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July 18, 2011

Authorities Budget Office Releases Annual Report Critical of LDCs and IDAs

On July 1, 2011, the New York State Authorities Budget Office (the "ABO") released its Annual Report on Public Authorities in New York State (the "Annual Report"). The ABO is an independent agency of the State of New York created under the Public Authorities Accountability Act of 2007 ("PAAA"), as amended by the Public Authorities Reform Act of 2009 ("PARA" and the PAAA as amended by PARA, the "Act"). The PAAA broadened significantly the definition of a public authority in New York State from state authorities ("State Authorities"), such as those with members appointed by the Governor, to include local authorities ("Local Authorities" and, collectively with State Authorities, "Authorities"), such as industrial development agencies ("IDAs"), urban renewal agencies, special districts and local development corporations formed under Section 1441 of the Not-For-Profit Corporation Law ("LDCS").

In enacting PARA, the Legislature noted that the failure of the PAAA to address "fundamental problems of transparency, accountability, the responsibilities and functions of board members and oversight had led to a lack of public trust" and the creation of the ABO was "necessary to provide oversight of the operations and finances of public authorities in real time and to inform the legislature and executive on issues relating to debt, compensation of board members, the role minority- and women-owned businesses play in the procurement process, the disposition of property and the governance of authorities." The ABO describes its statutory charge as collecting and disseminating information on the finances and operations of Authorities in New York State, conducting reviews of the practices of Authorities and their compliance with State law, providing Authorities with training, policy guidance and staff assistance and investigating complaints against Authorities.

The Annual Report includes factual data collected from Authorities and identifies the Authorities (and other entities that the ABO determines to be subject to its jurisdiction) which failed to report data or reported data inaccurately. In addition, the Annual Report discusses issues of potential concern and makes recommendations for statutory amendments. The full Annual Report is available at www.abo.state.ny.us/reports/annualreports/ABO2011AnnualReport.pdf.

While transparency and accountability are essential to the effective operation of government, including Local Authorities, rather than reporting on performance of its statutory duties and Authorities' compliance with State law, the ABO uses the Annual report to advocate for an overhaul of the statutory scheme and long-standing practices in the State that confer significant authority on municipalities with respect to the establishment, management and operation of Local Authorities. The concerns and recommendations of the ABO could be construed as chipping away at the established role of local government under many Federal statutory and regulatory schemes and under State law without the benefit of a robust discussion and analysis of the benefits and costs of the long-standing delegation by the Legislature to municipalities of local control over delivery of municipal services, economic and community development and other matters directly affecting local inhabitants.

We discuss below some of the concerns and recommended statutory amendments that may be of particular interest to municipal sponsors and members and directors of Local Authorities.

Proliferation of Local Development Corporations: The ABO expresses a concern with the number of LDCS formed each year. Attributing an increase in the number of LDCS to the sunset of the statutory authority of IDAs to issue revenue bonds for "civic facilities" (i.e., projects owned or occupied by not-for-profit corporations), the ABO characterizes without discussion the proliferation of LDCS as addressing perceived deficiencies in State law and speculates that the existence of so many LDCS could lead to overlapping jurisdictions for similar purposes, inefficiency, competition for projects and financing, and a shift in responsibility from government to not-for-profit corporations without proper oversight. Although the ABO does not make any specific recommendations with regard to limiting the formation of LDCS, it does recommend a statutory amendment to require notice to the ABO of formation of every new LDC.

Expansion of Jurisdiction of ABO: Interestingly the ABO notes throughout the report that the ABO lacks sufficient staff and resources to fulfill its existing obligations under the Act. Nonetheless, the ABO recommends a statutory amendment to bring under its jurisdiction all not-for-profit corporations that (1) receive public funds, or (2) administer public funds for local governments, or (3) act on behalf of government, or (4) are under direct or indirect control of a local government. The ABO casts a broad net which would subject to its reporting requirements, review and oversight such not-for-profit entities as chambers of commerce, social service providers, hospitals and other health care providers, low income housing owners, charter schools and private schools.

Local Authority Staffing: Although State law expressly provides for staffing of IDAs, urban renewal agencies and other Local Authorities by municipal personnel, the ABO expresses a concern that these arrangements present the potential for conflicts of interest and questions the effectiveness of IDAs, urban renewal agencies and other Local Authorities that operate with these arrangements. In 2010, the ABO focused at least one of its reviews on staffing arrangements. The ABO raises a red flag but fails to provide any analysis of these arrangements or consideration of the benefits of shared staffing, the fiscal constraints faced by the State and municipalities and the growing trends for intermunicipal cooperation and outsourcing of staffing and other functions pursuant to written agreement as a cost-effective efficient manner of operation for local government.

Public Employees Serving as Members of Local Authorities: Despite the express authority in State law for public officers to serve as members of many Local Authorities, the ABO is concerned that such service may compromise the integrity and independence of a Local Authority and sees a risk that the interests of the municipal sponsor of a LDC and the interests of the LDC may conflict. The basis for the ABO's concern appears inconsistent with the purposes for which State law authorizes the formation of a Local Authority, that is, to serve the interests of a municipality and its inhabitants.

Freedom of Information Law and Executive Session: The ABO states its belief that Local Authority boards enter into executive session for reasons that are not permitted under FOIL. The ABO takes issue with findings by Local Authority boards that confidentiality agreements with respect to certain projects are necessary and permitted under FOIL. It is difficult to determine the basis for the ABO's criticism because specific examples are not discussed, rather the ABO concludes generally that confidentiality agreements were not warranted in particular cases because the majority of projects proceeded without a confidentiality agreement.

Additional Reporting Imposed on Authorities. The ABO recommends that a statutory amendment be adopted to require Authorities to respond formally in writing to a report from the ABO following an ABO compliance review.

If you would like further information or have any questions with respect to the ABO Annual Report or compliance by Authorities with the Act, please feel free to contact Connie Cahill, Jean Everett or Sue Katzoff.

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