A Nassau County Court judge ruled last week that the Town of Hempstead Industrial Development Agency improperly withdrew tax agreements with Green Acres Mall and Green Acres Commons. The owners of both the mall and its annex, California-based Macerich, contended that the two facilities’ increase in employees was in line with contractually agreed benchmarks, and that they were therefore entitled to a continuation of the payment in lieu of taxes, or PILOT, agreements that the IDA contested. The court agreed.
This means that the tax increases that surprised many in School Districts 13, 24 and 30 last September will remain, and that those school districts will have to recalculate their budgets going forward, based on Green Acres’ restored PILOT agreements.
The districts mainly serve students in Valley Stream, but the ruling affects taxpayers in Elmont and Franklin Square as well, since their children also attend schools in the districts.
Neither the IDA nor the school districts have indicated whether they intend to appeal the ruling.
The pathway to the judge’s ruling began with the 2014 application for tax breaks in the form of PILOTs, which are common in New York. These represent a boon for businesses, provided that businesses meet performance standards considered more valuable to municipalities than tax revenues would be. In the case of Green Acres, the trade-off was jobs. The terms of the original accord gave the malls tax breaks totaling $6 million per year for 10 years; it also provided a five-year extension to the agreement, on the condition that the two facilities created at least 674 new jobs.
Along the way, six of the IDA’s seven members resigned after being threatened with dismissal, the IDA revoked the PILOT agreements altogether, the IDA’s chairman resigned and Hempstead Town Supervisor Anthony Santino lost his re-election bid, allegedly due in part to the disputes surrounding the town’s IDA.
IDAs were established in 1969 by state law, and most other states have similar agencies. In order to attract large-scale employers to an area, towns or even states, such agencies offer various forms of incentives. These might include tax breaks, as in the case of Green Acres; providing necessary infrastructure, such as access roads; or reducing or waiving fees for operating expenses, such as utilities or water, where these are publicly owned. At some point after the initial period covered by incentives (often 10 to 15 years, as with Green Acres), the business becomes a regular source of tax income.
In the case of the malls, the issue began when Green Acres and School District 30’s assistant superintendent for business, Lisa Rutkoske, came up with different estimates for the amount of tax Macerich would pay for the 2016-17 school year. Rutkoske estimated that PILOT payments would amount to 50 percent for the two facilities; Green Acres’ owners put the number at 73 percent for the mall and 63 percent for the smaller facility — a difference of roughly $1.8 million.
Rutkoske recommended that the district make up the shortfall from tax revenues. Instead, the district’s board of education elected to honor a promise it had made to refund any overpayments directly to taxpayers.
The district discovered too late that, far from generating a surplus, its budget, based on Rutkoske’s estimates, would leave it with shortfall. At this point, in September 2016, the school districts contended that Green Acres could not be in a position to make any estimates until the schools calculated their tax revenues. Eventually, in February 2017, the state stepped in and said it would conduct an audit. A revocation of the original tax breaks by the IDA and a freezing of that recission by the court followed. Finally, the audit was published two months ago. In it, the auditors concluded that Green Acres had hit its benchmarks, and that its PILOT figures were correct.
“Under the tax cap, school districts are obligated to engage in a process of developing a reasonable and good faith estimate of PILOT revenue prior to setting the tax levy,” District 30 Superintendent Nicholas Stirling wrote on Dec. 8, in disagreeing with the audit’s findings. “Until tax rates are set, it is not possible to know definitively how much PILOT revenue a school district will receive.”
Stirling added at the time that the audit “does not appear to have considered the detailed analysis of the PILOT agreements the district undertook in developing its estimates or the fact that in at least one other instance, the district received significantly less PILOT revenue than it should have following the successful resolution of tax certiorari proceeding.”
The IDA claimed in a January letter to Hempstead residents that the state audit vindicated the agency. The letter, which was signed simply “Town of Hempstead Industrial Development Agency,” claimed the PILOT payments only amounted to about $42 per household, and that the agency’s actions had been both timely and appropriate in the submission of estimates.