The Westchester County Local Development Corporation met Thursday to approve the issuance of bonds for the Field Home in Yorktown.
The LDC’s latest meeting happened amid a dispute between the county Board of Legislators and the county executive over the LDC and who should have control over it. The dispute has the Board of Legislators refusing to ratify any of the bond issues the LDC has emitted since its formation.
County Executive Rob Astorino formed the LDC earlier this year to help non-profit organizations get tax-exempt bonds, something the Westchester County Industrial Development Agency can’t do for nonprofits.
After yesterday’s LDC meeting The Journal News called the Authorities Budget Office, the state agency that regulates LDCs, to ask if the Westchester County LDC’s bond issues are legal without the legislators’ endorsement. The verbal response was that the LDC can issue taxable bonds without the legislators’ consent. Their response on tax-exempt bonds arrived this morning:
It is our understanding that in order for an LDC to issue tax-exempt bonds on behalf of a municipality, certain criteria established by the IRS must be met. The IRS rulings appear to require that the municipality must be the sole controlling member of the corporation. In addition, it is our understanding that the governing body of the municipality must approve individual bond issuances of the LDC, since the LDC can only issue tax-exempt debt if it is “on behalf” of the municipality. Please see as an example, IRS Ruling 200936012 http://www.irs.gov/pub/irs-wd/0936012.pdf
A not-for-profit local development corporation can be formed by anyone who is 18 years of age or older. Accordingly, the County Executive could form an LDC by filing the necessary certificate of incorporation with the Department of State. That act alone does not address the issue of whether bonds issued by the LDC are tax exempt. It is unclear if the incorporation of an LDC by a County Executive, acting alone without the concurrence of the County Legislature, meets the IRS criteria that such formation was done “on behalf of” the county. Also, it is uncertain, based on the IRS criteria, whether the LDC could issue tax-exempt debt without its formation being authorized by the County Legislature. You may wish to seek further clarification from the IRS.
We hope this addresses your question. Please let us know if we can be of additional assistance.