public authorities when they “manage revolving loan funds or influence the allocation of public grant moneys, act as staff for a public entity or authority, receive most of [their] operating funds from public sources, or have been delegated independent authority to manage public projects or to act as the agent of a municipal government….”

Concerns about LDCs have grown over the past few years because local governments and IDAs have increasingly turned to LDCs to take debt off the books, provide questionable financing arrangements, and avoid statutory limitations (such as restrictions preventing IDAs from undertaking civic facilities projects). Another concern is the proliferation of LDCs with overlapping jurisdictions and similar purposes. As the ABO has explained, “this redundancy can be inefficient, promote unnecessary competition for projects and financing, and shift responsibility or control for public projects from government to not-for-profit corporations without proper public oversight.” There’s also some evidence that the Empire State Development Corporation has sought to use LDCs to avoid financial reviews by the Public Authorities Control Board.

Classifying an LDC as a public authority ensures some amount of state oversight under the Public Authorities Accountability Act of 2005 and the Public Authorities Reform Act of 2009. The ABO has determined that 209 LDCs qualify as local public authorities, but keeping tabs their numbers is close to impossible given the ease with which they can be created. Tracking LDCs is even harder because the ABO doesn’t receive any notification when new LDCs are created.

The New York State Comptroller issued a report on the municipal use of LDCs in April, 2011. The report calls for a number of reforms, including:

  • expanding the Comptroller’s authority to audit LDCs;
  • restricting LDCs’ authority to provide financing for local government operations and capital assets;
  • prohibiting the creation of LDCs solely for the generic purpose of “lessening the burdens of government and acting in the public interest”;
  • requiring contracts between local governments and LDCs to be for fair value;
  • prohibiting compensation for LDC board members who already serve as municipal officials;
  • requiring the public notice for transfers of municipally-owned property to LDCs to disclose a description of the property, the price or benefit to be received by the local government, the property’s estimated fair market value, and a statement of the LDC’s intended use of the property; and
  • clarifying that local governments can’t guarantee or assume the debts of LDCs.

The Comptroller’s report also identified substantial compliance problems with financial reporting requirements, noting that more than half of the state’s LDCs failed to submit reports to the ABO in 2009. Without this information, it’s difficult to get a clear picture of the impacts that LDCs have on public finances and economic development practices.

Additional information about LDCs can be found in the Comptroller’s 2011 annual performance report on IDAs and in the ABO’s 2011 annual report on public authorities.

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