The Amherst Industrial Development Agency may not be able to legally “recapture” $200,000 in tax breaks it granted to PHH Mortgage Corp., which cut a few hundred jobs, because the “clawback” policy it now uses wasn’t in effect when the incentives were approved, the agency’s chairman and executive director said Friday.
State Assemblyman Sean Ryan, D-Buffalo, on Tuesday called on the agency to revoke $1.3 million in sales tax benefits it had previously granted to the Mt. Laurel, N.J.-based mortgage servicing company.
Ryan, a frequent critic of IDAs and tax breaks, said the company should be held accountable for “failing to live up to job creation promises,” after it slashed 226 jobs instead of creating 400 new ones. The company announced its latest cutbacks on Monday, and said it would also move out of a facility in Amherst that was newly built for it by Zaepfel Development Co., also with IDA benefits.
That’s unacceptable, Ryan said. “Taxpayers in Erie County should not be forced to pay for a declining workforce,” he said. “It’s time for the Amherst IDA to show some leadership and revoke these tax breaks.”
But it’s not that simple, said Amherst IDA Executive Director David Mingoia.
The economic development agency canceled the sales tax exemption as soon as PHH started cutting jobs instead of adding them, Mingoia said. That prevented the company from getting any additional relief on equipment and other purchases.
And IDA Chairman Carlton Brock Jr. said he plans to bring the matter to the full board for formal discussion at a later date, in order to be “consistent and transparent.”
“We really haven’t discussed it throughout the board, but we are going to take a look at all actions,” Brock said.
However, the agency’s options may be limited. Like the Erie County IDA and other similar agencies, the Amherst IDA now includes a recapture clause in all of its incentive agreements, requiring companies to repay tax breaks if they don’t fulfill their promises to maintain existing jobs, create new jobs and invest capital in their projects. Such policies are now mandated by state law, and they often demand that businesses receiving tax breaks meet very specific job targets, including producing 85 percent of their pledged new jobs within a certain time frame.
But that law and those policies were not in effect in 2012, when PHH came to the IDA for assistance, leaving the IDA with no recourse. “It’s difficult,” Mingoia said. “I wish we did have a recapture policy for that particular project, and that’s why we’re having the discussion now. We should have some protection for the taxpayers on these kinds of projects that go south.”
The only option would be to claim fraud by PHH from the start, but Mingoia noted that the company encouraged Zaepfel to build the facility, arranged financing and initiated a lease – indicating it had every intent of following through.
“It’s almost impossible to prove that it was fraud,” he said. “I don’t think anybody could have predicted what happened with the mortgage market... As an agency, we took every step we could.”
PHH, long one of the nation’s biggest outsourcing providers and third-party mortgage servicing companies, agreed in May 2012 to take over HSBC Bank USA’s mortgage operation in Depew, with 400 jobs, after the subsidiary of Britain’s HSBC Holdings Plc decided to get out of processing home loans. PHH also said it would relocate the operation to a new $35 million facility at 1760 Wehrle Drive.
The company was approved for the sales tax savings through the Amherst IDA, as well as $3 million in tax credits directly tied to the creation of 400 new jobs. And Zaepfel proceeded to construct the 97,000-square-foot facility.
But instead of a continuing lending boom, the mortgage market declined over the next three years amid higher rates and dampened loan demand, forcing the company to start downsizing and selling assets. In February 2014, it said it would cut 135 jobs by summertime to reduce capacity, and began waffling about whether it would indeed occupy its new two-story building. It eventually did move in last year, but disclosed Monday that it would cut 91 more jobs – nearly one-third of its local workforce – by yearend because it lost more business from HSBC.