We went to the meeting and were perfectly prepared to say something about the bonds being authorized for issuance but since the public officials there were not interested in public comment we brought images telling what we had to say, which we held aloft in succession as the meeting proceeded, right through to the bitter end. Below are those images, followed by the words that would accompany them if given the opportunity. Atlantic Yards Report covered the board meeting and our “brandishing” of our “mini-poster” messages in a post that also includes videos. The last of that post’s imbedded videos includes an interview we did with NY1 covering many of our concerns. (See: Wednesday, November 25, 2009, Arena bonds authorized, underwriter Goldman confident, but questions remain about rating, insurance, market.)
A Precedent Not to Be Proud Of
One thing to note first. Shortly before the 10:00 AM meeting began, word came down that the state’s highest court, the Court of Appeals, had decided against the plaintiffs in one of the many cases brought to oppose the use of eminent domain for Atlantic Yards. It was an important case and a significant loss in many ways. As a post in the The Volokh Conspiracy says:
The case is also significant because it is the first major state supreme court defeat for property rights on a public use issue since Kelo. Over the last 10 years, the tide had been going the other way, with more and more state high courts applying restrictive definitions of “public use” and forbidding economic development takings of the kind upheld in Kelo, including important decisions in Ohio, Oklahoma, and Michigan, among others. Hopefully, Goldstein will not be the start of a counterrevolution.The people in the Empire State Development Corporation offices where the “BALDC” meeting was held were not gloating obscenely about the court decision. Why should they? They have nothing to be proud about. There is no reason to be proud of what they are trying to do at Atlantic Yards. They have no reason to be proud of the legal arguments offered to try to sustain their proposed abuse of eminent domain there and they have no reason to be proud of how they “won” the court decision which, because it consigns to the trash heap the protection of fundamental constitutional rights, has many people wondering if the decision in the state’s highest court was simply politically rigged like so much of what happens with Atlantic Yards. We will come back to spend some time on the “logic” (or lack of it) of the opinion offered by the court when it determined that the public should not be protected against politically connected developers. That will be in a later post.
Our Visuals and Putting Words to the Pictures
Here then are the visuals we held aloft at the meeting followed by the message we would have delivered if our comment had been allowed in words.
1. Why? Why are you financing something that will be $220 million net loss to the public?Obviously the conclusion above provides an appropriate musical accompaniment to our slide show.- So now you have, pictures, words and a tune to hum.
2. And what kind of net loss will the rest of the Atlantic Yards site be to the public? You don’t know because you haven’t done the analysis and you have set public up for a big net loss by giving the developer a monopoly on site development options, freely renouncing your negotiating power.3. And why are you using the power of the government to consolidate Forest City Ratner’s monopoly on developing Brooklyn? Once upon a time the U.S. Supreme Court went out of its way to say that one of the rare purposes for which eminent domain could be used was to break up land that was overwhelmingly concentrated in the hands of a few private landowners. You are doing the opposite: Using eminent domain to artificially concentrate monopoly ownership in the hands of Forest City Ratner.4. There are of course many questions to be asked about why you are issuing bonds with so many tell-tale loose ends. We could ask you why, for instance you aren’t reviewing and approving the involvement of Mikhail Prokhorov as a proposed principal in this transaction?
5. Of all the multiple loose ends that make this so transaction dangerous, perhaps the most important to ask you about is this: Why are you financing an arena that is different from the one that the ESDC board and the PACB actually approved and which will be so much more risk for the bondholders? You are financing an arena which, among other things is so much smaller that it won’t be able to host a second team playing hockey.
6. Of course, you should be worrying that these bonds will default and consequently don’t deserve a good rating. A default will negatively affect the market for all New York issuers. But that is not all you should be worrying about. Moody’s has warned that the entire state is weeks away from a substantial downgrade of its credit rating if it doesn’t close its budget gap. Governor Paterson is asking the legislature to take steps to close that gap but who can take the governor seriously when on his behalf you are still pursuing this supremely wasteful financing that is driving the state into a deeper financial hole. You are responsible for the misapplication of billions of public money to Atlantic Yards.
7. The consequence of your misconduct doesn’t end here. Sometimes the question comes up whether the most productive use of our time is to address the kind of misconduct and waste by public officials we see here or to turn instead to issues such as global warming that threaten the entire planet. There is really no distinction: The selfish pursuit of things that don’t make economic sense, that harm the larger community so that one company with too much political power can destructively get more than their fair share of the pie is all part the same bigger picture.
8. Sometimes sports stadiums and arenas are worth a lot less than the public pays for them. Above the Silverdome stadium that just sold at auction for less than the price of a one-bedroom apartment.
9. Your Ratner-comes-first infliction of harm on the greater community should be a warning sign to anyone who might consider buying these bonds. What kind of transaction will you foist on them? What kind of song and dance will you use to misrepresent things to them? We know the fictions you’ve been selling us:Ostensible, pretextual, is what you gave to us
Aweful vice, a Ratner heist, is what we’re loath to see
You made our lives preposterous, you can't blame us for feeling clamorous
Ostensible, pretextual, is what you gave to us
Going Weirdly From “Tutti Frutti” to “Rocky Road”
Before the meeting we were talking with one of the Goldman Sachs bankers involved in issuing the bonds, commenting that this must be the weirdest transaction on which they had ever worked. We were told that they had worked on some pretty weird transactions. We challenged them to name one as strange or involving so many oddities. Various other transactions were named. . . and discarded as candidates. We never came up with a transaction that even marginally approached being comparably strange. We commented that this transaction probably had within it every element of every weird deal that had been done anywhere else that strange things were going on in New York. Our banker mentioned that he sometimes tells people he does “Tutti Frutti” deals. Then he sighed, and perhaps realizing what was more apropos to this deal, he said, “Or I sometimes tell them I do `Rocky Road.’” “This,” we said certainly involves more than one scoop of “Rocky Road.” And god knows how many scoops of something else.
Press Conference on Bonds for More Expensive, Different Arena Than Approved, With Lower Capacity to Generate Income
After the board meeting was over there was a press conference where the Goldman Bankers and ESDC (“BALDC”) officials answered questions about the proposed issuance and marketing of the “Rocky Road” bonds. As Atlantic Yards Report reported, we asked about the fact that the bonds proposed to be issued are much riskier and are different from the financing approved by the ESDC board and the Public Authorities Control Board (“PACB”). The arena is significantly smaller, less functional and less capable of producing revenue, and much more revenue is going to be needed to pay for it because it is going to cost far more than the PACB was told. We thought it was interesting that Goldman bankers has said at the meeting that they were going to take the bonds out on “road show,” an atypical move that indicates to us that they view these bonds as an extreme version of “story bonds,” bonds that bondholders won’t feel comfortable buying based on what is in the offering statement unless it is supplemented with a lot of explanation, hand-holding and soothing about the transaction’s many ugly warts.
Initially one of the Goldman Bankers, Marvin Marcus (as seen in one of the videos), tried to block our risk question put to another Goldman banker, Goldman Sachs Managing Director Gregory Carey, saying that Goldman only wanted to take questions from “the press.” The tactic seemed particular unfair given that Mr. Marcus had told us only a half-hour before that he had actually been reading our work. We had only left it undetermined where he had been reading what we write, in Noticing New York, the Huffington Post, the New York Sun, the Brooklyn Paper, or a consolidation with a pick-up of a Reuters story or somewhere else.
What Would Jane Jacobs Do?
Atlantic Yards Report commented that with our sometimes multiple hats, which involve not only writing commentary but also asking questions and asking for accountability by via activist tactics we may sometimes make it more difficult to get answers to our legitimate and tough questions. Acknowledged. We do give consideration about how to structure our role. Noticing New York is a truth-seeking, truth-exposing endeavor. The model for what we do is probably closest to Jane Jacobs, who wrote extensive commentary on urban events and at the same time used devices to illustrate and contrast her point of view with the point of view (and sometimes false facts) that stage-managed events attempt to promulgate. We don’t think there are easy answers to how to report on events about which one may have a point of view except to be honest in reporting one’s point of view. We will continue to think about this. Meanwhile we think our visuals present questions that need to be asked and answered.
Dealing With Greater Risk?
Goldman’s Carey responded to our question about the extra risk as you can see from the detailed Atlantic Yards Report account saying, among other things, that there was “less leverage on this transaction” than with respect to the old transaction. “Less leverage” is often a way to reduce risk in a transaction when it is being acknowledged to be riskier, so in a way that could be viewed as an indirect acknowledgment that the deal, as should be obvious, is riskier than the one that was approved by the PACB and the ESDC board, but Carey gave a bottom-line, on-script answer that “we actually view this as a much more secure transaction.” In our view, the PACB didn’t approve such “less leverage” fix-ups of a risky transaction. Mr. Carey did not himself offer a point of view on the PACB approval saying he wasn't familiar with what the PACB approved.
State of Risk?
Relating to this question of approved risk, WNYC’s Matt Schuerman asked ESDC attorney Jonathan Beyer, ESDC Chief Financial Officer Frances Walton (“BALDC President) ESDC Senior Counsel Steve Matlin if the state would be willing to let BALDC’s Ratner bonds default when financial difficulties materialized. Here, reported in AYR, is the response he got, which though technically accurate bears some explanation:
"I don't know if I'd characterize it as willing," Beyer responded, "it's just that the documents do not require us to make any payments."What all this means is that although the bonds are issued by an authority that is a form of state agency, the bonds are non-recourse against the state itself, which means that the bondholders are at risk if these riskier bonds default. Because the state is not required to rescue defaulting bonds, it can technically walk away from them and it might. But if the state does walk away and lets the bondholders suffer when the bonds default, it will hurt the market for all New York State bond issuers, so the state may want to step in to prevent that from happening. Either way, the state takes a loss. That’s why the PACB was created to give prior review and approval to or prevent the kind of extra risky transactions that can provoke such problems from going out to market. Nevertheless, ESDC and BALDC want to avoid taking the inherently riskier transaction back to the PACB. In fact, they don’t even want to answer questions about the risk they are exposing the state and te bondholders to.
"This is a bondholder risk," added ESDC Senior Counsel Steve Matlin. "That's what the bondholders are looking at when they're purchasing bonds."
"That's not saying the exact same thing," Scheurman followed up. "You might actually decide, though you're not obligated, to bail out these bonds."
"That's speculation," Walton said, shaking her head.
Questions About Transaction’s Greater Risk Left Unanswered
We asked the three PACB officials about the inherently more risky nature of this transaction involving a smaller, less functional arena than approved though it needs to somehow generate income to pay back a much higher construction cost. As Atlantic Yards Report details in its account, first they ignored me. Then they tried to avoid the question as not being from “accredited media.” Finally they walked away as we commented that we took this to mean that they had no response to our question about the greater and unapproved risk of the bond transaction the “BALDC” board had just authorized.
On old saying goes: “If you can’t stand the heat, get out of the kitchen.” Here we would adapt it as follows: “If you can’t answer questions about the risk, don’t issue the bonds.”
If you want to see in video form much of what we would have said in presenting our images to the state officials uninteresting in taking comment go to this video from Atlantic Yards Report (the quality of the video is better if you click on the first version of the video below which is from the AYR post- original videography by Jonathan Barkey).