- Fails to pay $335,000 for water and sewer use for more than decade-

View Audit

New York City Comptroller William C. Thompson, Jr. has issued an audit finding that Astoria Studio Limited Partnership II (Astoria) did not accurately report its net income to the City and did not pay $335,000 in water and sewer charges to the City for more than a decade.

The audit – which can be viewed at www.comptroller.nyc.gov – additionally determined whether Astoria Studios paid all rent due and complied with certain major non-revenue terms of its lease agreement.

Astoria Studios Inc. first entered into a lease agreement with the City’s Public Development Corporation, now known as the Economic Development Corporation (EDC), in September 1982 to restore, expand, and manage motion picture and television studios in Astoria, Queens.

Astoria generates most of its operating revenues from leasing offices and stages at the Astoria Studios to film industries and commercial businesses.  In calendar year 2005, Astoria generated approximately $6.9 million in revenues and reported a net loss of $3.2 million. Net income is the basis for ascertaining additional rent due the City, as defined by the lease agreement. EDC is responsible for overseeing the lease agreement.

For calendar year 2005, the lease agreement requires Astoria to pay the City $350,004 in base rent and $645,643 in tax rent.  The agreement also requires Astoria to pay an additional rent equivalent to 17.5 percent of net income.  The additional rent is payable within 120 days after the end of each year.

Thompson’s auditors found that Astoria:

• Paid all rents due in a timely manner and maintained sufficient insurance coverage.

• Underreported its net income to the City by $591,704. Thompson said the underreporting was the result of reporting improper deductions and by including administrative expenses pertaining to other businesses and attributing them to the Astoria Studios.

Since Astoria reported a net loss of $3.2 million on its schedule of Calculation of Additional Rent submitted to EDC, the underreported net income did not result in any additional rents due the City.

• Failed to pay water and sewer charges – are required by its lease agreement - since 1995. The failure is attributed to Astoria’s failure to contact the City’s Department of Environmental Protection and inquire as to why Astoria was no longer being billed for water and sewer use.

Once auditors notified DEP, DEP dispatched an inspector to the property, tested meters, and adjusted billing information. Subsequently, DEP billed Astoria’s account $135,237 for water and sewer use from April 2002 to April 2006.

“New York Water Board rules preclude DEP from billing customers from water and sewer use that is more than four years old, so the City will not be able to recoup an estimated $200,610 in payments for Astoria’s water and sewer use from 1995 to 2002,” Thompson said.

• Did not name the City and EDC as additional insured entities under its excess liability policy as required by its lease agreement. Additional insured status is important to provide coverage for the City in the event of any insurance claim.

• Did not submit audited financial statements and additional-rent-due calculations to EDC in a timely manner. EDC officials told auditors that Astoria’s prior years’ submissions were similarly late.

Thompson recommended that Astoria: accurately calculate net income and additional rent payments in accordance with the terms of the lease agreement; develop a formalized method of allocating administrative expenses incurred by Kaufman Astoria Studios Inc. (KASI) for managing the Astoria Studios; maintain documentation to support the allocation of administrative expenses incurred by KASI; ensure that any retroactive and subsequent water and sewer charges are promptly paid; ensure that all liability insurance policies continue to name the City and EDC as additional insureds; and, submit audited financial statements and additional rent calculation to EDC within 120 days from the close of its fiscal year.

Additionally, the Comptroller recommended that EDC review the allocation method developed by KASI to ensure its administrative expenses are properly allocated to Astoria Studios, and ensure that Astoria complies with the recommendations in this report.

Although Astoria agreed with certain aspects of the audit’s findings, it disagreed with the amounts of the audit exceptions and did not respond to any of the recommendations. EDC officials agreed with the recommendations and indicated EDC would ensure that Astoria complies with them.

###