Can a county industrial development agency pay its executive director a percentage of bond-project fees on top of base salary, or a 'minimum' alternative payment if the percentage is found unlawful?

Plain-English summary

The Niagara County Industrial Development Agency's executive director had a $69,000 annual salary plus an additional payment equal to 1.5% of agency fees collected on bond projects during a specified period. The contract also provided a minimum additional payment of $3,000 a year in place of the percentage payment if the latter was held unenforceable or contrary to State law.

General Municipal Law § 858-a(1) bars compensation for an IDA officer or full-time employee that is "contingent on the granting of financial assistance by an agency." The opinion says financial assistance includes proceeds of IDA bonds and tax exemptions. The AG concluded that the 1.5% payment violated the statute because it depended on agency fees collected for bond projects.

The AG said the $3,000 alternative also appears to violate the statute. If it would be paid only when the IDA collected bond-project fees and chose not to use the percentage method, it too would depend on financial assistance. The opinion says an amount unrelated to financial assistance would presumably be a fixed part of the director's base salary.

The AG added that contract provisions contrary to statutes intended to protect the public and prevent fraud are void and unenforceable, and that unlawful payments under these provisions may be recoverable. It did not direct the IDA to recover a particular amount.

Currency note

This opinion was issued in 1998. Check current General Municipal Law provisions before applying its conclusion to a current compensation contract.

Common questions

Why did the percentage payment violate § 858-a(1)?

It was calculated as 1.5% of agency fees collected on IDA bond projects. The AG said compensation based on those fees is contingent on the agency's granting financial assistance, which the statute forbids.

Was the $3,000 fallback definitely unlawful?

The opinion says it appears to violate the statute. It explains that the payment would be impermissible if, under the contract or in practice, it was made only when the IDA collected agency fees for bond projects. It does not make a definitive finding about how the fallback was implemented.

Could a fixed amount be part of the director's base salary?

The opinion says that if an amount is unrelated to financial assistance for IDA clients, it would presumably be a fixed amount forming part of the director's base salary.

Must the IDA recover payments already made?

The opinion says unlawful payments may be recoverable. It does not direct recovery or determine how much could be recovered.

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/I_98-16_pw.pdf

Original opinion text

GENERAL MUNICIPAL LAW §§ 858-a, 854; L 1993, CH 356. The provision of the Niagara County IDA's contract with its executive director, which states that the director is to receive an additional salary equal to 1.5% of the agency fees collected on IDA projects, violates General Municipal Law § 858-a(1). The second provision, which grants an additional "minimum" payment if the first provision is found to violate State law, also appears to violate section 858-a(1). April 9, 1998 Morton H. Abramowitz, Esq. Assistant County Attorney County of Niagara Niagara County Courthouse Lockport, NY 14094-2740

Informal Opinion
No. 98-16

Dear Mr. Abramowitz:
You have asked whether the employment contract between the Niagara County Industrial Development Agency and its executive director contains provisions proscribed by General Municipal Law
§ 858-a. That statute provides in part that "[t]he compensation of an officer or full-time employee of the agency . . . shall not be contingent on the granting of financial assistance by an agency". Id., § 858-a(1). "Financial assistance" refers to proceeds of bonds issued by an IDA and to tax exemptions provided by an IDA. Id., § 854(14). This prohibition of contingent compensation was added in 1993 as part of a larger reform of IDA practices. The statute resulted from the Legislature's lengthy review of IDA practices and was intended to curtail abuses by increasing the oversight and accountability of IDAs. Bill Jacket, L 1993, ch 356, Sponsor's Letter in Support dated July 16, 1993. You have advised us that the contract in question provides that the executive director will receive an annual salary of
$69,000. The contract also states that the executive director will receive an additional salary of 1.5% of the agency fees collected for bond projects by the IDA between October 1, 1994 and October 13, 1997. This additional salary is to be paid quarterly, rather than at a bond closing when other transaction fees are paid. You state that the contract further provides that, "in the event the additional payment was held unenforceable or in conflict with State Legislation, a minimum additional payment of $3,000 per year would be paid to the Executive Director as additional compensation in place of the percentage payment".

2
We conclude that the first contract provision violates the terms of the General Municipal Law. It is clear that a provision for an additional salary payment consisting of a percentage of the agency fees collected for bond projects is compensation that is "contingent on the granting of financial assistance" by the IDA. The alternative "additional payment" to replace the percentage payment that is referred to as a "minimum" of $3,000 per year also appears to be a statutory violation. If under the terms of the contract or in the implementation of the provision the minimum additional payment of $3,000 per year would be made only when the IDA collected agency fees for bond projects and then determined not to use the percentage payment method, the minimum additional payment also would be "contingent on the granting of financial assistance" and, therefore, would not be permissible under the statute. Presumably, if it was unrelated to "financial assistance" to clients of the IDA, it would be a fixed amount that is part of the base salary of the executive director. We conclude that the provisions of the Niagara County IDA's contract with its executive director, which state that the director is to receive an additional salary equal to 1.5% of the agency fees collected on IDA projects, violate General Municipal Law § 858-a(1). The second provision, which grants an additional "minimum" payment if the first provision is found to violate State law, also appears to violate section 858-a(1). You also have asked whether the IDA should be instructed to recover some or all of the payments made to the executive director under the provisions discussed above. Contract provisions that are contrary to statutory requirements intended to protect the public and prevent fraud are void and unenforceable. See, Benjamin v Koeppel, 85 NY2d 549 (1995); Amdahl Corporation v NYS Higher Education Services Corporation, 203 AD2d 792 (3d Dept 1994); Gill, Korff and Associate v County of Onondaga, 152 AD2d 912 (4th Dept 1989). Therefore, the unlawful payments may be recoverable. The Attorney General renders formal opinions only to officers and departments of State government. This perforce is an informal and unofficial expression of the views of this office. Very truly yours,

SIOBHAN S. CRARY
Assistant Attorney General