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 had an employment contract with its executive director. The contract provided:

• A $69,000 annual base salary.
• An additional 1.5% of agency fees collected on bond projects between October 1, 1994 and October 13, 1997, payable quarterly.
• A fallback: if the percentage provision were "held unenforceable or in conflict with State legislation," the executive director would instead receive a "minimum additional payment of $3,000 per year."

The Niagara County Assistant County Attorney asked whether either of the additional-compensation provisions violated General Municipal Law § 858-a(1), the 1993 reform statute that prohibited tying IDA officer or employee compensation to financial assistance granted by the agency.

The AG said both provisions violated the statute, and the unlawful payments may be recoverable.

General Municipal Law § 858-a(1) provides 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." General Municipal Law § 854(14) defines "financial assistance" to include bond proceeds and tax exemptions provided by an IDA.

The first provision (1.5% of agency fees on bond projects) was a textbook violation. Agency fees are collected only when the agency grants financial assistance. Compensation tied to those fees is compensation contingent on financial assistance. The statute's plain text caught the provision squarely.

The second provision (the "minimum" $3,000 fallback) was more subtle but also problematic. The opinion read the fallback as appearing to be a substitute for the percentage payment that would still be paid only when the IDA collected agency fees for bond projects. If that is how the contract operated, the fallback payment was also "contingent on the granting of financial assistance" because the trigger was unchanged. The opinion left open the possibility that, if the $3,000 were actually a fixed component of base salary unrelated to financial assistance, it would be lawful. But as written, the fallback "appears to be a statutory violation."

The 1993 reform itself was important context. The Legislature had reviewed IDA practices at length and intended § 858-a to curtail abuses by increasing oversight and accountability. Contingent compensation was a specific target because it created a structural incentive for IDA officers and employees to push for more bond issuances and tax exemptions, regardless of whether those decisions were in the local economic interest.

On the question of recovery: contract provisions that violate statutory requirements intended to protect the public and prevent fraud are void and unenforceable. Benjamin v Koeppel, Amdahl Corp. v NYS Higher Education Services Corp., and Gill, Korff and Associate v County of Onondaga all held that statutory violations of this kind void the relevant provisions. The unlawful payments to the Niagara IDA executive director "may be recoverable" under that principle. The opinion did not specify whether the IDA must seek recovery, or how to calculate the amount; it identified the legal availability of recovery and left implementation to the agency.

Currency note

This opinion was issued in 1998. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Note that IDA reform has continued since 1998, with significant amendments to General Municipal Law Article 18-A and additional oversight by the Authorities Budget Office. The principle that IDA officer/employee compensation cannot be contingent on financial assistance has continued, but the specific enforcement structure has evolved.

Common questions

Why does § 858-a(1) bar contingent compensation?

The Legislature concluded that compensation tied to IDA bond issuance and tax exemptions creates a structural incentive for IDA staff to favor more transactions, larger transactions, and looser standards regardless of whether those transactions actually advance economic development. The 1993 reform identified that incentive as a source of abuse and barred it across the board.

Could the IDA give the director a bonus tied to overall agency activity?

Probably not, if "overall agency activity" is functionally equivalent to financial assistance. A bonus tied to "projects approved" or "bonds issued" looks too much like contingent compensation. A bonus structured around fixed performance metrics unrelated to whether financial assistance was granted (e.g., timely processing, audit cleanness) might survive, but the opinion did not address that scenario and the safe path is to keep compensation entirely independent of financial assistance.

What does "void and unenforceable" mean for the director who already received the payments?

It generally means that the contract provision authorizing the payments was never legally effective; the IDA could not be required to pay, and the director cannot rely on the contract to keep the payments. Benjamin v Koeppel and similar cases authorize recovery of payments made under void contract provisions. The IDA would typically have to initiate recovery (administrative request, then litigation if unpaid). The director might be entitled to argue equitable defenses (estoppel, change of position), but those are uphill arguments when the contract violates a public-protection statute.

Could the IDA fix the problem prospectively by amending the contract?

Yes. The IDA can amend the contract to remove the unlawful provisions and substitute a fixed compensation structure. The amendment cannot retroactively legalize the past payments, but it can prevent ongoing violations.

Does the same rule apply to all IDA officers and employees?

§ 858-a(1) covers "an officer or full-time employee" of the agency. The executive director clearly falls within the statute. Part-time consultants, contracted professional services (outside counsel, financial advisors), and similar arrangements are governed by different rules and often have their own compensation conventions. The opinion did not address those scenarios.

Could a "success fee" to outside professionals also be a problem?

The opinion does not address outside professionals, who are typically not "officers or full-time employees" of the agency. Standard practice for bond counsel, financial advisors, and similar professionals includes success fees on closed transactions; those would not normally fall within § 858-a(1). But specific arrangements involving IDA officers or employees disguised as consulting contracts would need careful analysis.

Background and statutory framework

General Municipal Law Article 18-A is the New York IDA statute. The article authorizes counties, cities, towns, and villages to create industrial development agencies as public benefit corporations to issue tax-exempt bonds and provide tax exemptions for qualifying economic development projects.

§ 854 contains definitions, including "financial assistance" in § 854(14) (bond proceeds and tax exemptions).

§ 858-a is the contingent-compensation reform statute, added by Chapter 356 of the Laws of 1993. Subdivision (1) is the operative prohibition.

The 1993 amendments responded to legislative findings of IDA abuses, including transactions that did not produce promised economic development benefits, opaque governance, and compensation incentives that pushed staff toward maximizing bond and tax-exemption activity. § 858-a is a structural reform: it removes the financial incentive at the staff level.

The three cited contract-voiding cases (Benjamin v Koeppel, Amdahl Corp., Gill, Korff and Associate) are the standard New York authorities for the proposition that contract provisions violating public-protection statutes are void and that payments under such provisions may be recovered.

Citations

• General Municipal Law § 854 (IDA definitions).
• General Municipal Law § 854(14) (definition of "financial assistance").
• General Municipal Law § 858-a (contingent compensation reform).
• General Municipal Law § 858-a(1) (prohibition on contingent compensation).
• L 1993 Ch 356 (enacting § 858-a).
• Benjamin v Koeppel, 85 NY2d 549 (1995) (contracts violating statutory requirements void).
• Amdahl Corporation v NYS Higher Education Services Corporation, 203 AD2d 792 (3d Dept 1994) (same).
• Gill, Korff and Associate v County of Onondaga, 152 AD2d 912 (4th Dept 1989) (same).

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