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Comptroller’s audit finds fault with Orleans EDA

By Tom Rivers, Editor Posted 3 July 2015 at 12:00 am

File photo by Tom Rivers – JP Morgan Chase announced in June 2013 it would close its Albion site the following September, cutting about 400 jobs.

Editor’s Note: An earlier version of this article should have stated CRFS has 600 employees, but due to a typo said 60.

ALBION – The economic development agency for Orleans County needs clear policies for why some businesses are approved for tax benefits and assistance and others are not, according to an audit for the State Comptroller’s Office.

The comptroller also said some businesses, notably JP Morgan Chase, are approved for tax-saving benefits and leave town early, without a “recapture of benefits” clause from the Orleans Economic Development Agency.

In the case of Chase, the company received $605,000 in tax abatements in the first three years of the 10-year tax deal. The company paid $98,900 to local governments during that period.

However, the company announced in June 2013 it would close its Albion site the following September, and would eliminate 400 jobs in the village.

The comptroller said Chase was able to leave Albion without returning any of the tax breaks. The EDA needs a clause that requires companies to pay back the benefits if they don’t follow through with promised benefits to the community, according to the comptroller’s report. (Click here to see it.)

Jim Whipple, chief executive officer for the EDA, said the tax incentives gave the community more time with Chase as a major local employer.

“Those three to four years were very important,” Whipple said.

When Chase acquired the former Washington Mutual, Chase evaluated other sites in the country for the Albion operation. The tax incentives helped keep the company in Orleans County until “a further retrenchment in the banking industry,” EDA Board Chairman Paul Hendel said in a letter to the comptroller.

Claims Recovery Financial Services has since moved into the former Chase site and has about 600 employees in Albion.

The EDA in August 2013 also added a recapture-of-benefits clause to be used at the discretion of the agency, Hendel said.

In another case, the EDA under-billed a company for its payment of lieu of taxes by $246,000 over 12 years. The EDA billed the company for less than the PILOT plan approved by the seven-member board.

The comptroller said the payments should be corrected, or else the discrepancy will balloon to $635,000 over 20 years.

The EDA said the PILOT was amended, however the paperwork wasn’t available for that change. That paperwork issue is an isolated incident and has been resolved, Hendel said.

Comptroller staff reviewed Orleans EDA projects from Jan. 1, 2013 to Oct. 10, 2014, and analyzed documents from back to 1998. The EDA has 22 open projects with capital investment of about $134 million. (Western New York Energy in Medina accounts for $89 million of that total.)

The report cited some “deficiencies” in the EDA’s evaluation and approval of businesses seeking benefits, the EDA’s determination of agreement terms with businesses and the subsequent monitoring of the businesses for compliance.

Economic development agencies should follow a 1:10 minimum cost benefit ratio, or $1 granted for at least $10 in capital investment and other benefits to the community, the comptroller said.

The EDA has a document cost-benefit ratio for six of the 22 projects, but not for 16, the comptroller said.

“Lack of consistent computing of the CBA (cost-benefit analysis) for all projects can lead to selective inclusion and exclusion of these ratios by management, potentially creating an advantage or disadvantage for an applicant,” the report states.

The report further states the EDA board and management did not formally document and adopt procedures for calculating cost-benefit ratios and for determining the contractual time periods for businesses seeking financial assistance.

Because of that, evaluation criteria may not be consistently applied, and the basis for approving or rejecting businesses is not clear, according to the report.

Whipple said the EDA board will work to formalize its methodology for the cost-benefit analysis.

The EDA also approves some tax-saving plans for 10 years and others for as long as 30 years. The majority are for 10 years. The comptroller said the EDA needs to be clear in justifying the varying lengths for PILOT plans.

In a response to the comptroller, EDA officials said the standard PILOT is 10 years, but the agency can deviate from that schedule for some manufacturing facilities and vacant buildings.

The comptroller said the EDA should better monitor businesses to see if they are following through with capital investments and job creation (as well as employee salaries and benefits).

The comptroller reviewed employment numbers for the 22 EDA projects and found 14 companies met their employment targets, but eight did not. The 14 businesses exceeded their projections by 278 jobs. However, eight businesses did not meet their projections. Overall, the 22 businesses were projected to create or retain 2,118 jobs, but reported 1,348 jobs for a shortfall of 770.

Associated Brands in Medina had the biggest net increase in jobs with 282.