New Report: IDAs Have Perverse Incentive to Give Away Tax Dollars

Albany, N.Y. – Deal fees generate 80% of the operating budgets of New York’s 107 Industrial Development Agencies (IDAs), and for a third of IDAs, transaction fees account for 100% of their operating income. But for such fees, most IDAs would expire or barely exist. 

IDAs in turn spend most of that revenue on their staff salaries and benefits, and on consultants. 

The more tax revenue an IDA abates, the more dependent it is likely to be on deal fees for its operating income.

Those are key findings in “Perverse Incentive: How New York State’s IDAs Depend on Giving Away Tax Dollars,” a report published today by Reinvent Albany and national watchdog Good Jobs First. It concludes that IDAs have a perverse incentive to give away tax revenue that would otherwise support schools, parks, and emergency services. 

The findings come from a close analysis of IDA-reported data to the state Authorities Budget Office.  

The costs are enormous: In 2021 alone, tax abatements – mostly awarded by IDAs – cost NYS school districts a staggering $1.8 billion.  

The report finds that because IDA staff and consultants have a direct interest in making new tax break deals, IDAs are motivated to do more and bigger deals and expand beyond their legal mission of promoting “industry.” Some New York IDAs are ignoring the state Constitution and abating taxes on housing development. 

The report includes policy recommendations:

• Eliminate the perverse incentive to give away tax revenue by funding IDAs within local government budgets.  
• Forbid IDAs from abating property taxes that would otherwise go to schools.
• Confirm the state constitutional prohibition on IDAs subsidizing housing. 

“Not all of New York’s IDAs are unscrupulous, but the way they are funded opens the door to bad actors interested only in enriching themselves at the expense of our communities. This perverse incentive has been evident for years, but this new research lays bare how dangerous and pervasive it could be. This is why I have spent years pushing for – and continue to push for – policy changes to ensure critical funding is never withheld from schools or other public programs to fund projects that will provide no tangible benefit to their communities,” said Senator Sean Ryan.

“Watchdog groups have been sounding the alarm for years on IDA problems. New York should take a hard look at IDAs and question why so much power is being delegated to unelected officials whose activities take place outside of the constitutional budget process and whose staff salaries depend upon giving away tax revenue,” said Ron Deutsch, Senior Policy Fellow at Reinvent Albany.

“The power to abate taxes should always reside with people who can be held accountable at election time,” said Greg LeRoy, Executive Director of Good Jobs First. “And people negotiating tax abatements should never have an institutional or personal self-interest in undermining the tax base for basic public services that benefit all employers.”

See below for the full report, or click here to view the report as a PDF.