As School Funding Runs Dry, Riverhead Residents Call to Shut Down Economic Development Org

A growing local faction is demanding that the IDA be dissolved.

Arabella Saunders   ·   October 11, 2023
Sign reads:
Grow your business here! 
Town of Riverhead Empire Zone 
Last year, the town of Riverhead diverted $2.7 million in property tax exemptions out of the school district's budget. | Arabella Saunders

The walls were sweating at Riverhead High School. So were the tile floors and the teachers and the students. During an August heatwave, temperatures in the school reached the high 80s. A quarter of the classrooms don’t have AC. The school placed fans in the slick hallways to dry them out.

“[The students] shut down,” said Garrett Moore, 44, who has taught social studies at the school for 20 years. “They just put their heads down.”

It’s not just heat. Classes are overcrowded, Moore said. Teachers need training on new technology. The football team needs a regulation-size field. Buses are a debacle — drivers are leaving for private companies because the district can’t pay them enough. And the school desperately needs new copy machines.

Last year, as these and other problems plagued the only high school in the 35,000-person town of Riverhead on Long Island’s east end, the town diverted $2.7 million from the school district’s budget, forking it over to business owners and developers in the form of property tax exemptions.

The tax breaks were doled out by the Riverhead Industrial Development Agency, a public benefit corporation established by the town government in 1980 to strike deals promoting the local economy.

From 2014 to 2021, the IDA awarded $23 million in tax breaks to developers of market-rate housing, hotel chains, and office spaces, among dozens of other projects, according to data it reports to the state.

A picture of the riverhead high school
The Riverhead school board is leading the charge against the town IDA. | Arabella Saunders

Over a hundred similar bodies operate across the state. New York schools lose far more than those of any other state to corporate tax breaks — at least $1.8 billion in fiscal year 2021, according to an analysis by the watchdog group Good Jobs First. The process by which that money is doled out tends to be obscure. But in Riverhead, it has sparked a war.

A growing faction of local leaders and residents is calling for the IDA to be dissolved. They complain of unnecessary tax breaks, failure to publish basic information required by state rules, and the financial squeeze on schools. The controversy has spurred the formation of civic groups, standing-room-only meetings hosted by formerly low-profile town bodies, impassioned debate on social media and government forums, an altercation between an aquarium owner and a resident, and the appointment and resignation of an outspoken critic to the IDA’s board.

“This is uniting the community more than any other event in the past decade that I can remember,” Moore said.

The latest battlefront: pushing the agency to stop exempting school property taxes.

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In late August, the Riverhead Board of Education sent a letter to the IDA about the “extreme financial burden” tax breaks have put on the school district.

The school board expressed concern that a fresh round of subsidies could be awarded to the developers of 650 new apartment units slated for Riverhead, which they point out will come with more students. “Over the past decade this practice has robbed the Riverhead School District of over $15 million in school revenue,” the board wrote.

Colin Palmer, the school board’s president, says the local battle has broader implications.

“Personally, I think that not only should our town IDA be disbanded, but I think that the law needs to be repealed, and all IDAs in the state should be disbanded,” he said.

Nestled between a hotel and a gas station sits a Riverhead tourism staple: the Long Island Aquarium. The seal exhibit glued to the front needs a power wash and a paint job. On a midweek morning in September, four young women feed the seals as another describes the process to a few half-listening visitors. The seals slip and slide out of the water to retrieve their lunch. If the visitors want to see more, the standard ticket will cost them $45.99 plus tax.

It’s a steep price for a place that hasn’t paid full property taxes in more than two decades.

In 1999, the developers approached the Riverhead IDA with the promise of revitalizing the town’s downtown with a brand-new aquarium. In exchange, they wanted tax breaks.

The Riverhead IDA agreed to a 10-year tax break to help get the project off the ground. Instead of paying $3.2 million in sales, mortgage, and property taxes in its first decade, the aquarium paid less than $270,000 in so-called “payment-in-lieu-of-taxes,” or PILOTs.

Then, in 2009, just as the aquarium was supposed to start paying its taxes in full, the developers returned asking for more. They wanted to expand the aquarium with an adjoining hotel and conference center. The Riverhead IDA granted tax breaks for the expansion and simultaneously extended the original agreement, continuing to exempt the taxes of the aquarium itself. In 2016, the owners proposed another expansion, and the agency extended the original agreement once again.

The result? The Long Island Aquarium now gets nearly $1 million in tax breaks a year, and it won’t start paying full taxes until 2031 — 20 years after it was supposed to stand on its own feet.

The seal exhibit at the Riverhead Aquarium
The Long Island Aquarium won’t start paying full taxes until 2031, twenty years after it was supposed to stand on its own feet. | Arabella Saunders

Tensions with locals started to heat up during the 2016 meeting at which the aquarium received its second 10-year extension of the tax break. The police were called after an altercation broke out between local resident Larry Simms and the developer of the aquarium.

Simms had lived in Riverhead since 2003 and had been attending IDA meetings for years. He became convinced that there was a fundamental imbalance in the process: The promised benefits to the town were never described in detail, while the benefits to the applicant were spelled out down to the penny.

“It would say 27 construction jobs,” Simms said. “What’s a construction job? Is it a guy operating a backhoe or a forklift? Is it a guy sweeping up? Are they equivalent? Do they get paid the same amount? How long does the job last? Are there requirements that the people that get these jobs will be from Riverhead?”

Simms made it his mission to inform fellow residents about how the Riverhead IDA operates. At first, he said, “nobody cared.”

Then the developers behind the Mall of America came to town.

Eight miles outside of Riverhead is a former Northrup-Grumman flight testing base that is now home to an industrial park called Enterprise Park at Calverton, or EPCAL. The town of Riverhead owns around 2,500 acres of the site, most of it undeveloped. The town has been trying to sell the land to developers since the 1990s, trying and failing to strike deals for a racetrack, a film studio, a waterpark, a zoo, a YMCA, and a Trump Organization hotel and golf course.

In 2017, town officials pursued yet another deal to build an industrial park with Luminati Aerospace and the Ghermezian brothers, whose family developed the Mall of America in Minnesota. The town signed an intent of sale letter for 1,700 acres for $40 million, a price critics argued was too low. Residents also objected to the developers’ refusal to provide detailed descriptions of their plans for the land, 1,000 acres of which is considered environmentally sensitive. A local watchog group, EPCAL Watch, was formed in response. More people began showing up at board meetings.

The Riverhead IDA wouldn’t be formally involved with the deal until 2022, but the controversy led residents to get more involved with local government. People started paying attention to the IDA, said Kathy McGraw, a member of EPCAL Watch, and more projects came under fire.

The issue started to take center stage in local politics: Laura Jens-Smith ran for town supervisor, the top position in Riverhead government, campaigned on dissolving the IDA, and won the race.

Once in office, she called IDA leadership before the town board. For an hour and a half, Executive Director Tracy Stark-James defended the body’s mission and fielded questions from Jens-Smith.

The executive director explained that the IDA had the power to recapture benefits if companies didn’t follow through with their end of a deal — but had never used it. “I am happy to report this agency has had many successful results and never had to claw back any benefits,” Stark-James said.

Town board members asked for more transparency, requesting that the IDA update its website to include detailed information on a project applicant, the incentives being offered, the timeline of the PILOT agreement, and the number of jobs being created.

All of that information and more is required by the Authorities Budget Office, the state agency that oversees state and local authorities. But the Riverhead IDA website is sparse and outdated. The website currently lists just four projects. In 2021 alone, the agency had 29 active projects.

The 30-year tax break to the Long Island Aquarium, for example, doesn’t appear on the website’s list.

“I don’t blame businesses for wanting to get as big of a profit as they possibly can, but that shouldn’t be the job of a town.”

—Colin Palmer, school board president

Authorities Budget Office guidelines say the failure to meet its public disclosure rules constitutes “an act of non-compliance with state law” and is subject to legal sanctions. An ABO representative said the office hasn’t conducted a review of the Riverhead IDA’s website, but could do so “given the concerns” raised by New York Focus.

In 2021, the Riverhead IDA approved a 10-year PILOT agreement for a waterpark. The developer told the IDA that the park would be fully operational the following summer. The IDA reported to the state that the project would create an estimated 283 jobs. But the park still hasn’t opened.

In 2022, the Riverhead IDA reported to the state that the waterpark received more than $120,000 in tax breaks. This summer, RiverheadLOCAL reported that the waterpark hosted a private party despite lacking a certificate of occupancy, which certifies that the business has passed safety inspections and can be lawfully occupied.

“The IDA has done nothing about doing any clawbacks with that,” the former town supervisor said. “They really just are not doing their job.”

The ida’s main response to the mounting criticism has been to ignore it.

In response to the increasing controversy surrounding the EPCAL deal as well as the practices of the Riverhead IDA, a group of locals formed the Heart of Riverhead Civic Association in 2021 and invited the Riverhead IDA to meet with them.

“We didn’t hear anything back from that,” Moore, a member of the association, said.

McGraw said EPCAL Watch has sent the Riverhead IDA multiple letters over the years but has never received a response. Palmer said the school board hasn’t gotten a response to its letter, either.

New York Focus encountered similar non-responsiveness. The IDA’s executive director and sole salaried employee, Tracy Stark-James, referred questions to the town supervisor, Yvette Aguiar, who declined an interview and did not respond to detailed questions. The IDA does not make contact information available for its five board members, and the board’s vice chair did not respond to questions over email. None of the four members of the town council responded to questions, either.

The IDA isn’t even always responsive to its own board members: In 2018, Simms, the outspoken critic of the IDA, was appointed to its board. He told New York Focus that he requested meetings with Stark-James — supposed to be under the “direct oversight” of the board — but she was never available.

“This is uniting the community more than any other event in the past decade that I can remember.”

—Garrett Moore, Riverhead social studies teacher

In Simms’s short stint on the board, he said there were “no real challenges” from other board members on deals, and little interest in acquiring information such as market studies, cost-benefit analyses and detailed construction plans that could inform decisions.

“There were times when I wanted to postpone a vote because the information wasn’t available,” he said. “And the answer was, ‘No, we’re just gonna go ahead and vote.’”

Simms resigned from the board four months into his term after he moved out of the state.

Another former board member, Angela De Vito, recalled similar frustrations. De Vito served on the IDA board in 2008, before Stark-James was the executive director. She noticed a lack of robust cost-benefit analyses, and asked senior board members whether the IDA could demand full-time jobs and claw back back benefits from underperforming projects. “I was told we don’t do that,” De Vito said.

Now, seven years after the police were called to a then-obscure meeting, tensions have reached a boiling point.

The IDA recently held two public informational meetings regarding the EPCAL deal, which Palmer said were standing room only.

“People literally said, ‘I’ve never been to a town board meeting,’” Moore said. “And yet they come out and they don’t know protocol or anything, but they’re angry.”

The school board, the Riverhead Central teacher’s union, EPCAL Watch, and Teamsters Local 804 recently formed a loose coalition on tax incentives. Palmer, Jens-Smith, and the president of the Heart of Riverhead Civic Association are calling for the Riverhead IDA to be dissolved. So is De Vito, who is now running for town supervisor.

And the local fight has caught the attention of state legislators.

State Senator James Skoufis, who has battled other IDAs, said the mobilization of Riverhead residents is unique.

“To see a groundswell in the community call for an IDA to be dissolved, I have not seen that before,” Skoufis said.

Senator Sean Ryan, who is sponsoring a bill that would ban IDAs from exempting school property taxes, applauded the Riverhead school board.

“Similar things happen all over New York state, but often the IDAs are so disconnected that the school districts don’t know who is robbing them of money,” Ryan said.

Anthony Palumbo, a Republican who represents Riverhead in the state Senate, said he would support Ryan’s bill in the upcoming legislative session.

“I don’t blame businesses for wanting to get as big of a profit as they possibly can,” said Palmer. “But that shouldn’t be the job of a town ... to help businesses with their profit line.”

Arabella Saunders is a Report for America corps member covering economic development for New York Focus. Her reporting has also appeared in Vice, HuffPost, DCReport, and The Assembly NC.
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