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Comptroller Tom DiNapoli is reportedly ticked off over Local Development Corporations (LDC's), and wants to reforms to the system that has allowed local governments to "skirt the law."

In a release today, DiNapoli says time and time again, LDC’s and also Limited Liability Companies (LLC’s) have been created and used by local governments to loophole the law. A set of audits by DiNapoli’s office confirms the misuse.

The most glaring figure comes from the City of Rochester. In 2004, the city created Rochester Ferry Company, LLC. That company borrowed $40-million to purchase the infamous Fast Ferry. When the Fast Ferry failed, the City dissolved Rochester Ferry Company, LLC, sold the Fast Ferry, and assumed $30-million in loan and operating debts – which had to be paid by city taxpayers.

Another example comes from Monroe County. According to the report, the county created an LDC, which subsequently "bought" a Monroe County-owned power plant for $7-million. That money was then used in the county budget. Meanwhile, the LDC issued $32-million in bonds to upgrade the plant. Now, Monroe County "purchases" power from that plant under a contract that lasts 32 years. It's all completed under a shady stipulation in state LDC law, which allows a county government to transfer property to an LDC when it is "no longer required for county purposes."

DiNapoli has now proposed a number of reforms that would eliminate loopholes and waste in the system (see below).

LDC's operate exempt of taxes, and they encourage businesses to construct, rehabilitate, relocate or remain in a particular region. Genesee County operates a Local Development Corporation, the GCLDC. It is not included nor accused in Comptroller DiNapoli’s report.


Comptroller Thomas DiNapoli's proposal for his office to take control of LDC's and LLC's includes the following reform proposals:

  • Expanding the comptroller’s audit authority to cover LDC's, LLC's and other comparable entities under the control of one or more local governments
  • Preventing LDC's, LLC's and other not-for-profit corporations from financing a local government’s operations or capital assets
  • Prohibiting the creation of LDC's solely for the generic purpose of “lessening the burdens of government and acting in the public interest,” which many local governments utilize to finance
    projects or activities not related to economic development
  • Requiring any contract between a local government and an LDC to be for fair value, and limiting those contracts to a term not to exceed five years (subject to renewal)
  • Prohibiting any additional compensation for board members officials, and employees of certain LDC's in instances where they serve or have recently served as officers or employees of a municipality
  • Requiring that the public notice of any proposed transfer of municipally-owned real property to an LDC include information such as the price or benefit to the local government
  • Clarifying that no local government or school district may guarantee or assume the debt of any not-for-profit corporation or LLC formed by, on behalf of, for the benefit of, or under the
    control of the local government or school district

 

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