Decades of tax breaks from IDAs spark controversy

Nestlé Waters, the country's largest seller of bottled water, won an additional 10 years of property tax breaks on top of an earlier 10-year deal after threatening to close its Syosset warehouse. The incentives came from the Nassau County Industrial Development Agency.

The Long Island Aquarium, a private business open nearly 20 years, has never paid the full property taxes on its home in downtown Riverhead. The aquarium's original 10-year exemption has been renewed twice so far by the Riverhead Town IDA. 

Developer Steel Equities was awarded a 40-year property tax abatement by the Nassau IDA to rehabilitate the polluted Grumman factory site in Bethpage for use by a film studio, FedEx warehouse and other companies.

Call them examples of building projects with “perpetual” tax incentives. That's the term the Syosset school board used recently when it complained about homeowners having to pay more in property taxes because businesses are winning tax breaks that go on for decades.

IDAs cut businesses' taxes in return for promised job creation and investment. Frequently, the incentives are used to attract or keep employers. 

A small number of these aid packages have become lightning rods for criticism, and not solely because they last for 20, 30 or 40 years. The mega deals provide property-tax savings of 20, 40 and even 90 percent, depending on the terms hammered out between the businesses and IDAs.

"Homeowners can no longer afford to shoulder tax giveaways to giant corporations," said Laura Schultz, president of the 200-member civic group Residents for a More Beautiful Syosset. "It’s time for corporations to break their addiction to these tax breaks.”

IDA officials defended the lengthy property-tax abatements.

Such deals are unusual, they said, and only awarded after thorough vetting. Often there are extenuating circumstances, such as the prospect of losing a high-profile employer to another state or the need to turn around a blighted property. 

"These [tax exemption] agreements are the exception, not the rule," said Ryan M. Silva, executive director of the New York State Economic Development Council, which represents IDAs. "And when an original [tax aid] agreement is extended by an IDA, it is met with additional investment and more job creation by the company, so there is more economic benefit to the community."

Decadeslong tax breaks are a small subset of the 800-plus IDA tax incentive packages active on Long Island in 2017, according to the most recently available data. More typical terms are 10, 12 or 15 years. 

Schultz, the Syosset civic leader, opposed Nestlé Waters’ request in the spring for a 10-year extension of the property tax abatement that it's been receiving on a rented warehouse in her community since 2010. She said the seller of Poland Spring, Deer Park, Nestlé Pure Life and other brands of bottled water doesn’t need additional tax savings.

The full property taxes on the Nestlé Waters warehouse totaled $2 million in the first nine years of its original 10-year deal with the Nassau IDA. With tax breaks, the company paid only $1.1 million, saving $835,700, or about 43 percent, IDA records show. 

The partial taxes paid each year by companies receiving aid are called a payment in lieu of taxes, or PILOT.

With its tax savings set to expire in June, Nestlé Waters anticipated a spike in property taxes that it said would threaten the viability of the Syosset warehouse and its workforce of more than 100 people.

"Given the fierce competition in the bottled water category and high costs of operating in Nassau County, Nestlé Waters North America was faced with the reality that it may need to relocate our Syosset operations,” company spokeswoman Alix Dunn said recently.

In May, the Nassau IDA voted unanimously to give Nestlé Waters another 10-year abatement, fearing damage to the county’s reputation if it lost a well-known company.

“Losing Nestlé Waters would be a disaster … It might open the floodgates for other companies to leave,” Nassau IDA chairman Richard Kessel said.

In return for the aid renewal, Nestlé Waters promised to install a $1.2 million propane tank and raise its required employment to 116 workers. The warehouse had more than 180 workers three years ago, IDA records show.

Kessel acknowledged the criticism of lengthy tax breaks, saying, “The assistance cannot be forever. They [businesses] have to go out on their own.”

He added, “We’re going to get more applications like this, and there’s going to have to be a lot more scrutiny of them.”

The tax-break extension for Nestlé Waters, along with another for liquor distributor Southern Glazer’s Wine & Spirits, led the Syosset school board to pass a nonbinding resolution “in blanket opposition to all future” extensions. 

The school board projected that the two beverage companies will avoid almost $20 million in property taxes over the next decade that will have to be made up by other taxpayers.

In Riverhead, the Long Island Aquarium brings 350,000 visitors each year to a downtown that was deserted and rundown before the museum opened in 2000.

The for-profit aquarium is part of a $45 million project that also includes two hotels, a banquet hall and an upscale restaurant. Some of the facilities are on once-contaminated land that developer Atlantis Holding Co. LLC cleaned up and put back on the tax rolls. 

Records show the project has created 240 full-time jobs so far.

Aquarium executive director Bryan DeLuca estimated day-trippers and overnight hotel guests spend more than $30 million per year in Riverhead. Nevertheless, the aquarium and most of its related businesses have relied on property tax breaks from the town's IDA for their entire existence — and that’s not expected to change soon.

“We are a break-even operation. … If we are going to pay all the taxes, our attendance needs to double,” DeLuca said.

The Riverhead IDA twice renewed the aquarium’s 10-year tax deal when the developer sought additional help for new buildings. Records show the abatements end in 2028 and 2031. 

The full property taxes on the aquarium, Atlantis Banquets & Events facility and Hyatt Place hotel totaled $7.7 million between 2001 and 2016. With tax breaks, the developer paid only $886,700, saving $6.8 million, or 88 percent, according to data from the state Authorities Budget Office, which regulates IDAs.

The aquarium was singled out by the ABO as an example of never-ending property tax breaks in a 2017 review of 25 IDA projects across the state.

“The purpose of IDAs is to provide incentives to create jobs and then to return the property to the tax rolls,” said Mike Farrar, ABO’s deputy director for compliance and enforcement. “But companies are saying, ‘I want more,’ and IDAs are not returning the property to the tax rolls. Other taxpayers have to pay more for longer periods of time, and that’s contrary to the mission of IDAs,” he said.

 IDA officials defended the tax breaks, saying the aquarium developer's continued investment has encouraged others to open restaurants and shops, and to renovate buildings for use as apartments and a performing arts center.

“We are not at a critical mass of activity to be able to afford to lose the momentum that this important project brings and to go backwards in the revitalization of Main Street,” said Tracy Stark-James, executive director of the Riverhead IDA.

Like the aquarium project, rehabilitating a toxic factory and warehouses once used by aerospace giant Grumman in Bethpage required long-term tax breaks.

Developer Steel Equities agreed to buy the derelict buildings, clean them up and secure tenants — but only after the Nassau IDA negotiated an unheard-of 40-year property tax abatement in 2011.

Under the deal, the developer paid no taxes for the first four years, said then-IDA chairman Jeffrey Seltzer. No taxes had been paid on the property since 1947 because it was owned by the U.S. Navy and then the county. Now, Steel Equities pays a percentage of its rental income from the project to the school district, town and county in lieu of taxes, he said. 

“This wasn't a sure thing that they would make a success of the Grumman property,” Seltzer said. “The IDA had to go the extra mile. The remediation of the property is what moved us as a board.”

Steel Equities spent $95 million to buy and renovate the buildings for use by Gold Coast Studios, FedEx and many industrial businesses, some of them new to Nassau. About 1,500 jobs have been created so far.

The full property taxes on the former Grumman site totaled $15 million in the first seven years of the 40-year deal. With tax breaks, the developer paid $1.5 million, saving $13.5 million, or 90 percent, according to IDA records.

Steel Equities’ real estate attorney Daniel P. Deegan projected the developer will pay more than $1 million next year. “The affected taxing jurisdictions are sharing in the upside. The more rent that’s collected, the more money that they get paid,” he said.

Deegan and others cautioned against judging IDA deals solely on how much a business saves in property taxes.

“The advantage is the jobs created and the salaries paid to employees because they then spend that income in the community and taxes are paid,” Deegan said.

A prime example is Broadridge Financial Solutions Inc. in Edgewood.

The investor communications company has created about 2,000 permanent jobs and 1,000 temporary positions since first seeking property tax breaks in 1994 from the Suffolk County IDA.

Broadridge has done seven expansion projects, totaling $283 million, and all have received IDA help. The tax exemptions last for 38 years, ending in 2033.

The full property taxes on two of Broadridge's three facilities in Suffolk totaled $26.5 million between 1996 and last year. With tax breaks, the company paid $21 million, saving about $5.5 million, or 22 percent, Suffolk IDA records show.

Tax abatements from the Suffolk IDA and Islip Town IDA, along with state aid, were instrumental in keeping Broadridge here in 2012 when five states wooed the public company, showering it with offers of aid and visits by their respective governors.

“We look forward to continuing to build our future on Long Island,” Broadridge spokesman Gregg Rosenberg said when asked about the incentives’ impact.

Seven years ago, then-Suffolk IDA chairman Jim Morgo was a key player in retaining Broadridge in Suffolk. He said recently he never doubted the company was a flight risk and that it deserved additional tax breaks.

“Some property taxes being paid on the buildings is better than no property taxes being paid because the company moved, and the buildings are vacant," Morgo said. "But I agree that [tax exemption] agreements must have a term and eventually a company should pay full taxes on its buildings."

Correction: Gold Coast Studios is a tenant on the former Grumman site owned by developer Steel Equities. An earlier version of this article misidentified the studio. 

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.