A state review of the Chautauqua County Industrial Development Agency has found more than $250,000 of “inappropriate and questionable discretionary spending,” including costly holiday parties and membership to a golf club.
Among other issues, the draft review by the Authorities Budget Office obtained by Investigative Post found:
- The IDA’s chief financial officer, Richard Dixon, was reimbursed $30,600 for use of his personal vehicle and $18,429 for a membership and other expenses at a local golf club.
- CEO Mark Geise, Dixon and other staff used IDA credit cards to pay for $26,000 in “inappropriate meal purchases.”
- The agency made more than $100,000 in donations and sponsorships, described as “inappropriate and questionable expenses.”
- The IDA created a special committee to “fast-track” applications for subsidies, a setup that amounted to an “abdication of the board’s fiduciary duty.” The Transaction Committee allowed a company seeking subsidies to appear before the IDA board only once, when typically a board must vote twice on all deals.
- The IDA board went into executive session during 28 out of 32 meetings, but failed to cite a reason why, in violation of the state’s Open Meetings Law.
“They just weren’t following the proper rules. They weren’t following the proper procedures,” said Jeff Pearlman, acting director of the Authorities Budget Office.
The review — conducted from May to December 2022 — covered three years of activity and also found the IDA was often late in making PILOT (payments in lieu of taxes) transfers to local municipalities and school districts.
The review did not allege any illegal activity, but recommended 42 changes for the IDA and related economic development entities. They include the board of directors exerting greater control over discretionary spending and the use of credit cards, and attending training from the state’s Committee on Open Government. The ABO also recommended the IDA adopt a conflict of interest policy that requires the board and staff to file annual ethics disclosures with the county ethics board.
The report comes at a time when IDAs around New York have come under increased scrutiny from state lawmakers and agencies.
- Several reform bills, including one to strip IDAs of the power to grant property tax breaks that affect schools, have been introduced in the Senate this year.
- Sen. James Skoufis successfully inserted a measure into the state budget that appointed a “special monitor” over the Orange County IDA, a position that has the authority to veto tax subsidies granted by the IDA.
- State Comptroller Thomas DiNapoli found in a recent report that IDA tax exemptions are increasing while jobs created from those projects are decreasing.
“This can ultimately save taxpayers hundreds of thousands, if not millions, of dollars,” Pearlman said of the ABO’s review. “Because cumulatively, if left to their own devices, I think you would see a lot of spending and a lot of projects being decided without the public knowing until the tax expenditures have been approved and the PILOTs have been established.”
The review is a draft, subject to a response from the IDA before it is finalized.
Investigative Post sought comment from Chautauqua IDA leadership, including Geise, Dixon and Gary Henry, the board chairman. Harris Beach attorney Robert Murray responded on their behalf and urged Investigative Post to not publish this story.
“I strongly advise you to not publish a story on this draft report at this time as we will be working with the ABO to incorporate any comments and make any necessary revisions to ensure the report is factually correct, which will result in a revised report that will be used as a basis for discussion at an exit conference,” Murray wrote in an email.
“This will form the basis of a FINAL Report, which will be made public. At that point, the CCIDA will be more than willing to comment on the contents of the report.”
In the interim, Murray refused to comment on the report’s findings and recommendations.
Doesn’t “pass the smell test”
Among the most significant problems the ABO identified was more than $70,000 in “inappropriate” credit card spending. The IDA, the ABO found, “does not have an adequate internal control structure in place to minimize the risk of error, misuse and fraud.”
In addition, the ABO identified more than $50,000 of “unauthorized and inappropriate” payments to Dixon, the CFO.
Over a three-year period, the ABO found the IDA spent $116,380 on 1,232 purchases across eight separate credit cards, the majority of which the IDA couldn’t fully account for. Of that total, $73,115 in purchases were “made without adequate documentation to support the [IDA] business purpose.” Dixon made $27,874 of those purchases, while the IDA’s controller, not identified in the report, made $22,624.
The ABO also identified $26,000 in “questionable meal purchases.”
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While IDAs perform multiple economic-development functions, their primary role is to grant property, sales and mortgage tax exemptions to companies in exchange for retaining or adding jobs.
The Chautauqua County IDA had 41 active projects on the books involving $35 million in tax abatements as of 2021, the most recent annual report the agency has submitted to the state. Wind farms account for the largest subsidy packages, along with the now-shuttered NRG power plant in Dunkirk.
The IDA obtains most of its funding from grants and fees charged in exchange for approving tax subsidies. It has a budget of $3.7 million for 2023 and a staff of seven full-time and three part-time employees.
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Dixon told the ABO that credit cards are primarily used to purchase supplies and meals for prospective clients. The ABO report recommended the IDA board exercise greater control over the staff’s use of credit cards and develop “adequate internal controls” to ensure the credit cards are used on appropriate expenses and that those expenses are properly documented.
The ABO found that Dixon, the person with oversight over credit card spending, received $50,629 in “unauthorized and inappropriate payments” over three years. That total includes reimbursement to Dixon for use of his car and golf club membership.
“It doesn’t pass the smell test, really, that a golf membership for an IDA is OK,” Pearlman said. “Should the taxpayers be concerned? Yes.”
“Why should they be concerned?” he said. “It’s the ABO’s job to say the board failed in its fiduciary responsibility because it didn’t have the policies and procedures in place to monitor management. They should know if management is using IDA funds to join a golf club.”
Poor accounting and lax oversight
While many IDAs have related entities under one roof — the Erie County IDA, for example, is also responsible for a Regional Development Corporation and an Industrial Land Development Corporation — the ABO requires each entity to maintain separate bank accounts.
But in Chautauqua, the IDA, Region Economic Development Corp. and County Capital Resource Corp. all share the same bank account, the ABO found.
“The lack of policies and procedures increases the risk of misallocation of payments,” the report noted.
The review found the IDA spent $130,785 on flowers and gifts for staff, catered holiday parties ($6,898 in 2021), cell phones for non-agency staff, and charitable contributions and sponsorships. Those donations included a $10,000 endowment to the National Comedy Center in Jamestown and a $14,500 donation to Northwest Arena, the hockey and skating arena in Jamestown.
The report, the ABO said, serves as “a formal warning” to the IDA, whose board “failed its fiduciary duty to provide oversight over management, adopt adequate policies and procedures, and monitor the financial and management controls.”
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