[Ed. Note: Updated Sept. 26 throughout and new graf at end re dispute b/w IDA and Patrick Ryan.]

September 22, 2021

Kingston, NY – With Andrew Quid Pro Cuomo’s reign of terror over, officials throughout New York State are probably wondering if his pay-to-play culture will continue unabated under Gov. Kathy Hochul or whether she will defer to calls to clean up state corruption.

In Ulster County, the Industrial Development Agency may need to tack into shifting winds.

A current brouhaha concerns tax breaks worth about $1.17 million the IDA awarded to a Kia dealership that wants to move from the tony Stockade District in Uptown Kingston to the commercial district a few miles away. County Executive Patrick Ryan disallowed the tax break after the dealership’s owners went public asking him to sign off on it.

A “shakedown,” is how IDA member Richard Jones termed Ryan’s bid to increase his control over the IDA by using the Romeo Kia PILOT as leverage.

Ryan may be bowing to community opinion. He has heard earfuls from local watchdog groups who criticize the IDA as a cash-for-cronies vending machine that siphons taxpayer dollars to ventures that would take place with or without tax giveaways. It is also possible that rival car dealers who have not received tax breaks have pressured Ryan to withhold approval.

On Thursday, Ryan released a letter on his Facebook page confirming that he was denying the tax break application.

Are businesses entitled to tax breaks?

In the case of Romeo Kia, the owners wrote in their application that when they moved their Chevrolet dealership to the heavily traveled Rte 9W site, sales and service revenue doubled. With that dealership a stone’s throw away, Kia sales and service should also double, so why do they need a tax break?

A key feature of IDA vetting is the “but for” clause, where applicants self-attest that “but for” the tax break, the project wouldn’t get off the ground. (Compare the hue and cry landlords raised when tenants self-attested that Covid had caused them to lose income – and this when funds to pay lost rent are coming from the federal government. Meanwhile, no one bats an eye when businesses self-attest they need tens of millions that would otherwise fund schools and other local services.)

Economists have shown that in most cases, the businesses would launch anyway. Poster child for that finding is the Amazon HQ2 kerfuffle, where New York City activists successfully fought a huge tax break for Amazon. Since then, the behemoth has quiety bought up property throughout the city, proving that the tax break made no difference.

Observers can never know for sure, of course, but one thing we can do is check whether everything else in the IDA application is above board.

In the case of Romeo Kia, it’s not.

According to the DMV, “If a purchaser of a motor vehicle is a nonresident of New York State, sales tax is generally not imposed nor required to be collected.” But Romeo Kia included that in the tax revenue it said it would generate for state and local coffers. (See p.5 of the application.)

It’s unlikely that this is an honest mistake, given that the company’s Chevrolet website claims it has been in the car business for 50 years.

Was the IDA’s failure to catch that an honest mistake? The word “honest” is an oxymoron when applied to people who maneuvered for months if not years — with utter disregard for their own rules, the will of the people, and the tiniest iota of ethics — to hand tens of millions of tax perks to unscrupulous developers.

This much bigger issue that has raised allegations of trickle-down Cuomo corruption is the IDA’s award of a $30 million tax break for a luxury housing project known as the Kingstonian.

The gargantuan giveaway has sharply divided the community, and the project is tied up in litigation. In what could be lip service, or a tactic to ward off lawsuits by prospective developers, or a reluctant buckling under pressure, the IDA recently imposed a temporary moratorium on tax breaks known as payments-in-lieu-of-taxes (PILOTs) for real estate projects.

Proposed market rate housing tax break slips in under the wire.

The IDA allowed one exception for a proposed Marlboro 104-unit housing development project whose application was submitted in August.

The lone IDA member to vote against allowing the Marlboro application to proceed was Faye Storms, who is a realtor, on grounds that the project would create only three jobs. Really??? Ms. Storms voted in favor of the Kingstonian, which promised 14 jobs in return for the $30 million tax break – at a cost of $2.1 million a job. The Marlboro developers are asking for a tad more than $6 million and will create three full time positions, a comparative bargain at only $2 million each.

The Marlboro development also raises the “but for” issue. The developers, who are based in Newburgh and Greenwich, CT, seem to be deep-pocketed and financially-savvy. In an ironic note, the Greenwich business is called Pilot Real Estate Group. They told Spectrum that they needed the PILOT to get more bank financing.

Lawsuits used to arm-twist IDAs

Romeo Kia has said it will sue if its tax break does not come through. Since the IDA approved the Romeo Kia PILOT, and since the IDA’s moratorium applies only to housing projects, it was unclear who would be the target of the lawsuit.

Also open to question is whether such a moratorium would protect the IDA from lawsuits filed by future market rate housing developers, who if denied a PILOT could claim they too were entitled to tax breaks in light of the Kingstonian precedent.

Given the IDA’s history of subterfuge, the quote from IDA attorney Joe Scott can be dismissed as word salad. “The IDA has been receiving inquiries regarding housing,” he said. “The IDA would like to review that in the context of getting more information to address some of the issues and concerns that the IDA has with the potential banning of financial assistance for housing projects. The IDA has determined that in order to do that we need to put a moratorium on the consideration of housing projects so that … the IDA has time to consider the information that it’s going to get with respect to its outreach.”

No, Joe. You don’t need time. You and the IDA ditched your rules barring tax breaks to luxury housing as soon as you figured out you could. You and the IDA opened the floodgates when you bent over — and by extension, bent the people of Kingston and Ulster County over — for your cronies.

Plans for the Kingstonian were hatched in 2016 or early 2017 at the latest, and thanks to five years of careful and premeditated management by Cuomo’s henchmen in state and local government, the developers have succeeded in ducking regulations and even the law, removing officials who opposed the project, arm-twisting others into submission, tossing rules and policies, and in general steam-rolling over community opposition.

In this regard, the IDA’s behavior has been egregious.

Without the capo dei capi to guarantee their sinecure, the consiglieri in local government and the IDA’s giovani d’onore are waffling on tax breaks to real estate interests, which were among Cuomo’s biggest campaign donors.

“So they get the Kingstonian passed and then suddenly clutch their pearls about housing?” veteran Kingston-watcher Sarah Wenk said. “Right….”

A cynic will wonder whether the big local landlords want to shut down competition from an onslaught of rival builders seeking tax breaks; whether they want to shut down affordable housing developers in order to keep the riffraff out of Kingston; or whether the IDA merely has its finger to the wind and will do whatever it must to protect itself from legitimate charges that it is craven, corrupt and self-dealing.

Conspicuously absent from tax break discussions is talk of potential profit. For the most part, IDA applications start with a discussion of what great guys (usually) the applicants are, their saintly past works for the community, their selfless offers to help the community now, and then why they need just a little bit of your money to make this new miracle come true. This is followed by wildly inflated estimates of new jobs and tax revenues and spillover economic manna from heaven that will transport everyone over the rainbow into a financially secure la-la land.

What they don’t mention is profits. Set aside the likelihood that the Kingstonian is a pre-construction condo boondoggle, and consider the profit if the investors hold as a rental property. This St. Louis Federal Reserve chart shows that for the past few decades, multi-family housing projects have doubled in value. At a projected price tag of $55 million, this means that in ten years the project will be worth $110 million. Subtract the mortgage, estimated in ten years to be about $30 million, and that means that after a sale the developers could pocket $80 million free and clear, and that could rise to a nine-figure payday after a few more years. Not bad for a $6 million cash investment. Needless to say, the developers have taken a vow of silence on such matters.

In denying the Romeo Kia tax break, Ryan noted that the purpose of the IDA is to encourage economic development in distressed areas, and he compared Uptown Kingston’s 2019 poverty rate of 19.7% with the future Romeo Kia district’s poverty rate of 16.4%. The argument rings hollow. For one, given the displacement of many poor renters these past few years amid skyrocketing rents and housing prices, the poverty rate is likely much lower in the now chic Stockade District, where co-working spaces with kombucha subscriptions cater to wealthy transplants from New York City. Second, even if the Stockade District did have a poverty rate of 19.7%, that falls below the 20% cutoff that is generally used to define distressed areas. What was the pretext, then, for the Kingstonian? That the Stockade District was adjacent (yes, that’s right, adjacent!) to a census tract with a poverty rate above 20%, and that it was once designated an Empire Zone, another old economic development program that expired years ago.

Could it be that by hammering home the rationale of poverty percentages, spurious though it is, Ryan is anticipating a need to defend his approval of the Kingstonian?

It’s time to dismantle the IDAs as well as take a closer look at New York’s so-called “economic development” apparatus that enriches the few at the expense of the many.

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