Buffalo-area law firms Harris Beach and Hodgson Russ benefit from IDAs: Investigative Post

Watchdogs release reports on New York’s industrial development agencies, one detailing legal costs; other tax breaks and job promises.

A meeting of the Erie County IDA Board of Directors. Photo by Garrett Looker.

When New York’s industrial development agencies grant tax breaks, it’s not just local businesses that benefit: Two upstate law firms also walk away with big paydays.

Hodgson Russ and Harris Beach — based in Buffalo and the Rochester area, respectively — earn millions of dollars in fees each year, according to a study by watchdog groups Reinvent Albany and Good Jobs First.

This report follows State Comptroller Thomas DiNapoli’s annual IDA report, also released Wednesday. This report shows that for fiscal year 2022, Western New York IDAs provided $153.1 million in tax relief in exchange for $12.2 billion in investments and nearly 25,000 jobs. The tax breaks caused schools and municipalities to lose a total of $119.7 million in revenue.

Of that total, the Erie County IDA provided $25.4 million in tax relief in fiscal year 2022, creating 14,000 jobs and reducing revenues for schools and local governments by 15.2 millions of dollars. The watchdog report estimates that the Erie County IDA general counsel – Harris Beach – earned up to $824,000 in fees.

Hodgson Russ serves as Bail Bond Counsel for the Erie County IDA. Bond advisor fees are not included in the watchdog’s report.

Together, the two reports on New York IDAs illustrate how money flows through local economic development agreements: Companies seeking to locate or expand pay fees to an IDA and its attorneys after benefited from tax breaks on property, sales and mortgages for a specified number of years. These breaks reduce revenue for schools and local governments. In exchange, companies agree to create or maintain jobs and spend their money locally.

“It explains a lot in terms of IDA policy,” said John Kaehny, executive director of Reinvent Albany.

In their report, the watchdog groups estimate that Hodgson Russ and Harris Beach earned as much as $39 million in general counsel fees in recent years from nine of New York’s largest and most active IDAs , including Erie County. Harris Beach is general counsel for seven of the nine companies, while Hodgson Russ is general counsel for the other two. Both are associated with dozens of other IDAs not included in the study.

The groups’ report studied fees collected by law firms and political donations made by firms between 2017 and 2022.

The report reveals that the two companies made $1.1 million in campaign contributions in the nine IDA geographic areas – Albany, Erie, Nassau, Monroe, Onondaga, Orange , Suffolk and Westchester counties, as well as Yonkers – over the course of six years. period of one year.

In Erie County, the groups estimated that Harris Beach earned between $3.7 million and $4.9 million as general counsel and made $80,000 in campaign contributions to county parties and candidates for during this period. Hodgson Russ made $135,000 in local contributions during those years.

“It’s a closed loop,” Kaehny said. “This guy makes a lot of money – a very, very lucrative fee – and then maintains this racket, and even expands it, by simply making campaign contributions that are just a fraction.”

In Albany County, the report estimates that Hodgson Russ earned up to $2 million in general counsel fees from the IDA and made $18,700 in campaign contributions. In Nassau County, Hodgson Russ is one of two companies sharing $4.9 million in fees. The groups found no Nassau County campaign contributions from Hodgson Russ.

A spokesperson for Hodgson Russ in a statement refuted the notion that the company’s work with IDAs in New York is politically motivated.

“The cost and fees, including legal fees, of these transactions are paid by the project applicant seeking financial assistance from IDA — not IDA,” said spokeswoman Catherine McDonald . “Hodgson Russ has enjoyed strong, long-standing relationships with our IDA clients – spanning several decades – because of the exceptional services Hodgson Russ provides, not based on political considerations.

A Harris Beach spokesperson did not respond to a request for comment.

An Erie County IDA spokesperson said the agency takes care to select a competent law firm to handle complex grant agreements. Spokeswoman Robbie-Ann McPherson said the agency currently uses Harris Beach, which bills businesses directly and not the IDA. In a statement, John Cappellino, president and CEO of the IDA, said that company and Hodgson Russ were being considered through a request for proposal process as well as an agency committee.

“There is absolutely no relationship between the law firms that responded to the call for tenders and obtained legal services contracts with ECIDA, and the political donations given to any candidate by the law firms. lawyers who submit proposals,” Cappellino said. “These events are completely unrelated.”

Hodgson Russ and Harris Beach are both major political donors in Erie County, giving money to the Erie County Democratic Committee as well as campaign funds for County Executive Mark Poloncarz and Mayor Byron Brown , who serves on the IDA board of directors, Investigative Post discovered.

Groups call for reforms

Reinvent Albany and Good Jobs First, studying IDAs over the past few months, discovered for the first time what they called a “perverse incitement» at the heart of the agencies: IDAs derive most or all of their operating income from the fees they collect from companies, which means they have an incentive to provide tax breaks to make their budget profitable. Six of Western New York’s 15 IDAs derive their entire budget from fees. The Erie County IDA gets about 70 percent of its revenue from fees.

In the report, released last month, the groups called on New York lawmakers to integrate the function of IDAs into local government to ensure that tax breaks are provided to grow the local economy, not to an agency takes care of his payroll. A spokesperson for the comptroller’s office said that while DiNapoli would not make policy recommendations, the fact that companies pay IDAs for tax breaks is “a fundamental aspect of how IDAs are structured and how they operate in the New York State.”

“Comptroller DiNapoli would encourage the Legislature and Executive Branch to consider these complex issues in their legislative deliberations,” spokeswoman Jennifer Freeman said.

The groups are now calling on the state to require IDAs to report how much money the law firms they employ receive for each transaction. Kaehny said the groups had difficulty finding the information in their report because the fees lawyers received were “unofficial.”

“If the 107 IDAs revealed the amount of fees their attorneys or consultants received, I think it would create public outrage,” Kaehny said, referring to the total number of IDAs across New York state .

Freeman said the comptroller generally supports increased transparency for IDAs.

Fees charged by IDA attorneys vary by agency. Some give their lawyers a percentage of the fees the company pays to the agency (in some cases, a third of a 1% fee). Others, like Erie County, have a sliding fee scale. This schedule ranges from $2,000 for small projects to $28,000 for projects worth $10 million or more.

The report found that attorneys working for the Erie County IDA came in second among the agencies studied. Topping the list is Monroe County, where the Harris Beach Company collected up to $9.3 million from the IDA between 2017 and 2022. During the same period, according to the report, the company made $207,000 in donations to Monroe County politicians.

IDAs in figures

The Comptroller’s report sheds additional light on other IDAs in Western New York.

Cattaraugus County topped the list for most tax breaks awarded in 2022, according to the report, awarding 50 projects a total of $41.8 million. These grants generated 991 jobs, but cost local schools and governments $41.1 million in lost revenue. The IDA collected only $740,000 in payments in lieu of taxes, the lowest amount among the 14 agencies reporting data in Western New York.

Corey Wiktor, executive director of the Cattaraugus County IDA, said the numbers in the comptroller’s report are skewed because it is a snapshot in time, meaning the project totals — it’s – that is, the cost of the project and the amount of tax breaks – were captured, but not the PILOT payments to schools. and municipalities, which have not yet started.

“These reports are going to look a little skewed because these PILOTs haven’t started yet,” Wiktor said. “This report does not tell the story of manufacturing and solar energy.”

Erie and Niagara County IDAs round out the region’s top three in providing tax relief. In 2022, Erie County awarded $25.4 million in tax relief, while Niagara County awarded $18.5 million. These grants resulted in a reduction of $15.2 million for governments and schools in Erie County and $10.7 million less for those in Niagara County. Together, the agencies have supported nearly 300 businesses and helped create more than 16,000 jobs.

published 2 hours ago – May 23, 2024