The Ulster County Legislature wants to know the identities of the people behind the companies bidding for the contracts it is offering. The legislators say greater transparency will mean less corruption and greater public trust.
Some people bidding for these contracts question the degree of transparency governments seek. Who is behind winning public bids is none of their business, they say.
The beneficial members of the increasingly popular business designation called the anonymous Limited Liability Corporation (LLC) are concealed. Many business people choose to incorporate using this structure to keep their business assets separate from their personal assets. The members of these corporations are off the hook for debts or liabilities connected to their business,
“I genuinely do understand people’s desire to have their privacy,” says county legislator Joe Maloney, an aggressive proponent of public transparency, “but it stops when you start trying to get public money.”
The first U.S. LLC statute, to be regulated at the state level, was enacted in the United States in 1977. Forty of the 51 jurisdictions passed their first LLC statutes between 1992 and 1997. The LLC has existed as a significant business entity for around 30 years.
Triple net lease
When the Ulster County Board of Elections (BoE) moved its headquarters last July from its Wall Street offices over to the former Daily Freeman offices and printing plant on Hurley Avenue, Maloney was already on the record opposing the new lease.
Put forth by the property owner, written so the county pays all the expenses of the building on top of the usual rent and utility bills, this type of contract is known as a triple-net-lease agreement.
“The estate taxes, building insurance and maintenance are a part of the operating expenses and invoiced quarterly,” said legislator Maloney, “and includes general taxes, school tax, snow removal, lawn care, landscaping, salting, parking, general repairs, maintenance of exterior, property insurance, water and sewer, and a property management fee.”
In 2021, the county legislature approved the plan to consolidate the offices of the BoE and its storages facilities into one building. Then-county executive Pat Ryan put forth the idea of the lease on behalf of Department of Public Works commissioner Brendan Masterson.
Previous to the move, the BoE was paying $331,317 to lease 3566 square feet of office space in the Ulster Savings Bank building at 284 Wall Street for five years.
The new election headquarters occupies 2831 square feet of office space and 9680 square feet of storage space at a cost of $89,486 for the first year. .
Price increases, known as annualized payment escalators, are included in the five-year contract. The lease amount will climb each year to an allowed maximum cost of $106,375.85 in the fifth year. Adding in a budgeted $229,549 for additional expenses during the same time period, the lease price when all is said and done will have increased 18 percent, and the county will have paid a total of $726,397 over five years. Records show that the Freeman building pays $67,157 a year for school and property taxes. The BoE will pay 32.8 percent of these costs, the percentage of space its operations take up in the 32,000-square-foot building.
Current employees of the BoE have said they feel grateful for the move, and that they felt packed in to the old offices on Wall Street. They say the new space feels more luxurious than the old.
The 200-plus BoE voting machines and other equipment were formerly stored at Building 61 on Golden Hill Drive, part of the old county jail. Because the county owned the building, the arrangement cost the county nothing. That building was demolished in order for Pennrose to build the Golden Hill apartment complex there.
Not many places to go
Maloney wondered who owned the ex-Freeman building. The name Higginsville Station LLC meant nothing to him. No identifying information was available to the public or the county legislature.
“I asked people who owned the Freeman building, and I was told it was local architect Scott Dutton and that’s all people knew,” said Maloney. “But when I investigated beyond that into who Higginsville Station was, when I kept digging, it turned out Bob Ryan was one of the owners. We had entered into an agreement with the county executive’s [Pat Ryan’s] close family member without knowing it.”
Bob Ryan scoffed at the connection. “Patrick Ryan is my cousin’s son,” said Bob Ryan. “It’s not like he’s my son. It’s not like he and I spoke every day, and we never once had a conversation about this. It was dealt with by Buildings and Grounds, if my memory serves me correctly, and then vetted by their attorney.”
The two Ryans are hardly ideological allies. Bob Ryan is a pro-business conservative who served as the head of the Ulster County Industrial Development Agency. Congressmember Pat Ryan was instrumental in landing National Resources, now the developer of iPark 87, but has been critical of many big-business practices.
At a February county legislature Ways and Means Committee meeting, soon-to-be-retired legislator Brian Cahill offered an alternative take of the situation.
“This is a small community,” explained Cahill. “First of all, some families are very large. Like the Ryan family, you have multiple generations, and you know several cousins and offshoots of that family. Kind of hard not to have that kind of relationship in a community like this.”
Options for where the BoE could go were limited by very specific constraints, said Bob Ryan. “The county was losing their space to store the voting machines up on Golden Hill because the building was being torn down,” explained Ryan. “They had no place to put them. There are not many places with a loading dock, which they needed. Then they needed the heat as well and by law [the BoE headquarters] had to be in the City of Kingston. So you start putting these filters on this thing and there are not many places in the City of Kingston with a loading dock and with heated warehouse space. As a matter of fact, I don’t know of any others.”
Usual or unusual deal?
Assistant deputy county executive Evan Menist cautioned against characterizing the lease as unusual.
“What I can definitely tell you is when the county is negotiating leases,” said Menist, “we’re not concerned with how the payments break down. We’re concerned with the total cost per square foot of the lease for the county. That’s how we evaluate proposals and leases.”
The county comptroller’s office, on the other hand, had no problem characterizing triple net leases as an unusual practice for the county. “This is why it’s usually more financially prudent, to buy rather than lease,” opined comptroller March Gallagher, “To avoid the property-tax cost.”
The lease shows that warehouse space in the Freeman building was let at $5.15 per square foot, a price well below the national average, while office space brought $14 per square foot, a price well within the national ballpark.
“Whether it’s lease term or lease per square foot or operating expenses,” said Ryan, “you can make a deal any way you want and it’s got to make economic sense for both parties to do something or it’s not gonna work for either party. You look at the lease rates on this thing. Nobody’s getting abused, or taken advantage of. This a fair-market deal.”
The county probation department is looking to pay a $17.02 a square foot for office space in New Paltz. UCEDA has taken space at iPark87 at a rate of $12.75 per square foot.
Ryan called a triple net lease common in commercial real estate, He said it would be naïve not to expect him to make a profit. “I’m in business to make a dollar,” he said. “Why would I do something if I wasn’t gonna get a dollar doing it?”
Ryan is not defensive about his anonymous involvement in Higginsville Station LLC, He points out he has other partners in the venture and as a general policy preference pursues a policy of privacy. “I’m a full-time insurance professional,” said Ryan, “but I’ve invested in a lot of real estate in Kingston, New York. I’m very quiet about what I do. Because that’s how I do choose to run my life.”
But the Higginsville train had already left the station. Maloney had already introduced a legislative resolution to establish a policy which would require disclosure of the names of individuals holding ownership interest in entities doing business with Ulster County. Legislative chair Tracey Bartels joined Maloney in sponsoring the resolution, which passed the full legislature in March.
State action possible
Concerns about contracts awarded to anonymous LLCs is just one small-town facet in a much more sophisticated octahedral gem. A larger problem with anonymous LLCs operating in New York State is that they reach across county and state lines. Federal courts hold that states cannot discriminate in favor of in-state against out-of-state LLCs without violating the constitution’s interstate commerce clause.
In June, the county legislature sent a letter to the governor supporting state-level efforts to force transparency upon LLCs doing business in New York. If the issue could be decided at the state level, local municipalities would no longer worry about the issue of preemption, that doctrine which finds state law holier than county law.
The memorializing resolution read in part, “In Ulster County, we have seen Limited Liability Companies based largely in New Jersey or Brooklyn buy up inordinate amounts of real property to operate low effort, high-rent apartments or full-time short-term rentals, thereby removing vital housing stock from our communities, raising the cost of living, and extracting the wealth from our region for the profit of anonymous beneficiaries.”
Co-sponsored by first-term Ulster County assemblymember Sarahana Shrestha, the state LLC Transparency Act requires LLCs to disclose their beneficial owners to the state in a publicly viewable database. The measure passed both the Assembly and the State Senate on June 20.
Both Maloney’s resolution and the state-level LLC Transparency Act are now lost in similar purgatories. Though both have passed their legislative bodies, neither has gone into effect.
New York governor Kathy Hochul’s signature is required for the LLC Transparency Act to become law. Fewer than 30 days remain. If left unsigned, the bill will die.
No flags raised
County executive Jen Metzger has already signed Maloney’s resolution. Menist says the county team is trying to revise the legislation in order to make it work. He said the county executive signed the bill because she believes in transparency and the spirit of the legislation.
“She believes in that strongly, but again, at the time, there were no flags raised by the legislative counsel,” says Menist, “or by the county attorney until the county attorney in purchasing started looking into how to implement the law. “And then we figured out, Hey, you know, they should have been a little bit more careful with their crafting.”
Seven months have gone by, and 20 LLCs with the identities of their owners unknown to the legislators who voted for them have received contracts from the county legislature.
“We understand that the county attorney’s office has raised potential legal concerns about the new requirement,” confirmed Gallagher, “but we have yet to see a legal opinion in writing.”
Menist suggests the legislature should explain its impulse to create so complicated a resolution.
“The county attorney isn’t required to review the legislature,” said Menist. “We’re separate branches of government. When they pass legislation, then we are required to deal with it. At the time that it was passed, there were no flags from either the county attorney or the legislative counsel.”
County attorney Clint Johnson bears the responsibility to vet the legislature’s output so that it may succeed as law.
Menist commented on the problems which have been identified.
“It does require any bidder to have their information submitted into our county financial software systems, which means creating a data base,” he said. “For example, we put out a request for bids, and we get 20 responses. We’re only selecting one and going through the contracting process with one, and now have to figure out a way to track bidders who are not contractors in our financial information system, which is not something that we’ve done before typically. We are tracking people that we have a business relationship with. Just because you bid doesn’t mean we have a business relationship with you. It’s requiring a whole new level of work on behalf of the purchasing department without any appropriation from the legislature to allow us to do that extra work.”
Menist explained another hitch. While LLCs have been the main focus of the dialogue around the resolution, it has been broader in its implications from the beginning, singling out all entities doing business with the county for a broad level of disclosure.
Who lives with Bill Gates?
The language of the resolution calls for the names of all principals, partners, officers, or directors of the business entity and their immediate family members and members of household. The names of all individuals with an interest in, ownership or control of ten percent or more of the profits or assets of such business entity, or of ten percent of the stock in the case of a business entity that is a corporation for profit. The names of any subsidiary business entities directly or indirectly controlled by the business entity. For business entities holding ten percent or more of the profits or assets of a business entity seeking to do business with Ulster County, the names of all principals, partners, officers, or directors of the business entity and their immediate family members and members of household.
The resolution applies to all business entities which contract with the county, whether an LLC, a sole proprietorship, a contractor, or a multinational corporation.
Such detailed disclosure requirements have raised concerns that the law could prove a disincentive to businesses seeking contracts with the county.
“On the county level,” argued Menist, “it makes it difficult if you require all of these disclosures when you are submitting the bid. A lot of companies may be no longer desirous of even doing business with us. Take Microsoft, for example, Microsoft sells us all of our software, and under this resolution would be required to report all of the ownership of Microsoft. If we say, Hey, we can’t offer the bid to you unless you disclose everyone who is related to Bill Gates and everyone who lives in his house, first off, they’ll probably say, Buy some other software.”
Menist says the county team is trying to revise the legislation in order to make it work. He said the county executive signed the bill because she believes in transparency and the spirit of the legislation.
When the attorney for county purchasing started looking into how to implement the law, Menist said, “And then we figured out. Hey, you know, they should have been a little bit more careful with their crafting.”
“I’m a policymaker”
Maloney is exasperated. What Menist has said was news to him, he claimed.
“What’s funny is it’s the first time I’ve heard any of those arguments,” he said. “They were in every meeting that we discussed it. They said they could do it, they said they can easily add it to the RFP or RFQ process. All these LLCs, the ones that we do business with are not examples of ones that would be difficult. And we could easily amend a way to deal with, you know, global corporations in some way. For seven months, I get stonewalled. The way this is supposed to work is, I’m a policymaker. They’re day-to-day operations. They’re supposed to give me that upfront if that if that’s the case, so we can work that through and then have a policy, right? I’m the policymaker, but we all work for Ulster County. The county attorney’s office is supposed to work for everyone.”
The goal is transparency.
“Bringing transparency to these profit-centered business models by disclosing the individuals behind them will help inform public discourse, advise local development agencies when considering applicants for incentives, and alert policymakers that legislative action may be warranted,” wrote the county legislature in its memorializing resolution,
There’s the spirit of the law and the letter of the law, Though the spirit of the Ulster County disclosure law is widely shared in the legislature, its wording needs to be fixed. The next move remains in county attorney Clinton Johnson’s court.
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