IDA Resolution: The Kingstonian Is a Commercial Project

“And the moral of that is—‘Be what you would seem to be’—or, if you’d like it put more simply—‘Never imagine yourself not to be otherwise than what it might appear to others that what you were or might have been was not otherwise than what you had been would have appeared to them to be otherwise.’” — Lewis Carroll

‘Oh what a tangled web we weave/When first we practice to deceive.’ — Sir Walter Scott

January 29, 2020

THE COMMERCIAL RESOLUTION

[Ed. Note: This was updated March 24 to correct an error regarding contiguous census tracts and to highlight other differences with relevant case law. The Vindicator apologizes for failure to notice earlier. See, Universe, this is why The Vindicator needs colleagues, lawyers, editors. Please send.]

The gist: This resolution is a grab bag of weak arguments including: the law’s exceptions to the ban on retail; the (wildly inflated) projections of economic activity, and a 1985 Opinion of the NYS Comptroller about designating a project as “commercial.” Perhaps the developers hope the combination is strong enough to withstand a challenge, and this may be why the developers threw everything up against the wall in hopes that something would stick.

Background: First, the developers said the garage would be paid for by the rents. Then, they changed their story and claimed the PILOT was for the garage. (Note the application still says that but for the IDA’s assistance, “this precarious funding structure would collapse under the weight of the parking garage.”) Then, the developers abandoned that argument, perhaps because it’s not a good look when you’re asking for a $27 million PILOT for a garage that you say is going to cost $17 million where you may hire one or two employees and where the number of spots available to the public may well be reduced and will more than septuple in price. So they changed their tune to say they need a PILOT for the entire project, and that the real point is to bring in roughly 300 new tenants who’ll be supporting businesses Uptown. This new tack perhaps makes the PILOT more lawsuit-resistant by classifying the Kingstonian as a commercial project. How inconvenient, then, the number of times the developers have stated publicly that if it weren’t for the garage Jordan would have already developed his property. Also, a tiny point but possibly significant is that the developers chose a NAICS number of 812930, which is the number for a garage. As a side note, the IDA was in cahoots with, or possible the author of, the strategy, because as early as August the UTEP policy was updated to facilitate the “commercial” designation, and that’s when Brad Jordan started talking up the purchasing power of 300 new residents.

The State Comptroller Opinion: Housing is not mentioned in the original IDA statute, but commercial activities are, and from early on, interested parties wanted to know if housing was allowed. In 1985, the Comptroller of the State of New York issued an Opinion that the determination whether a housing project is a commercial activity within the meaning of the Act is to be made by local officials based upon the relevant facts, and that any such determination should take into account the stated purpose of the Act, that is, the promotion of employment opportunities and the prevention of economic deterioration.

As a result, the developers carpet-bombed their application with references to promoting employment and preventing economic deterioration.

These conditions were reaffirmed in Triple S. Realty Corp. v. Village of Port Chester, Index No. 22355/86 (Sup.Ct. Westchester Co. Aug. 19, 1987), when the Westchester County Supreme Court held that residential construction may be eligible for industrial development agency benefits if such construction would increase employment opportunities and prevent economic deterioration.

Then along came Ryan v. Town of Hempstead in 2017, about a large housing development. It is of note that the lawyers for the IDA did not cite Ryan v. Town of Hempstead, but instead cited the Opinion of the NYS Comptroller. This could be because Ryan v Hempstead really was geared for workforce housing, whereas the Kingstonian is straight ahead luxury housing, as the IDA itself notes. Or it could be because these two cases are lower court decisions, which could very well be thrown out on appeal. Ryan v. Hempstead was a 10-year PILOT, whereas the Kingstonian is a deviated 25-year PILOT. It was also not known whether the census tract of the Ryan v. Hempstead building was in a distressed area or a thriving area such as Census Tract 9524 with rapidly increasing housing prices and drastically lowered unemployment.

As a reminder, the Comptroller’s Opinion said it must promote employment opportunities AND prevent economic deterioration. It doesn’t say OR.

A look at the second condition shows that not only is there no economic deterioration in Kingston, but an economic boom has been underway for several years. In fact, Kingston boasts the nation’s most rapidly appreciating home prices.

As for employment, any rational observer will ask whether it’s worth trading $27 million in return for 40 estimated low wage jobs, of which only 14 are actually guaranteed by the developer. Assuming an average hourly wage of $18, which is on the high end of likelihood, the PILOT comes at a cost of $675,000 for each job, and it will take the employee almost two decades to match that number in earnings. Moreover, what if the jobs aren’t really new? What if they are jobs that migrate from down the hill to up the hill? Like the Uptown Diner, or a new Savona’s pizzeria? And who would be surprised if Rondout Savings closed a branch or so, only to re-open in a shiny new storefront on Brad’s property?

The other vague standard — based upon the relevant facts and to be made by local officials — could also mean that the retail activity by 300 customers could satisfy the meaning of “commercial.” However, retail activity is not allowed under the law except in certain circumstances, one of which is that the area is “distressed.” It may be that helping an area out of its “distress” is related to preventing economic deterioration. Or, they may be separate issues. The developers seek to satisfy both conditions.

Also, it is of interest that the decision is to be made by “local officials,” of which Brad Jordan himself is one. He sits on the Police Commission and until a few weeks ago was a member of the Kingston Local Development Corporation. There must be case law defining who is a “local official,” but if so, it was not readily available.

(I know, I know, it’s tough to figure out. Please read on, and if you can do a better job of explaining it, please get in touch.)

Decision Tree About Retail: PILOTs are disallowed for retail businesses unless certain preconditions are met involving a decision tree that the developers went out of their way to satisfy.

The decision tree starts with §862(2)(b)(i)(ii), which holds that retail businesses can qualify if the goods and services are unavailable OR if the area is distressed.

As always, the developers threw everything on the wall.

The oft-repeated “desperately-needed” parking and housing claims need a closer look.

First let’s look at availability. Housing is not classified as a retail service, so we don’t need to look at that. The developers’ application states that 45% of the project’s costs will be devoted to retail, and we can assume that means the hotel, the storefronts and the garage. Let’s assume that parking IS a service — and it may be defined differently in the law, because a service may need to be related to a tangible good that is being sold. But let’s assume that parking is a service. In that case, is it unavailable? That brings us back to early objections that few parking spots are going to be added. Mayor Noble is quoted as saying the garage will add at least a hundred new spots, but a look at code suggests that number is inflated. In fact, Brad Jordan has begun increasing the number of parking spots in his mall, and the Planning Board acknowledged that Jordan would have to add spaces. Right now, without the addition of new businesses and 300 new tenants, there is plenty of parking. Then, there’s the matter of price. The current price to park in the lot is $100 a year, and that will rise to $720. This indicates that if anything, parking will become LESS available for the people of Kingston. So no, the garage will not really increase the availability of parking, and anyway, there are plenty of spots right now. So much for the “desperately needed” mantra. The fact that Uptown businesses don’t like people hogging the meters in front of their shops all day does NOT prove that parking is unavailable; these are two different issues, and the garage will NOT change the spot-hogging problem. As for the boutique hotel and storefronts, they’re clearly NOT unavailable. In conclusion, we can toss the “unavailable” pre-condition.

The next part of the decision tree is to define whether an area is distressed. The definitions of distress are found in §854(18)(i)(ii).

According to §854(18), “Highly distressed area” – shall mean (a) a census tract or… numbering area contiguous thereto which, according to the most recent census data available, has:(i) a poverty rate of at least twenty percent for the year to which the data relates or at least twenty percent of households receiving public assistance; and(ii) an unemployment rate of at least 1.25 times the statewide unemployment rate for the year to which the data relates; or (c) an area which was designated an empire zone.

On p.9 of the Sept. 3 application, the developers characterize Kingston as a distressed area, and they reference a poverty rate of 22.5% in Census Tract 9520 and an unemployment rate of 13.9%, more than 25% greater than the statewide rate of 9.375%. The numbers are wrong. The developers provided an incorrect tract number (9520) and incorrect census data. The instructions for choosing the data ask for the most recent data available but also provide leeway via a phrase “the year to which the data relates.” If I pick census data from a century ago, the majority of transportation was horse and buggy in the year to which the data relates, but that’s not the most recent census data. That data point selection would be arbitrary and capricious, and not rational, which is a standard that judges often use as a basis for decisions.

According to the most recent census data for the correct census tract, which is 9524, the poverty rate is 12% and the unemployment rate is 5% in Kingston compared with 8.4% throughout the state.

The IDA knew the developers’ numbers were wrong, because they corrected the Census Tract number in their resolutions from the incorrect 9520 provided by the developers to the correct Census Tract number 9524.

An email was sent to the Census asking whether Census tracts were re-numbered in Kingston, and if so, when, or whether it is a neighboring Census Tract number, or whether Kingston ever even contained Census Tract Number 9520. Census did not reply, but it became clear that Census Tract Number 9520 was contiguous to Census Tract 9524.

The second definition of distress that Kingston meets is (c) because Kingston was once designated an Empire zone.

Bogus and possibly outdated poverty numbers and the Empire zone designation are a very slender thread on which to hang “distress,” and it is worth asking whether these pre-conditions could be knocked out from the statute. Given Kingston’s real estate boom, the Empire zone designation makes about as much sense as using census data from the days of horse and buggy carriages, not to mention the absurdity of subsidizing luxury housing under the pretext that it will improve the lot of people living in a distressed contiguous area that may no longer be distressed.

Extrapolating further, can it be asked whether one centrally located census tract was red-lined, as it were, in order to maintain its handy “contiguous” poverty status for the benefit of IDA and Opportunity Zone developers?

—–

Here’s another way of looking at retail that originates with a source found on the internet. The internet source is in blue. My comments are in italics. The developers’ application is full of language that satisfies these conditions. Once again, they threw everything up against the wall to see what would stick.

In 1993, the Act was amended to restrict the participation by Agencies in a “retail facility”-i.e., a facility that is primarily used in making retail sales of goods or services to customers who personally visit the premises to obtain such goods or services. Exceptions are permitted for (a) “tourist destination facilities” (projects that attract a significant number of visitors from outside the economic development region),

[Nope, nobody comes to visit a garage, or a housing development, or a hotel, and there’s case law on that. They made a big deal about promoting tourism with their moveable kiosks promoting local tourism, but nobody comes to visit a kiosk either. Please see this satire piece written in July 2020 about the amount of space lavished on kiosks in the developers’ application.]

(c) certain projects that create or preserve permanent, private sector jobs and are confirmed by the County Executive if (1) the project occupant would, but for the project, locate the related jobs outside the state, or

[Nope, this isn’t going outside the state. Jordan owns the property within the state. Is there case law delegating to the County Executive the final decision-making?]

(2) the project is located in a highly distressed area (an economic development zone, New York City, or a census tract with a 20% poverty rate or 20% of households receiving public assistance and an unemployment rate at least 1.25 times the statewide unemployment rate),

[Nope, see the real census stats. However, it WAS an Empire development zone, which isn’t listed in this source, but is in the law. Time to look at THAT law and see if it makes sense for it to still be an Empire Development Zone, or if that perverts, or makes a mockery of, the purpose of that law. Then, we’re back to the jobs question. Are 40 low wage jobs worth $27 million? And will there really be 40 new jobs, or will an Uptown Diner or a new Rondout Savings branch move from down the hill to up the hill?]

or (3) the predominant purpose of the project is to make available goods or services which would not, but for the project, be reasonably accessible

[Nope, everything’s available and reasonably accessible except the housing component, and that’s not a good or service as defined by the NAICS, and not even by their own application, which states 45% of the project is retail, and that obviously excludes the housing It is also worth noting that the developers themselves picked a NAICS number of 812930, which is the number for a garage. That may be a significant detail. Note how they repeat at nauseam that parking and housing are “desperately needed.”]

—-

Among remaining aspects to look at is the section about the economic impact studies. Please stay tuned for an in-depth look comparing the three studies, which is hard to do, because they don’t measure the same things, which (surprise, surprise!) is  another trick used to confuse anyone who has the fortitude to dig.

-0-