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					                                         STATE OF NEW YORK                             MARK P. PATTISON
                                           110 STATE STREET              DIVISION OF LOCAL GOVERNMENT SERVICES
                                        ALBANY, NEW YORK 12236                     AND ECONOMIC DEVELOPMENT
                                                                             Tel: (518) 474-4037 Fax: (518) 486-6479

                                           March 3, 2006

Honorable A. Douglas Berwanger
And Members of the Town Board
Town of Arcade
15 Liberty Street
Arcade, New York 14009

Report Number: P1-6-1

Dear Supervisor Berwanger and Members of the Town Board:

One of the Office of the State Comptroller’s primary objectives is to identify areas where local
governments can improve their operations and provide guidance and services that will assist local
officials in making those improvements. Our goals are to develop and promote short-term and long-term
strategies to enable and encourage local government officials to reduce costs, improve service delivery
and to account for and protect their government’s assets.

In accordance with these goals, we conducted a regional audit to determine if bills prepared by Affected
Tax Jurisdictions (ATJ) were in compliance with the terms of Payment In Lieu Of Tax (PILOT)
agreements. An ATJ is any municipality (county, city, town, village) or school district, in which an
Industrial Development Agency (IDA) project is located, which will not receive tax payments which
would otherwise be due, except for the tax exempt status of the IDA involved in the project. The
PILOTs are generally equal to a portion of the real property taxes that would have been levied if the
project did not involve the IDA. PILOT agreements must contain, among other things, the amount due
annually to each ATJ or a formula by which the amount can be calculated. Each IDA must establish a
Uniform Tax Exemption Policy (UTEP) which addresses the exemption periods and percentages, types
of projects allowed and procedures for granting exemptions. However, the IDA may deviate from this
policy and arrange for different exemption periods and percentages for a particular project. Regardless,
the UTEP does give the ATJs an idea of the types of PILOT terms that can be expected, which can aid
the ATJ in preparing PILOT billings.

The process utilized to bill and collect the annual PILOTs generally is performed by staff at each ATJ.
Although the IDA is not responsible for calculating the PILOT bills, it is responsible for granting the
PILOT. As such it has an inherent responsibility to ensure that the ATJs adequately understand the terms
of the agreement so that PILOT bills are accurate. Our audit focused primarily on 2003 and 2004 billing
The Town of Arcade (Town) was one of the 15 ATJs included in this regional audit. We also audited
related activities for the five IDAs associated with the ATJs. This report letter provides findings and
recommendations specific to your Town. In addition, we will be issuing a regional report that
summarizes our findings at the five IDAs and the 15 ATJs included in the audit. This summary report
will more fully develop the causes of the deficiencies identified. Consequently, the summary report
should be used in conjunction with this report letter to obtain a comprehensive understanding of our IDA
PILOT audit.

We provided a draft copy of this report letter to Town officials prior to our exit discussion, conducted on
October 5, 2005. We considered information conveyed to us at the discussion in preparing the final
version of this letter. Town officials generally agreed with our recommendations and indicated they
planned to initiate corrective action. Town officials were given the opportunity to respond to our
findings and recommendations within 15 days of the exit conference, but they did not respond.


During 2003, the Wyoming County IDA reported 17 projects with PILOTs aggregating $648,388 for all
ATJs. We selected four PILOT agreements related to these projects and reviewed the respective Town
billings for 2004. Our audit disclosed that all six bills were prepared correctly in 2004. However, we
noted two instances where bills were calculated correctly for the 2003 and 2004 tax years but not for
previous years. If these errors are not corrected, they could result in under-billing the project owner by
approximately $1,600 and over-billing the project owner by approximately $200 over the life of the
respective PILOT agreements. Our computation assumes no increase in tax rate for future billings, so
the impact of these errors would be greater as tax rates increase over time. Although we did not audit
billings for years prior to 2003, we projected back errors using available information and applicable tax
rates and values to illustrate possible past impact. County officials maintain a billing schedule, which
Town officials rely on, and we could easily discern if the same billing approach was used in prior years.
However, we did not verify that the schedule was supported by the actual bills.

The bills prior to 2003 were not prepared correctly because the Town used incorrect abatement
percentages and/or incorrect assessed values to calculate the PILOT bills. This was caused by the
Town’s reliance on taxable assessed valuation information from the County when preparing its bills. A
lack of monitoring contributed to this error not being detected and corrected.


1. The Town Clerk should determine from the Town Assessor the assessed values of PILOT parcels
   and components that are essential for the accurate billing of the PILOTs.

2. Town officials should develop procedures for the review of PILOT billings by someone other than
   the person preparing the bills. This independent monitoring could be done by other Town staff, or
   ideally by IDA staff familiar with the PILOT agreements.

3. Town officials should prepare amended bills for the project owners for which we identified billing
   errors. This would also include making corrections for future billings and adjusting past billings.

4. For billings related to PILOT agreements that we did not review as part of this audit, Town officials
   should determine whether the appropriate amount was billed and take corrective action to adjust past
   billings and ensure that future billings are correct.

It is your responsibility, as Town officials, to formulate a plan of action by assessing risks, designing
control procedures that address the identified risks in a cost-effective manner and determining how to
best remedy deficiencies. This plan of action should be available for public review in the office of the
Town Clerk and the Office of the State Comptroller. Our Office is available to assist you upon request.
If you have any further questions, please contact the Buffalo Regional Office at (716) 847-3647.


                                            Steven J. Hancox
                                            Assistant Comptroller