Asked About Taking a Promised Hard Look at Atlantic Yards Before Issuing Arena Bonds Does Paterson Understand AY?

(Image above from Atlantic Yards Report video of press conference.)

Governor Paterson was asked questions today about the hard look his administration said it would take at Atlantic Yards. Questions came from Norman Oder of Atlantic Yards Report (see, Saturday, December 19, 2009, Hail Mary or silver bullet: Perkins, raising questions of fraud in arena bond sale, asks Paterson to put Atlantic Yards on hold) and Noticing New York was able to ask our own question at the same brief press conference.

At a critical time the governor probably still needs to get up to speed on Atlantic Yards.

Our question to the governor and his response were as follows:

NNY: Governor, you are trying to close a budget gap and the MTA is trying to close a budget gap. You said that you will take a serious, hard look at the Atlantic Yards project. That project is perhaps $2-3 billion in public subsidies and it’s calculated by the city Independent Budget Office to be a $220 million net loss to the public, that’s the net loss not te cost. Don’t you think that perhaps taking that serious look should happen before bonds are issued for the arena?

Paterson: The bonds were issued for the arena. There are a number of projects that probably add up to tens of billions of dollars that we could take off the table if we were trying to save cash. The whole premise of these sort of public-private arrangements is to create jobs and bring revenues back into the state. So, if you take a snapshot in time it is a loss. If you take a snapshot in time funding the educational system is a loss, but the revenues that you generate from the workforce in the years to come far outweigh the investment that you make.

Note that our question relates to our criticism this week about how the MTA is wasting its resources by giving them away without bid to the Atlantic Yards mega-project. (For more analysis of the numbers see: Friday, December 18, 2009, Big Picture Questions: Does MTA Chairman Jay Walder Comprehend Atlantic Yards Link to MTA Cutbacks.)

Bonds Not Issued

The governor’s statement that the bonds have been issued is not correct. Goldman Sachs has found buyers for the bonds but the bonds are not currently scheduled to be “issued” until this Wednesday, December 23rd, and that date could be postponed if the governor and his counsel decide they need time to think about whether they should be issued at all. This is a very important distinction for the governor to understand since he had just finished answering questions from Mr. Oder about the serious likelihood that the bonds, if issued, would be illegal.

If the bonds were unwisely issued it would involve a much messier unwinding of the transaction. When he initiated his answer by stating that the bonds “were issued” for the arena the governor might have meant to communicate that an issuance might foreclose some of his options. We can’t say whether this is what he meant because he flew off before there was time for follow-up. What is important is that it is critical for the governor to act before any issuance precludes his best options.

Can the Public Snap Out of $220 Million Net Loss?

The governor’s belief that the $220 million net loss calculated by the NYC Independent Budget Office could be erased with the passage of time ignores how that net loss was calculated. The loss to the public is permanent since it was calculated with the passage of time taken into account. In fact, as we commented recently, given the loss to the public that the arena would represent if it is ever built, the next step that could readily make sense is to consider benefitting the public by immediately tearing it down.

Capital Projects to Which the Governor Should Have Been Comparing Atlantic Yards

We thought it was interesting that the governor compared Atlantic Yards to "the education system" rather than to another comparable capital spending project when he was looking for a comparable expense. It was a strange reach. There are plenty of other projects that could be built that would not be a net loss. Why not let those projects generate jobs and revenues “in the years to come” that “far outweigh the investment that you make.” In terms of possible comparisons, the real question is whether anyone can think of a project worse for the public than Atlantic Yards? We think not. We are having an open competition on this, we keep asking, and so far no one has identified even a close second for the title of worst New York boondoggle.

Questions About Whether BALDC Arena Bonds Would Be Legal

The questions being raised about whether the BALDC bonds would be legal are related to the fact that the Empire State Development Corporation (ESDC) is trying to sidestep requirements like Public Authority Review Board approval and review by the state comptroller Thomas DiNapoli. Its sidestepping involves using the ghostly “co-administered" Job Development Authority (JDA) to do something the legislature never granted authority for it or JDA to do. To this end, JDA is being asked to create still another entity, a local development corporation, the Brooklyn Arena Local Development Corporation, that would somehow be able to do what neither ESDC nor JDA have authority to do. We have previously criticized the hellbent and desperate sloppiness with which the issuance of these bonds has been pursued.

We also note how JDA barely seems to exist at all. Several days ago we called the only telephone number we could obtain for JDA, which is ESDC’s telephone number, and asked for a JDA press representative. It took some time before it was acknowledged that we had reached the right number for that purpose but they could not identify a representative. They informed us they would have to call back with that information, something which has never happened. We think there are basic questions about whether JDA is doing the essential things a corporation would need to be doing in order to truly exist and conduct business. Those questions are not easy to address without an available press representative. Further, Atlantic Yards Report did an excellent article about how there is none of the normal basic transparency you ought to expect from a New York public authority to indicate that JDA is conducting business properly. (See: Thursday, December 17, 2009, Due diligence on the BALDC leads down a rabbit hole, while other state agencies are more transparent than ESDC/JDA/BALDC.)

For more analysis of the legal questions being raised by with respect to the issuance see: Perkins Pounces on PILOT Problem, Sees "Spectre of Fraud" With Atlantic Yards Arena Bonds, 12.19.09.

No Authority to Create Local Development Corporation (Like BALDC) to Fund Arena

Having looked at JDA’s statutory authority, which is something of an unattended relic, it seems clear to us that JDA was created for entirely different purposes and programs and that JDA has no authority create an entity like BALDC for the purposes of the proposed arena bond issuance. In fact, it seems quite the opposite: such actions are proscribed. Further, it looks to us as if the actions now being undertaken are potentially likely to put some of the public officials involved, including the governor's counsel, Peter Kiernan, in some serious legal jeopardy.

JDA has the power to create local development corporations (LDCs) but only for very specific limited purposes. Under Article 14 of the Not-For-Profit Corporation, pertaining to “Special Not-for-profit Corporations” JDA is authorized to create LDCs that construct, acquire, rehabilitate and improve for use by others “industrial or manufacturing plants,” and the statute says “but not for any other purposes.” Since an arena can’t be considered an industrial or manufacturing plant, that sounds like a pretty clear instruction not to do an arena. Furthermore, the way in which the statute is written clearly recognizes that without the specific finding it includes that “public officers” (like the governor’s counsel) forming an LDC for other purposes would not be performing a governmental function consistent with their duties as public officers. Normally, there are significant problems when public officials are involved with private corporations as these LDCs are. So JDA (and public officers) can create and LDC for the purpose of promoting “industrial or manufacturing plants” but not an arena. We add this to the other legal problems identified with respect to the BALDC arena bonds.

Addendum: (Posted December 21, 2009) Here from Atlantic Yards Report coverage of this post is video of our exchange with Governor Paterson.