Whitewash Fails, IDA Admits New Housing Policy Was Reaction to KSD Vote

Isn’t it rich? Isn’t it queer? Losing my timing this late in my career
But where are the clowns? There ought to be clowns. Don’t bother, they’re here — Stephen Sondheim

April 6, 2021

Kingston, NY – Observers are so inured to the endless maneuvering to hand the Kingstonian developers their gigantic PILOT tax break that we risk reacting to new ploys with a shrug of resignation. The latest episode is another deep dive into the technicalities that throw people off the trail. This article looks at holes in the IDA’s attempt to justify two housing policy changes so it could approve the $30 million local tax giveaway.

Timeline, in a nutshell.

August, 2020: The Ulster County Industrial Development Agency adopts a housing policy they think will allow them to hand Kingstonian developers a $30 million tax break.
November, 2020: Kingston School District makes clear it will oppose; IDA realizes that given KSD opposition, the housing policy’s wording could block tax giveaway.
January, 2021: IDA votes to ditch the wording that blocks the tax giveaway.
January, 2021 (5 minutes later): The IDA okays the tax giveaway.
March 3, 2021: The IDA appears before Ulster County Legislature subcommittee to deny the timing was dodgy.

Rational, or arbitrary and capricious? The IDA tries and fails to explain itself.  

Courts often rely on a determination of whether one party acted in a rational manner, versus one that is arbitrary and capricious. On March 2, the IDA’s CEO Rose Woodworth, counsel Joe Scott and Chair James Malcolm appeared before the Ulster County Legislature’s Economic Development, Tourism, Housing, Planning & Transit Committee to defend the IDA’s arbitrary and capricious decision to change its policies so it could justify handing the Kingstonian’s developers $30 million in local tax breaks, $6.8 million in NYS grants, and possibly tens of millions in federal tax breaks.

Mindful of the lingo, Scott and Woodworth sprinkled their talk with references to “rational” choices and “routine” policy housekeeping in the hopes no one would notice that the IDA’s vote was anything but.

Lynn Archer and Abe Uchitelle, the two legislators who questioned them, didn’t buy it. Unswayed by the rehearsed explanations, they said the IDA had lost the confidence of Ulster County residents.

Any observer knows instinctively this process has been arbitrary and capricious. Spelled out here are descriptions of events that can only be described as arbitrary and capricious, not rational, unless you define “rational” as any means to justify doing what you wanted to do all along.

First, a little background. Sorry for the mind-numbing technicalities, but these are the IDA’s justifications and how they throw people off the trail.

Definitions.

PILOT v. deviated PILOT: The first is a ten-year standard schedule of tax breaks. In the second, the PILOT deviates from the standard ten year schedule, including by stretching out the timeline and possibly other attributes. The Kingstonian PILOT is set to last for 25 years.

The Uniform Tax Exemption Policy (UTEP) is a set of rules the IDA puts out to make sure it treats all projects, well, uniformly. Here is the link, and here are two portions relevant to this discussion.

The UTEP’s deviated PILOT portion.

SECTION 8 (D) Review by Agency with Affected Tax Jurisdictions. Before the Agency shall enter into a PILOT Agreement that deviates from the policy set forth herein, the Agency shall (1) notify each affected Tax Jurisdiction in accordance with Section 8(A)(2) hereof, and (2) attempt to obtain the written consent of all the affected Tax Jurisdictions to such deviation. In the event that the Agency is not able to obtain the consents of all the affected Tax Jurisdictions to such deviation, the Agency may enter into such PILOT Agreement that deviates from the policy set forth herein without the consents of such affected Tax Jurisdictions. The provisions of this Section 8(D) shall not apply in situations where the Agency holds title to property for its own account.

UTEP rules on policy changes.

SECTION 9. ANNUAL REVIEW OF POLICIES (A) General. At least annually, the Agency shall review its tax exemption policies to determine relevance, compliance with law, effectiveness, and shall adopt any modifications or changes that it shall deem appropriate. Unless otherwise provided by resolution, such annual review shall take place at the annual meeting of the Agency each January, notice for comments on such policies shall be circulated thirty (30) days prior to such meeting to Ulster County and affected Tax Jurisdictions, and adoption of any changes shall take effect immediately upon approval by the Agency. The Chief Executive Officer (CEO) shall be responsible for conducting an annual review of the tax exemption policy and for an evaluation of the internal control structure established to ensure compliance with the tax exemption policy, which shall be submitted, to the Agency for approval. The thirty (30) day comment period shall not apply to the adoption of the original policies of the Agency, which said policies shall become effective as herein provided.

Timeline, in narrative.

In May, the IDA fired Randall Leverette and Paul Andreassen, members who were said to oppose PILOTs for this sort of housing. The IDA law is silent on tax breaks for such developments, but given global money flows into luxury housing, these projects are also gaining in popularity in New York State, where they are sweetened with layers of tax giveaways such as local property tax exemptions, grants from Albany, and on the federal level, the Opportunity Zone exemption from capital gains tax.

Until this year, the IDA allowed only workforce or senior housing. But by August, with Leverette and Andreassen gone, the IDA was free to amend the policy to allow projects of the Kingstonian’s kind, and did so, with the caveat that the three affected taxing jurisdictions must agree. Why did they feel the need to secure local consent, which is another term for approval by the affected taxing jurisdictions? Perhaps because public opposition to the Kingstonian was growing and it would look good if the taxing jurisdictions went along.

The three taxing jurisdictions that would lose out in this case are the City of Kingston, Ulster County, and the Kingston School District.

At least for a while, the IDA apparently did rely on the taxing jurisdictions to weigh in. “It’s been quoted in many meetings that, you know, we’re waiting for feedback from the taxing jurisdictions,” noted Archer.

The IDA probably thought it would be a breeze to secure consent from the three taxing jurisdictions, and so on Aug. 4, the IDA’s Governance Committee passed Section E, its first pro-Kingstonian housing addendum. That evening, Kingston’s City Council voted to approve an early version PILOT. And on Nov. 17, the Ulster County Legislature voted in favor of a later version. But at the KSD meeting Nov. 18, it became obvious that the school board would vote against it, and on December 2, they did just that.

At the time, school board member Herbert Lamb said he received assurance from the deputy county executive that the IDA would follow policy by not awarding the tax break.

Instead, on Jan. 20, 2021, the IDA amended the Housing Policy by adding Section F, which did away with the earlier requirement for local consent, and as justification, they pointed to the UTEP’s Section 8, which does NOT require local consent for deviated PILOTs. A few minutes later, they approved the roughly $30 million 25-year deviated PILOT for the Kingstonian.

More timeline: a closer look at the housing policy changes — a poster child for ‘arbitrary and capricious’.

Until August of 2020, the IDA permitted housing only for workforce or continuing care facilities, and it was silent on the issue of local consent. Here, on p. 51, is that Housing Policy.

Below is the new Section E, which allowed for the Kingstonian PILOT, passed by the Governance Committee August 4 and by the full IDA August 12.

(E) Notwithstanding anything herein to the contrary, the Agency may consider granting “financial assistance” to any housing project, or any mixed-use project that includes a housing or residential component, that has received the prior approval from the governing board of Ulster County, and of each town, village, city and school district in which the housing project is located.”

Below is the new Section F, which scraps the requirement for local consent, passed on January 20, 2021.

(F) As described in (E) above, the Agency will attempt to obtain the prior approval of each town, village, city and school district in which the housing project, or any mixed-use project that includes a housing or residential component, is located. In the event that the Agency is not able to obtain the approvals of all such entities, the Agency may consider the granting of “financial assistance” to such housing project, or such mixed-use project that includes a housing or residential component, without such approvals.

Here is the resolution containing addendum (F), on the last page, passed on Jan. 20. Here is the housing policy including addendum (E) added on Aug. 12.

What could possibly be wrong with the IDA’s explanation? A lot

At first, the IDA said the reason it voted to change the housing policy in January was to comply with the deviated PILOT section of the UTEP.

But who says they have to change policies to match the UTEP? No one, it turns out.

A look at Section 9 above shows there’s no requirement that individual policies match the UTEP. In fact, Scott noted that up until a few years ago, the UTEP portion on deviated PILOTs specifically DID require local consent. Scott said that at the time, the IDA “was concerned about making sure that local governments… had the ability to weigh in.”

In other words, the IDA could have changed the UTEP to match the housing policy, rather than change the housing policy to match the UTEP.

Arbitrary and capricious, anyone?

Perhaps unintentionally, Scott also acknowledged the arbitrariness. “If there’s an out if you will or an exception in the Uniform Tax Exemption Policy, you would think that there’d be a similar provision in the housing policy, and the fact that it wasn’t in there in the first place was frankly, not, not, not explainable as counsel. I’m not going to take responsibility for that. It’s really an issue of the evolution of the policy, and the evolution of the views of the members as they looked at the policy.”

Translation: The IDA members’ views about the housing policy changed when the KSD didn’t vote as expected. Joe, we already knew that, but thanks for confirming it. And a special thanks for calling the maneuver what it really is: “an out” as opposed to a rational decision.

For a further look at the IDA’s explanation, links are provided at the bottom to the audio recording of the meeting and a transcript.

Timing is everything.

At first, Scott and Woodworth offered conflicting explanations of the timeline of the latest housing policies. Scott said it was customary for the IDA to change policies in January, as Section 9 notes. “Again, it’s a fairly typical, fairly routine activity … at the January meeting, and this amendment to the housing policy was just one of those matters.”

Then Woodworth implied that the August policy change was simply part of a review of ALL policies.

“What we started doing in August was literally going through our policies alphabetically in the governance meeting, which, as I don’t know if you remember that was first one that I noted that we changed was the audio policy because it starts with the letter A,” she said.

Did they do this in alphabetical order? Yes and no. According to p. 6 of this document, the Governance Committee did begin a review on August 4. They did away with the Audio Policy and kicked the following over to the Audit Committee for further study: Background Check, Code of Ethics, Enforcement of Agency Projects, and Fee Schedule Guidelines. But at the same meeting they voted in the addendum to the Housing policy to make way for the Kingstonian PILOT. With H fast-tracked for amendment but B, C, E and F slow-tracked for further review, it was clear the IDA was giving priority to the developers.

Addressing Scott’s contention that rule changes in January were standard procedure, Uchitelle said, “It’s a bit confusing because you mentioned the rule change being something that typically happens in January, but we see that that wasn’t the case when a rule needed to be changed in August in order for this to be considered in the first place.… I have a really hard time looking my constituents in the eye and explaining to them, how consistency, logic and rationality are the underpinning of this decision.”

Scott replied, “We saw an issue with that policy in June and July” – right after Andreassen and Leverette were fired in May. “Some IDAs, given membership changes, change their position on housing,” Scott acknowledged.

It was not known who instigated the firing of Leverette and Andreassen. Leverette voted against a PILOT for the Governor Clinton and Yosman Tower senior housing.

The IDA just happened to notice the UTEP/Housing discordance around the time the KSD made it clear they were opposed.

Scott said several times that it wasn’t until November and December that the board noticed that the housing policy didn’t match the UTEP.

“The timing of this, along with that decision on the Kingstonian, is really somewhat suspect,” said Archer.

Well of course the timing is suspect, because the IDA expected the school board to play along, and it wasn’t until the KSD meeting on November 18 that it became obvious the school board was going to vote against it, which it did on Dec. 2.

So much for rationality, and chalk up one more for the arbitrary and capricious column.

And as to the Jan. 20 change in policy and the vote minutes later to approve the PILOT?

“We can understand the optics here..” said Woodworth. “However, it didn’t really make sense to penalize an applicant because of a mistake that was made on our part putting a policy out of line with our UTEP.”

Rose, how about a statement that what really doesn’t make sense is to penalize a city, county and school district by shifting onto them the cost of a luxury housing and garage project that will exacerbate inequality and housing unaffordability. Plus an addendum that the IDA’s second mistake was to try to pull the wool over the citizenry’s eyes with lame excuses that don’t hold water.

Uniformity? Consistency? With what?

Implicit in the stated desire to be “uniform” and “consistent” with policy are the notions of, well, uniformity and consistency. But there is nothing to be uniform and consistent about, because the Ulster County IDA has never considered a PILOT of this magnitude or for this kind of housing project.

Arbitrary and capricious, anyone?

Just because such housing projects are beginning to gain approval from other IDAs doesn’t mean they’re allowed in New York State, as Woodworth claimed. Lawsuits have yet to reach the Appellate Division, much less the Court of Appeals, which is the highest court in the state of New York.

What about the 30-day rule?

No one has ever mentioned the portion of Section 9 requiring that all taxing jurisdictions be sent notice about proposed policy changes. In any event, school board members have said they were never informed in advance about policy changes.

A torrent of crocodile tears about the school district.

Woodworth acknowledged consternation about the unfairness to the School District and urged the Ulster County Legislature to lobby Governor Andrew Cuomo to mitigate that problem.

Economists have established unequivocally that as a general rule tax breaks hurt people living in districts where the “incentives” are awarded. NYS Comptroller Thomas DiNapoli has pointed out many times that taxpayers are called upon to make up the difference, either in higher taxes or reduced services.

The developers say few children, if any, will live in the Kingstonian. But they can’t predict that. What about their target market of local elderly? If that prediction holds and local empty nesters move in, first they’ll have to sell their homes. And who’s going to buy those homes? Young couples starting families, and those children will add to the costs of the Kingston school district. If existing classrooms can absorb the new students, fine. But at some point one additional pupil is going to push capacity over the edge, and the schools will build new classrooms, hire new teachers and procure new supplies. This expensive proposition is what’s known as the marginal cost of one more student. The developers have no way of knowing if their tenants are going to have children, and they have no way of knowing how many children will one day occupy the local single family homes that supposedly will be vacated by local elderly residents.

Here, the three taxing jurisdictions would receive about $5 million over 25 years, instead of roughly $28 million, and the school district would lose out on about $16 million. A talking point among project supporters is that $5 million is better than nothing. Is this true? No, because it’s a false dichotomy, meaning that’s not the choice, because Brad Jordan has said many times that if the PILOT doesn’t go through – which would exclude the city parking lot – he’ll go ahead and build on his own property, where presumably he’ll be paying his full share, or at least a larger share, of property tax.  That means the taxpayers won’t be picking up such a big tab, if they pick one up at all.

Links.

A recording of the March 3, 2021 meeting of the Ulster County Legislature’s Economic Development, Tourism, Housing, Planning & Transit Committee can be found here. Or, you can listen to this audio excerpt with matching time stamps on this transcript.

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