Should IDAs and LDCs require applicants to file ESG (Environmental, Social, Governance) reports as a condition to receiving tax abatements and PILOT programs?
PILOTS are the great giveaway. Who is getting all of this money?
New York's local Industrial Development Agencies (IDAs) reported 4,262 active projects with a total value of $114 billion in 2020, according to an annual report on IDAs released by State Comptroller Thomas P. DiNapoli.
Each of these 4000+ projects seek some sort of tax break, generally relief from real property taxes, mortgage taxes, and sales tax at both the local and state levels. These tax breaks impact local taxes and taxpayers, as every dollar abated generally has to be paid by someone else – usually local residents and other property owners.
In 2020 (the most recent year that figures are available), for the 4,262 active IDA projects, total tax exemptions for IDA projects in New York State amounted to over $1.7 billion of which property tax exemptions represented $1.6 billion, or 90% of total tax exemptions. These were partially offset by $782 million in payments in lieu of taxes (PILOTs). Net tax exemptions (reflecting total tax exemptions minus PILOTs) totaled $966 million.
Meanwhile IDAs and Local Development Corporations (LDCs) also issue conduit debt, enabling developers and others to access the municipal bond markets at rates generally below other financing alternatives. Between New York’s IDAs and LDCs, over $21 billion dollars of conduit debt was outstanding at fiscal year-end 2020.
But, who are the recipients of all of these benefits. IDA and LDC applications ask very little (if anything) regarding the applicants’ ESG (Environment, Social and Governance) policies, including if the applicants even have ESG policies and how they have been adhering to them.
So, what is an ESG policy and what can it tell us about a company?
Environmental, social, and corporate governance (ESG) reporting is a method of evaluating corporate responsibility beyond the corporation’s mandate to maximize profits for its shareholders.
Taken individually, ESG reporting reveals a company’s commitment to certain quantifiable environmental goals, support for various social movements, and an analysis of the methods in which the corporation is governed – and within the ESG, asks if corporate management adheres to stated goals of diversity, equity and inclusion (DE&I).
Regarding environmental goals, developers should quantify their commitment to LEED construction, carbon reduction, alternative energy, wetlands preservation, reduction in harmful particulate matter emissions and responsible sound mitigation techniques. This is a short list of considerations. Others include commitments to recycling, graywater, runoff, and light pollution, in both their construction methods and ongoing management of different types of assets. And, the report examines if the company’s proposed projects fit into the municipalities comprehensive plan?
Social goals tend to focus on the projects impacts on the community, who gets hired (union vs. non-union), where are the building materials sourced from, how is construction debris handled, compliance with fair and prevailing wage laws, incorporation of community input and opposition to a project’s plans, local hiring, and the like.
For corporate governance, concerns around the principals, partners and board of directors are reported. The makeup of the board is considered. What are their ages, ethnicities, biases, hiring practices, tax avoidance policies, commitments to honesty and transparency? Is there integrity in the data when the applicant relates the number of jobs the project will provide and the average wages of the anticipated jobs? When the applicant says that the project would not be viable without the tax abatements and PILOT programs, is that true, or is it just seeking to maximize its own profits at the expense of the local taxpayers? And, have any of the principals ever been barred from public bidding or lost a professional license?
Further, how has the company performed in meeting its ESG goals in prior years? Is its ESG report just basically lip service? How deep is its commitment? How, if at all, have the representations in prior IDA applications been tested? Have the number of jobs panned out as promised? Were the projects flipped after completion?
With millions of dollars at stake, and taxpayer subsidies for large developers being handed out, the local community has a right to know who it is giving tax breaks to. All ESG documents should be public and published on IDA and LDC websites and discussed at public hearings.
Without this level of transparency, communities and taxpayers have a right to be skeptical of large developers who seek tax breaks at their expense. To that end, every IDA and LDC application should require the contemporaneous filing of the company’s ESG reports for the current and past few years. Failure to include the report should render the application incomplete and make the applicant ineligible for IDA and LDC benefits. The standard application should be amended for all new and pending projects, and any entity still in an PILOT program or otherwise receiving abatements should have an annual filing requirement with the IDA or LDC.
Absent these requirements, it may not be possible to know if the money given in corporate subsidies has been well spent or given top marginal or bad actors — the goals being to reward good actors, motivate better corporate citizenship, and protect the taxpayer.