Buffalo State College’s request for low-cost, tax-exempt financing for new student housing cleared the Erie County Legislature on Thursday.

Buffalo State, which houses more than 200 students in a hotel because of its space crunch, wants to build a pair of four-story dorms with 500 beds on Parking Lot L, near Grant Street and Rockwell Road. A college official told lawmakers that the dorms should be completed by spring 2011.

It’s a $50 million project, for which the college is seeking federal stimulus money and tax-exempt financing arranged through the Industrial Land Development Corp., an arm of the Erie County Industrial Development Agency.

The ability of IDAs in New York to arrange tax-exempt financing for nonprofit organizations has expired, pending new state legislation. So the IDAs are using their related entities to assist nonprofits. Erie County’s IDA selected its ILDC.

The Legislature had to go along with the transfer of certain powers and did so this summer. But its decision created new friction between County Executive Chris Collins and Legislature Democrats.

Collins, who exerts considerable influence in the IDA, wanted legislators to enable the ILDC to arrange financing for nonprofits without strings attached.

However, most of the Legislature Democrats added a few provisos, including a requirement that any nonprofit organization receiving low-cost ILDC financing pay the higher prevailing wage to their construction workers.

Collins cried foul and used the issue to batter Democratic legislators in races where he ran alternative candidates in the Nov. 3 election. He succeeded in replacing three Democrats with three new lawmakers who will be in his corner at the start of the year.

Paying the prevailing wage was not a problem for Buffalo State, which already is subject to the requirement. Buffalo State and the IDA assembled a financing plan, but to meet IRS requirements on tax-exempt financing, the ILDC’s bylaws required a small but important change.

The Legislature voted unanimously Thursday to make sure that Erie County, not the IDA, is the ILDC’s only member. Erie County will be represented by the county executive.

There will still be a board of directors, whose members were established by the Legislature this summer.