Albany, N.Y. — Big political contributions from law firms earning transaction fees on IDA deals may fuel more and larger corporate subsidies.
Those are the main findings of an investigative study released today by Reinvent Albany and Good Jobs First.
From 2017 to 2022, nine prominent upstate New York Industrial Development Authorities:
- Signed subsidy deals valued $42 billion.
- Collected IDA fees from the deals worth $85.6 million, a small portion of which was paid to law firms in disclosed fees.
- Generated another estimated $29 million to $39 million in undisclosed transaction fees for their law firms.
The estimated $29 million to $39 million in undisclosed fees went to Harris Beach, PLLC and Hodgson Russ, LLP. The firms also served the IDAs as transaction or bond counsels. In these transactions, the law firms represent the IDA, but are paid by businesses receiving the IDA subsidy. Firms are paid based on the number and size of subsidy deals, so they make more when an IDA gives away more tax dollars.
During the same 2017 to 2022 period, Harris Beach and Hodgson Russ gave a combined $810,000 in campaign contributions to local candidates or political party accounts located within the boundaries of the nine IDAs: Albany County, Erie County, Monroe County, Nassau County, Onondaga County, Orange County, Suffolk County, Westchester County, and the City of Yonkers. This was the vast majority of the total political contributions the firms made to local candidates and committees in New York: 84% by Harris Beach ($657,000) and 87% by Hodgson Russ ($153,000).
Thus, like the IDAs themselves, the politically influential law firms have a strong profit motive to encourage elected officials and IDA boards to abate local tax revenue that would otherwise support schools, parks, libraries, and public safety. (Our recent report, “Perverse Incentive: How New York’s IDAs Depend on Giving Away Tax Dollars” found that deal fees generate 80% of the revenue of New York’s 107 IDAs, thus creating a financial inducement to IDAs to subsidy deals. In 2021 alone, tax abatements – mostly through IDAs – cost NYS schools $1.8 billion.)
Policy Recommendations
- Eliminate the perverse incentive IDAs have to give away tax revenue by making IDAs local government agencies funded by general revenue within the local budget.
- Require all fees to deal counsels be paid directly (and disclosed fully) by the IDA, not the applicant company.
- Require IDAs to disclose deal counsel fees separately for each transaction to the ABO.
- Forbid IDAs from abating property taxes that would otherwise go to schools.
“When we talk about America’s tax break-industrial complex, this insider-dominated system in New York State is Exhibit A,” said Greg LeRoy, Executive Director of Good Jobs First. “No one should have a personal or institutional self-interest in giving away tax revenues, period.”
“New York’s IDAs are political operations motivated by deal fees, campaign contributions and influence peddling. IDAs divert billions from schools and parks, so a handful of politically-connected law firms can make millions in lucrative fees and politicians can tell a story about fixing the upstate economy,” said John Kaehny, Executive Director of Reinvent Albany.