Janet DiFiore, chief judge of the New York State Court of Appeals Janet DiFiore, chief judge of the New York State Court of Appeals. (Photo by David Handschuh/NYLJ)

A watchdog state authority in New York that oversees the activities of local economic development and industrial agencies secured a victory before the state’s highest court on Thursday that reaffirmed its investigatory and enforcement power over publicly formed corporations.

The New York State Authorities Budget Office has the power to require those local agencies, called industrial development agencies, to file separate financial reports for each of their affiliates or subsidiaries, the Court of Appeals said in a unanimous decision.

“The ABO’s narrow record-keeping determination was not contrary to law,” Chief Judge Janet DiFiore wrote in the court’s opinion. “The Public Authorities Law plainly provides that a local development corporation … which is ‘affiliated’ with a local IDA, is also a local authority subject to [the law] and, as such, has reporting obligations.”

The question before the court was narrow in scope, but set the first legal precedent on the power of the ABO over local development agencies since the office was created as an independent entity about a decade ago. The office, which was represented by Assistant Solicitor General Robert Goldfarb, was previously part of the state Division of Budget.

“This is a good decision,” said Jeffrey Pearlman, director of the ABO. “It’s important in the evolving case law that’s now coming out relating to the ABO and local authorities and it helps the ABO and all the entities within its regulatory authority to understand what the role of the authorities budget office is moving forward.”

The decision is the final determination in a legal challenge against the ABO by the Madison County Industrial Development Agency, which asked if it could include the financial information of one of its subsidiaries in its mandated reports to the office. The agency had created the Madison Grant Facilities Corp. in 2013 to shield itself from potential liability involving a third-party contractor.

Soon after it was created, MGFC was told by the ABO that it had to comply with requirements under state law to file certain annual, budget and independent audit reports with the office. MCIDA asked if they could, instead, just consolidate the activities of MGFC into its own reports with the state since they’re affiliated.

The ABO initially said it was concerned that including the activities of both entities in one report “will result in a loss of transparency and accountability,” according to the decision. The New York Attorney General’s Office, meanwhile, issued a formal opinion at the time saying that an IDA cannot create a subsidiary under state law.

The request by MCIDA to file a consolidated report was ultimately denied by the ABO, which cited the attorney general’s opinion in its decision. The office said, partly because of that opinion, it wouldn’t treat MGFC as a subsidiary and required it to file separate reports.

That decision was challenged by both entities from Madison County in state Supreme Court, where their case was dismissed based on the attorney general’s opinion. The Appellate Division, Third Department affirmed that opinion using similar reasoning.

The Court of Appeals did not address the question, in its decision, of whether an IDA is able to create and maintain a subsidiary or affiliate. DiFiore wrote that the Public Authorities Accountability Act would require separate reporting by each entity regardless of whether they were considered a subsidiary since they’re affiliated with an IDA.

“Even if MCIDA was authorized to create a subsidiary as it asserts, this would not require invalidation of the ABO determination,” DiFiore wrote. “The PAAA does not contain a reporting exception for subsidiaries of local authorities, and petitioners have not identified any other statute or regulation that excused MGFC from its obligation to separately report.”

DiFiore’s opinion outlined the broad authority prescribed by the state Legislature to the ABO to oversee the activities of local agencies, which can include economic and industrial development agencies, as well as nonprofit organizations sometimes created by municipalities for investment purposes. The former are funded partly through government grants, but mostly through projects and properties they manage.

“The Authority Reform Act [of 2009] removed the ABO from the umbrella of the Division of Budget, reestablished it as an independent entity and enhanced its powers,” DiFiore wrote. “Particularly relevant to this dispute, the ABO was given broad authority to ‘request and receive from any state and local authority … such … information, books, records, other documentation, and cooperation as may be necessary to perform its duties.’”

The office also has a wide range of enforcement powers, DiFiore wrote, including the authority to act on complaints against an entity, initiate investigations, issue subpoenas and more. The vast role the ABO fills as an investigatory and enforcement entity overseeing state and local authorities gave it the power to require separate reports from MCIDA and MGFC, DiFiore wrote.

“It was not irrational for the ABO to decline to ‘treat’ MGFC as a subsidiary of MCIDA for the limited reporting purpose,” DiFiore wrote. “Such action was consistent with the plain language of the PAAA and the ABO’s mandate to ensure transparency by compelling reporting compliance by public authorities, including affiliates of IDAs such as MGFC.”

MCIDA was represented before the Court of Appeals by Charles Malcomb, a partner at Hodgson Russ in Buffalo. Malcomb did not immediately offer comment on the decision.

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