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Proposed UTEP Amendments--August 2006

The New York City Industrial Development Agency (IDA) has proposed several other amendments to its Uniform Tax Exemption Policy (UTEP) for the August 3 public hearing. 

Recapture Policy for Industrial and Not-for-Profit Transactions

Recapture provisions, also referred to as "clawbacks", are clauses in subsidy laws that require a company to return the value of a subsidy if the company fails to meet the obligations agreed to as a condition of receiving the award. 

The IDA is proposing to amend the clause where its recapture policies are defined for industrial and not-for-profit recipients of benefits in the following ways:

• To ensure that the agency recaptures the true value of the benefits disbursed, the IDA is proposing to charge interest on the recaptured amount from the date the financial assistance was granted.

• Currently, the IDA's ability to recapture benefits phases out relatively abruptly beginning 7 years after benefits are approved, as illustrated in the chart below:

Its current structure makes it advantageous for a company to wait until the first day of a calendar year (after the first 6 years) to announce that it is breaking the terms of its contract with the city, and the city loses out on a significant amount of recaptured revenue. 

Under the proposed amendment, the amount the IDA is entitled to recapture is phased out more gradually, which would help eliminate the incentive a business may have to defer recapture.

Mortgage Recording Tax benefits

The Mortgage Recording Tax (MRT) is imposed on the recording of real estate mortgages in New York City, and a MRT exemption is frequently offered by the IDA as a subsidy to targeted companies.

The IDA is proposing that the UTEP be amended to restrict the MRT exemption to a one-time waiver at closing, instead of a tax break that can be used each time a company refinances by filing a new mortgage.