Audit of The Administration of Payments in Lieu of Taxes Under Economic Development Corporation And Industrial Development Agency Leases
Audit Report In Brief
The audit determined whether “Payments in Lieu of Taxes” (i.e., PILOTs) were properly calculated, billed, accounted for, and reported. The audit also determined whether PILOTs that were collected were appropriately deposited, and whether PILOT disbursements were made in accordance with New York State law.
The Industrial Development Agency (IDA) provides benefits to property owners that are seeking to establish or expand their business in New York City . PILOTs, which are one of those benefits, are arrangements that exempt property owners from paying real property taxes; instead, owners pay an amount prescribed in a lease agreement that is generally less than the full real property tax. The Department of Finance is responsible for billing the property owners and directing them to make PILOT payments to an account maintained by an independent trustee. The trustee may disburse PILOT funds in the account only at the request of the Economic Development Corporation (EDC)-as directed by the Office of Management and Budget. According to New York State ‘s General Municipal Law, PILOT funds must be disbursed to the City treasury within 30 days of receipt. In Fiscal Years 2002 through 2004, IDA collected $152.5 million in PILOTs from property owners who had agreements with IDA.
In addition to the PILOTs collected under IDA agreements, there are 15 development projects that EDC directly administers. The amount of PILOTs collected from these 15 projects was approximately $17 million for Fiscal Years 2002 through 2004.
Audit Findings and Conclusions
In general, PILOT amounts collected were properly accounted for, reported, and deposited. However, disbursements of IDA PILOTs are not being made in accordance with New York State law because funds are not being remitted to the City treasury within 30 days of receipt. In addition, PILOT funds are being transferred to EDC in violation of the General Municipal Law. In fact, approximately $59.4 million has been on deposit with the trustee for more than 30 days (as of May 31, 2005) that should immediately be transferred to the City treasury. In addition, EDC has $601,381 in its operating account that should be returned to the trustee for remittance to the City treasury.
Furthermore, DOF, did not always calculate, and therefore bill, property owners for the proper PILOT amounts due. As a result, the City did not collect approximately $415,653 in PILOT revenue. Moreover, IDA PILOT revenue is underreported because it is not recorded on the City’s books until it is transferred from the trustee to the City treasury instead of recording it when it is received by the trustee.
Finally, DOF does not always ensure that properties whose PILOTs expire are properly placed back onto the City’s tax rolls. As a result, the City has not collected approximately $2.1 million.
Audit Recommendations
The audit recommended that OMB:
• Ensure that the current balance of the trust account ($59.4 million as of May 31, 2005) be immediately transferred to the City treasury.
• Ensure that all future PILOT funds are remitted to the City treasury within 30 days of receipt, as required by the General Municipal Law.
• Report PILOT revenue in the fiscal year that it becomes available.
EDC should:
• Remit the $601,381 in excess funding to the trustee for remittance to the City treasury.
DOF should:
• Ensure that it accurately bills property owners for PILOTs in accordance with terms of the lease agreements. In this regard, DOF should ensure that all calculations are reviewed and approved by a supervisor before bills are sent to property owners.
• Recalculate the PILOTs due for the properties identified in this report. In addition, DOF should credit those properties where overpayments were made and seek to recover the underpayments, if permissible by law.
• Ensure that properties whose PILOTs expire are immediately recorded on the City’s property tax rolls.