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Are SUNY Poly’s real estate ventures a benefit or burden to Albany?

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Are SUNY Poly’s real estate ventures a benefit or burden to Albany?

SUNY Polytechnic Institute bills itself as a “high-tech educational ecosystem” and “the world’s most advanced, university-driven research enterprise” with more than “300 corporate partners.” In Albany, the school’s “NanoTech megaplex,” sited at the nexus of the Thruway and I-90, accommodates “more than 3,500 scientists, researchers, engineers, students, faculty, and staff,” the website states.

But the campus and an associated complex downtown also harbor a number of companies and state agencies with seemingly tenuous links to the school’s mission, an arrangement now subject to greater scrutiny thanks to last year’s pay-to-play allegations against its former impresario and an Albany mayoral candidate’s more recent campaign pledge.

Downtown, the Smart Cities Technology Innovation Center (SCiTI) at Kiernan Plaza on Broadway—a $30 million, governor-backed “technology hub”—currently houses three commercial tenants. SCiTI is owned by Fuller Road Management Corporation (FRMC), a nonprofit that also leases the Albany campus’ land from the state and “owns and manages the facilities located there,” according to a SUNY Poly spokesperson.

FRMC, an entity that controls millions of public dollars that just last year adopted commonly accepted standards of transparency, figures in the state’s criminal complaint against former president Alain Kaloyeros, who is alleged to have rigged the state-sponsored nonprofit’s bidding processes to favor certain companies for construction-related contracts. Kaloyeros has pled not guilty.

When charges were brought against Kaloyeros and others last fall, Gov. Andrew Cuomo directed Empire State Development, the state’s chief economic development agency, to assume responsibility for the projects of FRMC and another nonprofit affiliate that figures in the federal complaint. The two nonprofits’ boards and bylaws were reworked, and a staid civil servant was installed as their president.

It is unclear precisely how many companies presently occupy space at these Albany facilities and how many have entered into what amount to commercial leases. Repeated emailed requests for a comprehensive list went unanswered by FRMC staff.

In a story that appeared one day before the aforesaid charges dropped, the Albany Business Review (ABR) identified a dozen tenants, including state agencies, at the $191 million, 350,000-square-foot ZEN building, which was financed in part by multimillion dollar bonds issued on FRMC’s behalf by the Albany County Capital Resource Corporation. (FRMC paid the CRC $1.9 million for the service.)

“Some tenants at the ZEN have a direct correlation with the college’s research mission or were drawn to Albany by the state’s big financial commitment to create well-paying technology jobs,” the ABR reported. “Other tenants, arguably, could have located in any office building.”

According to the state criminal complaint released in September, a “former FRMC project coordinator stated that [Kaloyeros] ties awards to leasing space at the ZEN Building,” and a “former employee of an FRMC vendor observed that he was aware that companies working with SUNY Poly, including his own, were highly encouraged to lease space there.” (No past or present tenants were mentioned by name in the complaint, and none were accused of any wrongdoing.)

Certain arrangements have changed since September. In March, Norsk Titanium, which had signed a lease for 2,500 square feet in the ZEN building but “never finalized a design or commenced construction,” according to an FRMC memo, was permitted by the nonprofit’s board to terminate that lease and sign a new one for a smaller space on the second floor of NanoFab East, a 250,000-square-foot facility also on the Albany campus.

The same month, FRMC also approved a five-year lease agreement with Park Systems Inc., a Korean atomic force microscopy company, which will occupy the first floor of NanoFab East. “Currently this first floor area is an open floor plate of more than 14,000 sq. ft. that has been vacant for a number of years since the previous tenant vacated the building,” another FRMC memo states, referring to EYP Architecture & Engineering, which since 2015 has leased space at the ZEN building, a facility it designed.

“We feel the investment by FRMC to [subdivide] the space for this tenant is a smart business decision for the short-term in attracting this tenant,” the memo states, referring to Park Systems, “but also in the long-term for future smaller tenants. In addition, with their location on campus Park Systems will provide internship and employment opportunities for SUNY Poly students and have already begun discussions with faculty to facilitate these.”

The memo’s language (“future smaller tenants”) suggests no broad change of tack anytime soon.

According to an independent audit, FRMC received $68.8 million in “rental income and other support” during the fiscal year that ended June 30, 2016, though this figure appeared to include about $47 million in payments and in-kind support from the SUNY Research Foundation and SUNY Poly, which would mean that a little over $20 million came from other sources. (That figure includes at least two properties located outside Albany.)

The audit also provides a concise overview of FRMC, which, it notes, “shall be operated exclusively for the purpose of holding title to property and collecting income therefrom.” Beyond providing facilities for research and scholarly work, according to the audit, FRMC exists “to enhance the ability of SUNY and SUNY Poly to attract public and private funds” to advance such work. This formulation offers a clue as to how FRMC might justify courting commercial tenants; their rents might ostensibly sustain less immediately remunerative activities.

That said, the ABR reported in September, citing documents obtained under a state Freedom of Information Law request, that SCiTI has lost money for the past three years. “The rental income hasn’t been enough to offset operating expenses and capital improvements,” the paper observed.

Frank Commisso, Jr., an Albany common councilman who is running for mayor this year, has pledged to spearhead his own “audit of the tax-exempt status of SUNY Poly,” adding in a blog post that “the many private and profitable companies being sheltered under the tax-exempt status of SUNY Poly [must] finally pay their fair share toward the cost of city services.”

In a phone interview, Commisso stressed the inequity of the current state of affairs.

“A senior paying five, six thousand dollars a year [while] there’s a giant, sprawling complex on Fuller Road with private businesses not paying [property] taxes, I think, is frustrating for many,” Commisso, Jr. told The Alt, tying the initiative to his broader plan to address the city’s budgetary challenges.

Ken Girardin, an analyst at the Empire Center for Public Policy, a fiscally conservative think tank, also sharply criticized the arrangement.

“SUNY Poly, [through] its subsidiaries, is essentially acting as a commercial landlord,” Girardin said in an email. “It isn’t filling any sort of unmet need; it’s simply exploiting its tax-exempt status, which gives it an advantage over businesses that are taxed on their properties’ full value.”

“The previous SUNY Poly leadership yanked private property off the tax rolls, in at least one case with the threat of eminent domain,” Girardin added, referring to FRMC’s acquisition of Kiernan Plaza amid the specter of expropriation via the city’s Industrial Development Agency. “[FRMC] pulled in tenants from existing commercial space in the region. The ongoing efforts to untangle the SUNY Poly web will need to address the question of whether it’s in the interest of state—and city—taxpayers for the organizations to continue in this role.”

In early 2015, Mayor Kathy Sheehan announced that she had secured a three-year commitment from FRMC, which it has honored, to contribute $500,000 annually to the city. (Albany Medical Center and The Port of Albany made equivalent commitments.) Under a separate agreement related to Kiernan Plaza with the city’s IDA, FRMC will pay the economic development agency $250,000 per year through 2029.

Members of Mayor Kathy Sheehan’s administration also seem less than thrilled with FRMC’s leasing activity, but say it seems rather intractable.

“That’s the way the state set it up,” said Darius Shahinfar, the city treasurer who also serves on the board of the city’s IDA. “We have gone up and down, over, under, sideways, down—I don’t know, any other directions I can go?—to try and get at it. Our assessor is extremely good at finding business activity in nonprofit buildings and taxing that,” but, simply put, “you cannot get at it.”

Reached by phone, the city assessor’s office confirmed it had visited the Albany campus several times in recent years and each time had made the same, nontaxable determination.

Concerns about the arrangement are longstanding. “There is a real scrutiny needed of the whole operation,” Albany common councilman Michael O’Brien, whose ward includes the Fuller Road facilities, reportedly told the Times Union in 2014. But this public-private commingling, not without advantages for the region and beyond, seems a part of SUNY Poly’s DNA.

“The NanoCollege has long been home to dozens of private companies, from IBM to Tokyo Electron, Applied Materials and others, that align with the NanoCollege’s initial mission of leading research into semiconductor manufacturing,” the TU observed in 2014, adding that the ZEN building seemed to augur an expansion of the school’s research interests into related fields.

The school has “never been a conventional academic unit,” Creso Sá, a professor of higher education at the University of Toronto, wrote in a blog post last October. “Most [research and development] funding has come from industry sources, something the college proudly advertises.”

The Alt emailed six of the entities identified as ZEN tenants in the Albany Business Review’s September story, seeking details on their respective arrangements with the school. Two responded.

The New York Power Authority “houses its New York Energy Manager Network Operations Center, the digital brain of NYPA’s energy monitoring operation for government buildings across the state, at SUNY Poly,” spokesman Paul DeMichele said in an email. “NYPA recently trained SUNY energy managers and staff on how NYEM can help them efficiently manage their energy use and realize cost savings.”

Kelly Donahue, a principal at EYP Architecture & Engineering, also responded. “The SUNY Poly Zen Building was designed by EYP to fulfill the vision of SUNY Poly for a living research lab to study the real-world effectiveness of materials, systems and building performance as it relates to highly energy-efficient buildings,” she wrote. “A grant from the New York State Energy Research and Development Authority helped fund the analysis and design necessary for the building to approach net zero energy capability in such a way that it can serve as a nationwide demonstration project.”

“EYP’s ongoing building research involves partnerships with multiple organizations and institutions including SUNY Poly, Harvard University, Rifiniti and NEDO to name just a few,” Donahue added, referring us to a video about the ZEN building on the school’s YouTube channel to “put [EYP’s] research work with SUNY Poly into context.” (She did not respond by press time to a follow-up request for more specific details about the partnership, as it currently stands.)

Emails to FRMC staff and FRMC president Bob Megna went unanswered.

Presented with Commisso, Jr.’s pledge, interim SUNY Poly spokesman Morgan Hook wrote, “We’re not going to comment/respond to political proclamations made during a campaign.” The spokesman also emphasized the distinction between SUNY Poly (“a college”) and FRMC, an affiliated entity.

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At any rate, even if SUNY Poly or FRMC were to increase their financial contributions to the city in some manner, such a proffer alone would likely not free Albany from fiscal precarity.

“Albany is particularly burdened by the state presence,” said Christine Chung, a professor at Albany Law School who studies municipal finance. The daily influx of commuters from outlying suburbs imposes significant wear-and-tear on infrastructure, and property taxes alone will never adequately fund upkeep and improvements, she said.

Nonprofits and the state, including SUNY Poly, offer critical employment opportunities, and there is “no question [that] we as a region benefit from having those facilities there,” Chung said. But “who bears the cost of these laudable goals?”

Nearly two-thirds of land in Albany, the bulk of which is owned by the state, is not taxable. The city also historically trails other cities of its size in financial aid from the state, a fact highlighted by Mayor Sheehan’s recent, successful campaign to secure $12.5 million in aid —not an advance on any previous commitment, her administration has stressed, but an outright grant—in this year’s state budget.  

Across America, in cities facing this sort of glut of tax-exempt property, political leaders are apt to look askance at charities and their holdings, Thad Calabrese, a professor of public and nonprofit financial management at the Robert F. Wagner Graduate School of Public Service at New York University, told The Alt. Some municipalities have set up public authorities to charge nonprofits fees for infrastructure usage, though a drawback to that approach is that it effectively creates a new layer of government.

Calabrese says the implicit question in this debate is, “We are subsidizing these institutions because they don’t pay taxes—are we getting our money’s worth?” (This question, while valid, is far from the only question that ought to be asked, he added.)

In New York City, administrators have “taken a very liberal position on what it means to be a part of a nonprofit’s mission,” Calabrese explained. For instance, NYU does not pay property taxes on its faculty- and student-housing complexes, since they are perceived to help “attract and retain high-quality talent.”

Still, “you’re not allowed to start a nonprofit and do whatever the hell you feel like with it,” Calabrese said. If a nonprofit draws income from activity disconnected from its raison d’être, it may be subject to the federal unrelated business income tax. Such activity is deemed unrelated, according to the IRS website, if it meets three broad requirements: (1) it is a “trade or business,” (2) it is “regularly carried on,” and (3) it is “not substantially related to furthering the exempt purpose of the organization.”

In its most recent publicly available federal filing, regarding a fiscal year that ended mid-2015, FRMC indicated that it did not have unrelated business gross income of $1,000 or more. A review of all public filings dating back to 2004 indicates that the organization has never made such a declaration.

It appears, from all discernable cues, that Fuller Road Management Corporation does not view any of its activities as out of sync with its tax-exempt purpose.

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