Audit Report on the Administration of Public Purpose Funds by the New York City Economic Development Corporation

Public purpose funds comprise restricted assets designated by the New York City Economic Development Corporation (NYCEDC) in connection with project agreements among various project developers, the City, and NYCEDC. Under these agreements, NYCEDC acts as trustee for the City regarding amounts received from the developer of certain projects in the City. NYCEDC’s custodial duties with respect to the public purpose funds are also governed in part by NYCEDC’s Master and Maritime Contracts with the City, as discussed in our prior audit, Financial and Operating Practices of the New York City Economic Development Corporation and Compliance with Its Master and Maritime Contracts—# FN09-104A, dated April 27, 2010.

The restricted assets of the public purpose funds generally represent the amounts (developer contributions) project developers are required to deposit with NYCEDC in lieu of what would have been otherwise remitted to New York State and the City had no exemption from sales and compensating use taxes been granted. Public purpose funds are established to accomplish specific purposes for the benefit of the projects or the surrounding communities.

As the trustee for these funds, NYCEDC has the custodial responsibility to ensure that the assets of the public purpose funds are safeguarded and properly maintained. Currently, NYCEDC maintains a total of 20 public purpose funds. For Fiscal Years 2009 and 2010, the total balances reported for the 20 funds in NYCEDC financial statements were $41,894,681 and $37,714,617, respectively.

Audit Findings and Conclusions

NYCEDC has not been able to disburse $9,362,895 in public purpose funds created from developer contributions and maintained by NYCEDC as a trustee on behalf of the City or the project developers. Accordingly—and given the lengthy amount of time that has elapsed since these funds were created—NYCEDC should reconsider whether the original purposes of the funds are still viable or whether the $9,362,895 funding should be remitted to the City, given that the funds represent City tax savings and other City benefits.

Of the retained funding, NYCEDC has been unable to utilize $8,898,321 in a public purpose fund created under a 1992 restrictive declaration for the benefit of the Harlem River Rail Yards facility in the Bronx. Although project correspondence indicates that, since 2002, NYCEDC has been involved in attempts to find a use for these funds, these attempts have apparently been unsuccessful. In another case, NYCEDC retained $464,574 in three funds, including funds that were established in 1982 and 1991 to rehabilitate Astoria Studios in Queens and create job training programs.

Further, NYCEDC failed to collect a total of $725,720 due from Keyspan that was to be used to fund local community interests. (On July 15, 2011, NYCEDC collected $250,000—two years after all the funding was supposed to have been obtained.)

We also found that NYCEDC did not properly administer total disbursements of $247,800 from Fund #39 and incurred unnecessary audit fees of $28,934 on certain funds that did not have financial activities or audit requirements.

Audit Recommendations

To address these issues, we make four recommendations, including that NYCEDC:

• Reconsider whether the original purposes of inactive Funds #12, #18, #31, and #36 are still viable or whether the $9,362,895 funding should be remitted to the City’s general fund.
• Ensure collection of the remaining balance of $725,720 in unbilled developer contributions identified by this audit.
• Properly verify future submissions for payment to ensure all funding criteria have been met prior to disbursements.
• Discontinue incurring unnecessary audit fees.

Agency Response

We received a written response from NYCEDC on August 26, 2011.

In their response, NYCEDC officials partially agreed with the finding regarding the Harlem River Rail Yards facility in the Bronx, stating that ‘Over the last few decades EDC has worked very hard to secure and disburse over 80% of the nearly $50 million in public purpose funds and fully expects to spend the remainder of the funds prudently and as soon as practical. . . . The fact that funds in these accounts have not yet been spent is not an indicator that funds should have been spent.’

The main issue is not that NYCEDC must expend the funds noted above and in the other sections of this report, but rather that NYCEDC must work diligently to identify the needs of the community areas where the funds can be invested as opposed to maintaining the funds indefinitely in dormant accounts.

For decades, NYCEDC has not been diligent in identifying community projects where these funds could be utilized in accordance with their purposes. While we agree that most fund agreements specifically designate a fund purpose, each fund represents a developer contribution established in connection with a project developed in the City and with the overall purpose of benefiting the City and its residents. At a time of scarce resources, it would not be appropriate for NYCEDC to wait another decade for a decision to use these public resources. This audit is not suggesting that NYCEDC expend the funds inappropriately, but rather that NYCEDC work to fulfill its stewardship responsibility in ensuring these public resources are properly and timely utilized in the respective City communities.

NYCEDC officials did not address the report recommendations.