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NEW YORK CITY INDUSTRIAL DEVELOPMENT AGENCY

SUMMARY and BACKGROUND

Proposed Changes to the Uniform Tax Exemption Policy [1]

of the New York City Industrial Development Agency

To be presented for approval at the meeting[2] of the Board of Directors

of the New York City Industrial Development Agency

August 8, 2006

A.        Recapture Policy for Industrial and Not-for-Profit Transactions

            To enforce its recapture policy more fairly and effectively, so that beneficiaries required to repay benefits are placed in substantially the same economic position as if they had not received the benefits, staff is recommending not only to recapture the financial assistance provided, but to also charge interest on the recaptured amount from the date or dates the financial assistance was received.  The proposed revision provides that upon the occurrence of a Recapture Event (as defined in UTEP), the Agency will seek repayment of the full value of the benefits received plus interest from the date or dates that such benefits were received.  Such interest will be charged on the unpaid balance from the dates that the benefits were received through the date payment is due at a rate equal to the percentage interest of the statutory judgment rate, compounded daily, and from such due date until the date payment is made at a rate equal to the greater of the percentage interest of the statutory judgment rate and the interest rate charged on past due payments in accordance with Agency practice, in either case compounded daily.

            In addition, Section IV of the current UTEP provides that the recapture amount for all projects other than Commercial Retention Projects and Developer Projects is reduced by 20% at the beginning of each year starting with the 7^th year of the recapture period.  In order to eliminate any incentive to defer recapture until a subsequent step-down of recapture, staff is proposing a change to that Section which would provide for a phase-out, beginning in the first calendar month of the 7^th year of the recapture period, at a rate of 1.666% per month, as opposed to the current policy of phasing out 20% at the beginning of each year, starting with the 7^th year of the recapture period.

            Current recapture practice for commercial retention transactions entails recapturing as much as two times the amount of the financial assistance that had been provided.  Given the effectiveness of this practice, Staff is not at this time recommending any changes to it.

B.        Technical Modification to Mortgage Recording Tax Benefit

            The staff proposes that UTEP be amended to restrict the mortgage recording tax (MRT) exemption to a one-time waiver at closing.  Heretofore, the Agency has accommodated refinancings occurring within project terms by agreeing to carry forward the deferral of MRT, whether or not MRT would be payable were the refinancing not done in connection with an Agency project.  MRT would not be payable under ordinary circumstances, for example, if the refinancing involved an assignment of the existing mortgage and did not require the filing of a new mortgage.  On the other hand, MRT would ordinarily be payable if the refinancing involved the filing of a new mortgage.  In instances where an MRT would ordinarily be payable in connection with a refinancing, the Agency will no longer provide a waiver of MRT in connection with the filing of the new mortgage unless the project entity can demonstrate, to the Agency’s satisfaction in its sole discretion, an adequate inducement, as in the case of a new project, for the grant of a new MRT deferral benefit..

C.        Revisions and Clarifications to Compliance Criteria for Private Schools and the Not-for-Profit Guidelines.

            The proposed revision to the Agency’s Not-For-Profit Guidelines is to include the requirement that the organization seeking Agency benefits does not discriminate except to the extent permitted by law.

            The proposed clarifications and revisions to the Agency’s Compliance Criteria for Private Schools are:

(i)                  a clarification that the criteria will apply to any private school with students in any of grades kindergarten through twelve;

(ii)                a clarification that all schools formed under the NYS Education Law must be chartered by the NYS Board of Regents;

(iii)               a clarification that all Secondary Schools (grades nine through twelve) must be registered by the NYS Education Department;

(iv)              a clarification that elementary schools (any grade kindergarten through eight) that are not chartered by the NYS Board of Regents must be evaluated by a professional independent of the school, as providing an education equivalent to that provided by NYS public schools and that the professional’s credentials must be acceptable to the Agency;

(v)                for schools whose maximum tuition is equal to or greater than 75% of the Agency Average Maximum Tuition (AAMT):

                                                               i.      an elimination of the requirement that at least 1% of students who are both NYC residents and recipients of financial aid must receive financial aid equal to or greater than 75% of tuition, as not constituting a meaningful constraint and unnecessary in light of other existing requirements;

                                                             ii.      a revision to the effect that the school’s facility-sharing plan must be given to the Agency prior to authorization rather than prior to inducement;

                                                            iii.      a deletion of the sentence encouraging such schools to partake in public/private activities since they are already required to share their facilities with public schools;

                                                           iv.      a clarification that for such schools, whether the school chooses to follow a facility-sharing plan or whether it decides to hire a full-time equivalent employee to fulfill the community-service requirement, it must do so continuously throughout the bond term; and

(vi)              due to the hardship imposed on schools with lower endowment levels, a revision that the Agency’s Not-For-Profit Financing Fee will only be applicable to those schools that encumber a mortgage and have total net assets per student in excess of $20,000, as of the most recent year’s financial statement at of the time of application;

D.        Changes previously approved by the Board of Directors

            The text of the amended and restated UTEP will include the following changes previously authorized by the Board of Directors: 

1. At the meeting held on August 13, 2002:  authorization for the New York Liberty Bond Program;
2. At the meeting held on August 13, 2002:  authorization to –
   1. adjust some of the scholarship requirements;
   2. amend the threshold as to what constitutes an impecunious school for the purpose of determining when the Agency’s scholarship requirements will not apply;
3. At the meeting held on November 9, 2005:  authorization to -
   1. extend industrial benefits to industrial projects located in Industrial Business Zones;
   2. revise availability of benefits from the Industrial and Commercial Incentives Program when such benefits are concurrent with the Agency’s PILOT program;
   3. broaden the circumstances under which the Agency may provide financial assistance to the fullest extent permitted by the General Municipal Law; and

[Also add the changes made at the meeting of August 8, 2002  authorizing the most recent changes to the private school compliance criteria.  Are we missing any others?]

E.         Technical Changes.  Staff proposes technical changes for purposes of clarifying the text.