New Report: Policy Crossroads: Reconsidering IDA Housing Tax Breaks in New York

Reinvent Albany, working in cooperation with students in the State Policy Advocacy Clinic at the Brooks School of Public Policy at Cornell, issued a new report, Policy Crossroads: Reconsidering IDA Housing Tax Breaks in New York, on constitutionally questionable housing projects being undertaken by Industrial Development Agencies (IDAs) across New York State. IDAs have been rapidly moving into the housing space despite the fact that this is outside of their stated mission and purpose.

Many longtime fiscal watchdogs are greatly concerned at the rapid increase in the number and size of housing projects being subsidized by NYS’s 107 local IDAs and calls by the Governor to increase such subsidies. Some experts on New York State governance believe IDA housing subsidies are contrary to both the enacting legislation and the economic development section of the state constitution (Article VII, Section 8).

A number of state legislators and independent experts say IDA housing subsidies are bad policy because they create today’s housing with tomorrow’s property taxes – revenue that would otherwise pay for the very schools, parks, roads, and police and fire services used by the residents of the newly-created housing. 

New York’s IDAs are local public authorities allowed by a 1969 state law that permits them to subsidize – usually through property tax abatements – business projects that: 1) promote economic welfare within the locality, 2) create jobs, and 3) could not be completed without a public subsidy. New York’s IDAs currently provide about $1.1 billion in annual subsidies and have traditionally focused on industrial and commercial projects. 

This report examines the democratic and fiscal implications of allowing IDAs to subsidize housing development, including a case study of the Tompkins County IDA’s housing projects and an exploration of the constitutional frameworks governing IDAs. 

Key Findings:

1. IDA Housing Development Constitutional and Legal Concerns: IDAs are broadening their scope and moving past their original legislative intent by subsidizing housing development. A plain reading of the state constitution seems to prohibit IDAs from subsidizing housing, whether affordable or market rate.

2. Community Issues with IDA Housing Projects:
   1. IDA boards poorly represent the breadth of the communities they cover, with no requirements to include members of groups that would be affected by projects or affected by the reduction in future local revenue caused by IDA tax abatements. 
   2. IDA projects are often presented as necessary to increase housing affordability, but only about one-quarter of units built by IDAs are below-market, and much of the resulting development is out of financial reach to the majority of local residents.
   3. Housing projects typically only provide temporary construction employment, and IDAs’ stated mission is to produce permanent job gains.

3. Greater Oversight of IDAs Needed: Both the Authorities Budget Office and the Office of the State Comptroller perform audits of IDAs, but they are too heavily reliant on self-reported data that is often insufficiently sourced and unreliable. The history of IDAs includes substantial conflicts of interest and corruption, with little oversight to prevent further abuses of power. In order to create greater transparency and accountability, eliminate conflicts of interest, and ensure projects are compliant with existing laws and communities benefit, greater oversight and investigation is needed.

4. New Legislation Needed to Limit Scope of IDAs: Legislation is needed to limit IDAs and their ability to provide PILOT payments using local school tax revenues, create better community representation of stakeholders, and ensure data provided by IDAs is accurate and thorough. 

“New York can’t fix one problem by creating another. When IDAs dole out tax breaks without proof that they’re creating the jobs they’re supposed to, it drains the local revenue that keeps our schools strong. Every community deserves both affordable housing and well-funded public schools — not one at the expense of the other. It’s long past time to rein in IDAs, ensure transparency, and protect the school funding that belongs in our classrooms, not in corporate subsidies,” said Melinda Person, President of New York State United Teachers (NYSUT).

“NYSSBA believes strongly in the importance of meaningful transparency and stakeholder engagement in the local economic development decision-making process. Given the significant impact that IDAs and PILOTs can have on education budgets and the broader school community, school board members believe those impacts should be appropriately recognized and accounted for. We appreciate the thoughtful questions and concerns raised by this report,” said Robert Schneider, Executive Director, New York State School Boards Association.

“There is no question that the state needs to invest in and develop more affordable housing and there are numerous programs and funding streams in place to assist with that. What we should not be doing is allowing IDAs to dole out our local school revenues like candy to developers that are largely developing market rate housing. I believe that IDAs have no business developing housing and in fact it is in direct conflict with their original legislative intent and state constitutional provisions that limit their scope and powers,” said Ron Deutsch, Senior Policy Fellow at Reinvent Albany.

“Given the significant public impact of the tax breaks Industrial Development Agencies grant, transparency and rigorous oversight are essential. If IDAs aim to maximize housing and community economic benefits, they must actively listen to the needs of constituents and provide the information necessary for the public to hold them accountable. By standardizing comprehensive reporting and involving expert input into decision-making, IDAs can more effectively mitigate the risks of corruption and public harm,” said Hannah Kim, co-author of the report and an alumna of the State Policy Advocacy Clinic at the Cornell Brooks School of Public Policy. 

Alexandra Dufresne, Director, State Policy Advocacy Clinic, Cornell Brooks School of Public Policy stated, “When state budgets are tight, it is common to focus on cutting spending without taking into full account the revenue side of the equation. Our joint report recommends concrete measures to ensure that decisions to grant tax abatements are made in a rational, data-driven, transparent and democratic manner.  We urge state lawmakers serious about supporting affordable housing, K-12 education, and community development to enact these recommendations. 

“Unlike some other IDA projects, there is no new local employment or other benefit from housing projects. The idea that the state would encourage housing without property taxes simply shifts the burden onto already struggling homeowners in rural communities. Since the state has already capped taxes, schools would be left with the job of educating the students in those tax subsidized properties without any additional resources. It’s a remarkably ill thought out policy. If the state doesn’t intend to provide additional aid, it shouldn’t be forcing local residents to pay for their new idea,“ said David Little, executive director, Rural Schools Association of New York State.

“Every day faith leaders witness how taking money away from our public schools is harming our communities,” said Rashida Tyler, Deputy Executive Director, New York State Council of Churches (and former Ulster County IDA Board member). “When local governments give big tax breaks to corporations, it’s our children and neighborhoods that pay the price. At a time when federal cuts are already straining social programs, we need to stand up for the institutions that educate, protect and nurture our youth. Like our houses of worship, our public schools are the heart of our communities. If we don’t fund them properly, we’re only hurting ourselves in the long run. Businesses will always find ways to support themselves, even to thrive (that is their purpose), but our tax dollars should be used to lift up the public good and build a stronger, more sustainable future, so everyone can thrive, not just a company’s shareholders.”

Charles Dedrick, Executive Director, New York State Council of School Superintendents said, “The Reinvent Albany and State Policy Advocacy Clinic at Cornell’s report make an important contribution, drawing attention to the need to ensure Industrial Development Agencies take account of how tax breaks they grant affect school district finances. New York needs to increase the availability of affordable housing. But new homes can create new demands upon schools and IDA tax breaks can weaken the ability of schools to meet new service needs.”

“IDAs in New York State are using vital school tax dollars in order to subsidize housing projects that serve developers over families. In a state that we’re already struggling to receive adequate school funding in, the last thing we should be doing is draining essential school revenue in order to pad development deals. IDAs and their housing projects not only weaken classrooms, but they encourage our current housing crisis since they aren’t truly affordable and only price out working families and educators, pushing them out of the very communities they’re intended to serve. New York can’t pretend to solve its housing crisis by shortchanging education. We need to rein in IDAs and protect school funding. This funding belongs in classrooms, not corporate subsidies,” said Kayla Mumtaz, AQE Legislative Affairs and Community Engagement Specialist. 

The Reverend Peter Cook, Executive Director, New York State Council of Churches stated that, “Historically, The New York State Council has always been a strong proponent of public education including its proper funding. It is of grave concern to us that school districts are forced to give away tax dollars intended for them to subsidize economically ineffective and ethically challenged Industrial Development Agencies. In the meantime, school districts have to tax home and business property owners at higher rates to make up for the shortfall because of IDA’s. In a state which has the highest property taxes in the country, we need to be reversing this regressive tax system which particularly impacts small business and low and moderate income homeowners.”

“IDA’s were created to promote, develop, encourage and assist various business entities that are non-residential projects in nature with the exception of continuing care facilities. What we are now seeing in Guilderland, is that developers want assistance because they are pledging to make a small percentage of multi-family development designated as ‘affordable’ or what is considered ‘workforce housing.’ This is a problem because these types of businesses do not meet the intent of what NYS Town Law says as far as what IDA’s were created to do,” said Robyn Gray with the Guilderland Coalition for Responsible Growth. 

“This new report is eye-opening, in that it highlights how New York’s 107 local IDAs are simply not the right vehicle for meeting the urgent need of low and moderate income New Yorkers for more quality, affordable housing,” said Bob Cohen, Policy and Research Director of Citizen Action of New York. “We were particularly struck by the report’s finding that from 2018 to 2022, only roughly one-quarter of IDA-approved projects were designated as affordable. The Governor needs to back off from her moves to use IDAs as a primary means of building housing. Instead, the Governor and the Legislature should work to ensure that our state housing dollars are spent to preserve and vastly expand affordable housing, and to promote tenant involvement in housing policies.”

Click here or below to view the report as a PDF.