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Corruption case puts spotlight on shadowy development funds

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Posted: Thursday, April 11, 2013 10:30 am | Updated: 10:45 am, Thu Apr 18, 2013.

The sprawling corruption probe that ensnared state Sen. Malcolm Smith (D-Hollis) featured a guest appearance by a little known pot of cash used to pay for roads and bridges.

“Multimodal money is outside the budget and it’s always around,” the Federal Bureau of Investigation allegedly recorded Smith as saying, as he hatched a plan to funnel $500,000 in state funding to a project on behalf of a real estate developer.

Gov. Cuomo has cracked down on legislators’ abilities to dispense funds at will. Two years ago, he eliminated funding for member items — grants members directed to their districts, often to closely allied organizations. He also set up 10 Regional Economic Development Councils, designed to promote coherence and accountability in state spending on job creation.

A $2 million state grant helped Binghamton restore or tear down blighted houses.

Watchdogs have hailed the new funding process as an improvement. But hundreds of millions of economic development dollars budgeted long ago still escape the same level of scrutiny. Much of that spending is controlled by old agreements between former governors and legislatures that make it difficult for the public to know who’s getting the money, and why.

Funds like the one set aside for multimodal transit, and others created during the Pataki administration, are still viewed by good-government groups as “murky, opaque, and potentially subject to conflict of interest and pay-to-play,” said John Kaehny, the executive director of Reinvent Albany, which promotes transparency.

Based on Smith’s alleged remarks, some legislators would appear to see them the same way.

The state’s patchwork of economic development spending programs, exemptions and subsidies cost upwards of $7 billion annually, according to one estimate from the Citizens Budget Commission. Over the last two years, less than 15 percent of that has fallen under control of the governor’s councils.

In the latest state budget, which was just signed, legislative leaders dealt Cuomo two important defeats in his quest to give the councils more financial control, and less to the Senate and Assembly.

In his January executive budget proposal, Cuomo had sought to use $720 million in capital funding to create a new “Transformative Projects” fund, to be steered by the councils.

A second measure from Cuomo sought to give the councils oversight of sales tax breaks granted to businesses by local industrial development agencies, known as IDAs.

But both fell out of the budget after pushback from legislative leaders, who complained that Cuomo’s move was a power grab. The fight over economic development spending was so contentious that it was one of the last sticking points holding up a budget deal in late March.

“There’s a concern the governor is attempting to expand the role of regional economic development councils to the exclusion of the Legislature,’’ Assembly Speaker Sheldon Silver (D-Manhattan) said at the time.

At one point, Silver even floated the idea of giving the Legislature veto power over the councils’ spending decisions, though that provision didn’t make it into the budget.

While legislators have criticized Cuomo’s councils as giving the governor too much authority, good-government groups tend to praise them because they use an open, competitive application process — an improvement on Albany’s old ways of pork-barrel spending on programs like member items.

“They’ve created a … process that involves more members of the public, and more stakeholders,” Kaehny said. “It’s a heck of a lot better than sticking items, line by line, into the state budget at the very last second, after midnight, and no one understanding who’s getting what.”

But the spending that goes through the councils “is still just a fraction of the economic development universe,” said Tammy Gamerman, senior research associate at the Citizens Budget Commission.

And for several old programs in the state’s new capital budget such as RESTORE NY and Gen*NY*Sis, there’s little information about how the funds are distributed, other than a reference to a “memorandum of understanding” between Albany leaders.

“This whole process is opaque,” said E.J. McMahon, a senior fellow at the Manhattan Institute for Policy Research. Referring to Cuomo’s administration, he added: “They have not invented this opacity, but they’re not improving it, either.”

Cuomo tried to create stronger accountability via the Transformative Projects Program, but budget documents show that the Assembly rejected the governor’s proposal to give the regional councils control over a pot of money that topped a half-billion dollars.

The Legislature also rejected Cuomo’s proposal for new controls on sales tax exemptions granted by the IDAs, which Gamerman said would have been “a small step towards aligning state and local efforts.”

IDA officials in communities around the state strenuously objected, saying they would have lost a crucial tool in their economic development toolkits — and the Legislature intervened on their behalf.

“This would, in our opinion, have disrupted a program that has been very effective in meeting local economic development needs,” said Brian McMahon, executive director of the New York State Economic Development Council, a nonprofit group that represents IDA leaders and other local development officials. “I think the legislature recognized that there would have been a significant loss of local control.”

The budget does revive old prohibitions against other kinds of locally granted tax breaks for retail projects, and adds some new monitoring requirements, which Gamerman called “good but small improvements.”

Buffalo-area Assemblyman Robin Schimminger (D-Kenmore), the chairman of the Economic Development Committee, declined to be interviewed about the budget’s changes, and the Senate press office did not respond to an inquiry.

Cuomo spokesman Rich Azzopardi would not respond to specific questions about the budget process, and instead gave the World an emailed statement.

“Governor Cuomo’s Regional Council program has a proven track record of success, which is why it remained unaltered in this year’s budget,” Azzopardi wrote.

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