NEWBURGH - City Council Member Curlie Dillard stood in front of the Newburgh Armory recently and declared his opposition to the County’s proposed plan to purchase the Newburgh Armory and Department of Motor Vehicles buildings, saying it would cost City, Town, and School District taxpayers over $275,000 in annual real estate tax revenue.
"This is another example of the County government acting without consulting with local leaders from our towns and municipalities and acting in a way that actually harms local tax revenue at a time when we can least afford it," Council Member Dillard said. "As the County Legislator representing the 4th District, I will bring County and local leaders together to craft effective and financially positive solutions for all parties involved."
County Executive Ed Diana proposed the plan to purchase both the Armory (located at 145 Broadway) and the DMV building (located at 128 Broadway) in September 2012. Under the proposed transaction, M&T Bank would foreclose on the two properties and in turn sell them both to the County. The proposal was adopted by the County Legislature on November 1, 2012. As of the most recent tax records, the Armory pays $232,412.86 in real estate taxes: $15,269.50 to the County, $98,443.40 to the City, and $118,699.96 to the School District. The DMV pays $42,949.19 in total real estate taxes: $2,828.97 to the County, $18,238.55 to the City, and $21,881.67 to the School District.
However, the proposed deal is subject to approval by the Newburgh Industrial Development Agency, Great West Life & Annuity Insurance Company (the bondholders who provided $5.7 million in funding to complete the acquisition and rehab of the Armory in 1996 prior to occupancy by the County), and Wells Fargo Bank (the current bond trustee). According to documents obtained from the Newburgh IDA, the County deal with M&T Bank was negotiated without any input from the Newburgh IDA, Great West Life, nor Wells Fargo.
While researching the proposed County deal for the Armory and DMV, Council Member Dillard uncovered numerous financial irregularities involving the County and M&T Bank. Therefore, Council Member Dillard is also issuing a letter to New York State Attorney General Eric Schneiderman, calling on his office to investigate the role of M&T Bank in these transactions and these financial irregularities.
First, Council Member Dillard pointed out that M&T Bank was serving as the original Trustee for the bondholders on the Newburgh Armory deal at the same time that M&T Bank took a second mortgage on the Newburgh Armory. M&T Bank provided a loan of $1,483,000 to Gemma Development Company, LLC, the developer of the Newburgh Armory. Gemma’s principal is Robert Carchietta, a politically well-connected developer who landed a number of sweetheart deals with various Republican County Executives over the last two decades. Carchietta has since lost numerous properties in foreclosure proceedings and declared bankruptcy in 2011. Dillard noted, "M&T’s fiduciary responsibility was first and foremost to the bondholders and, by extension, to the Newburgh IDA. How could they then give another $1.4 million to the developer without notifying the bondholders?"
In addition, according to Newburgh IDA records, M&T Bank has been unable to produce the IDA resolution authorizing the IDA’s then Director, Bob McKenna, to execute the second mortgage with M&T. As a normal and required course of issuing a mortgage, the mortgage lender is required to obtain an official resolution from the governing board of the entity authorizing an official representative to sign the mortgage documents. Despite repeated requests by the Newburgh IDA to M&T Bank, M&T Bank has not produced the required resolution. Without this resolution, the second mortgage is not valid and M&T has no standing to take any actions against the Armory property. Council Member Dillard has also requested that the Attorney General investigate whether the proper mortgage recording tax was paid on this second mortgage. According to certain reports, no mortgage recording tax was paid for this transaction.
In one other financial irregularity, records obtained from the Newburgh IDA also noted that for a period of ten months the rent payments by the County were re-directed so that they were paid directly to the developer, Gemma Development Company, even though all rent payments were to be paid directly to the bondholder. According to County documents, County Finance Commissioner Joel Kleiman authorized the change of payments to go directly to Gemma Development Company, even though that was a direct violation of the County’s lease agreement and was not authorized by the bondholders. M&T Bank was serving as Trustee at the time and did not alert the bondholders for many months.