To Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli: Investigate and Halt Issuance of Arena Bonds

The following an open letter from Noticing New York to Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli calling for an investigation and halt to the proposed issuance of ESDC’s Brooklyn Local Development Corporation PILOT Revenue Bonds for Forest City Ratner’s proposed Nets basketball arena.

* * * *
December 13, 2009

Hon. Andrew M. Cuomo
Attorney General
Office of the Attorney General
of the State of New of New York
120 Broadway
New York, New York 10271-0002

Hon. Thomas P. DiNapoli
New York State Comptroller
New York State Office of the Comptroller
633 Third Avenue
New York, NY 10017


Re: New York State Public Authority Bonds Being Rushed to Market Without Proper, Adequate and Required Assessment, Disclosure and Approval of Risks (Empire State Development Corporation’s Proposed Financing of Nets Arena Via the Issuance of Its Subsidiary Corporation’s “Brooklyn Local Development Corporation PILOT Revenue Bonds, Barclay’s Center Project”)

Dear Attorney General Cuomo and Comptroller DiNapoli:

As you each have jurisdiction, capacity and, we respectfully submit, the duty to act in this area, we are writing to bring to your attention the fact that New York State public authority bonds are being rushed into the tax-exempt bond market without the required assessment, disclosure and approval of the risks associated with their issuance which in this case is substantial. The sale is being rushed to market (while a number of lawsuits are pending that ought to affect the issuance) in order to benefit Forest City Ratner hoping to meet a December 31, 2009 IRS deadline to obtain a tax-exempt status for which that private developer’s project would otherwise not qualify. (The goal is to avoid the provision of the IRS code enacted by Senator Moynihan that prohibits tax-exempt financing of private sports arenas and stadiums.) The risks being ignored in the process put the public, the state and the investors potentially buying these bonds in significant jeopardy.

We ask that you use your powers to investigate this issuance and, in the meantime, to order it halted as not being in compliance with minimum state requirements.

Here are just some of the things you need to know and about which you can readily learn more when you investigate:

1. Bonds Issued by Subsidiary Public Authority: (More than One Tranche). More than one series of bonds are being issued by the Brooklyn Arena Local Development Corp. a subsidiary public authority created by the Empire State Development Corporation as an instrument to bring this financing to market. The issuance of different series of bonds is being used in order to stratify the unacceptable risks of the transaction. The tax-exempt bonds would be paid with “PILOTS” diverting taxpayer revenues for the developer’s benefit.

2. Inadequate Assessment of Risk by the Rating Agencies. More than one series of bonds are being issued. Moody’s Investors Service and Standard & Poor’s (December 1, 2009) gave the senior bonds (i.e. the most credit worthy of the bonds being issued) respectively Baa3 and BBB-minus which means that these best-of-the-lot bonds being issued were given the very lowest investment-grade ratings possible, ratings just a notch above junk. However, the evidence is that these ratings do not reflect a proper assessment of actual risk. (Fitch did not rate these bonds.) Among other things:

a. Moody’s Cash Flow Review Mistake: Starting With 225 Annual Arena Events vs. 200. The Moody's review on the bonds was based upon a supposition that there would be 225 arena events per year while the evidence is that to assume even 200 arena events would be aggressive and inconsistent with the information that the developer itself has been able to promulgate. (There is no evidence of an independent market study or realistic recognition of the arena's competition with three or perhaps four regional arenas. - The consultant hired to do a market analysis made clear that “information provided to us by others was not audited or verified, and was assumed to be correct.” The “others” would be FCR.) When asked to address the significant 11% error in assessing the cash flow Moody’s was unable to respond.

b. Arena Completion Date Unrealistic. It is unrealistic to project that the arena will be completed by April or even June 2012, thus prolonging the duration of bond payments without any projected revenues.

c. Bonds Involve Provisions For Junior Bonds to Default: Atypical Absence of Cross-Default and Redemption. The bonds include provisions where the junior bonds can default, in which case a Russian billionaire, Mikhail Prokhorov, will be in litigation to take over the arena from the developer. The junior bonds are junk bonds quite likely to default. Mr. Prokohrov’s involvement in this transaction is as yet apparently unapproved by any public agency involved. In other words a background check and review have not been done. There is no provision for cross-default, acceleration or redemption in such an event. Given this atypical provision for a litigious transfer of the project we are at a loss to explain why the ratings for these bonds have not, accordingly, been reduced several notches. We do not believe these kinds of litigious difficulties were envisioned or similarly foreshadowed when bonds were issued for the new Yankees and Mets stadiums. The bonds for those baseball stadiums also deserve a respectively higher rating than these new proposed arena bonds given the proven track records of those teams in New York City. The New Jersey Nets have absolutely no track record. Forbes is reporting that the Nets are distributing 5200 free tickets a game, which is more than one-quarter of the house. Additionally, ratings for the Yankees and Mets stadium bonds were given before the national fiscal crisis. We understand that attendance for those teams has not been as good as was projected.

d. Risk of State Agency Non-Compliance With Public Authorities Accountability Act. One Significant risk to the transaction is that the half of the land required for the transaction (the half the developer is not attempting to take through eminent domain) will not be obtainable because of a violation of the Public Authorities Accountability Act. Despite the fact that these bonds are being issued by a state public authority and that this will pose a significant risk to any buyers of these bonds the assessment of the question of whether there was a state agency violation of this law is not being offered by state officials but by the developer. The Preliminary Offering Statement seeks to assure the buyers of the bonds with the private developer’s self-interested assessment that the developer: “believes that the MTA complied with all applicable legal requirements and expects that the [defendants] will prevail in this proceeding.” We also note that this assessment is not in the form of a legal opinion.

e. Errors in Offering Statement. The Preliminary Official Statement Being used to market the bonds contains other inconsistencies and inaccuracies that go to the question of how many arena events will be generating cash flow for the bonds and the basis for ratings. (See next section.)

In assessing the reliability of the ratings agencies we point out that in a front page story the New York Times offered this assessment of the current state of affairs: “. . for now, and for the foreseeable future, the market for ratings is sure to look uncannily similar to the one that helped usher in the crisis: three rivals, all of them paid by issuers, bestriding the market.” (See: Debt Raters Avoid Overhaul After Crisis, By David Segal, December 08, 2009.)

3. Inaccuracies in the Preliminary Official Statement (POS) relating to number of possible events in the arena.

a. Non-Profit Arena Events for Community Go Missing. The Preliminary Official Statement (POS) being used to sell the bonds says that each year NO MORE THAN TEN EVENTS (“not to exceed ten (10) events”) shall be held in the arena for the public and community groups at the FULL COST of normal events in the arena (“which access shall be on the same terms, including cost, as the Arena is generally made available to other Persons for use”). Inconsistently, the developer has already promised the public that there will be AT LEAST TEN EVENTS which will be at a LOWER COST to the public with the developer forgoing profit on the minimum ten events. (Alternately: “a minimum of 10 events would be made available for use by community groups at a reasonable cost (generally the cost of operation) with any net proceeds to the sponsor from these events to be donated to not-for-profit organizations” and “at least ten (10) events per year, at a reasonable rate, with net proceeds from such events to be used to support non-profit community organizations.”) In other words, that subtracts out a minimum of at least another ten events a year from the 220 projected profit-making events.

b. Misrepresentation on Possible Hockey Team. The POS claims that simply by retrofitting the arena with “ice-making abilities” the arena can house a NHL hockey team and thus bring it the revenue associated with that team. This representation offers absurd hope for mitigating risk because the evidence clearly shows that the arena is physically too small to include a hockey rink. This is highly material because if a hockey team plays in an arena, the team plays a minimum of 43 home games per year and as many as 55.

4. Bonds Far Riskier than Transaction Approved by the State Public Authorities Control Board (PACB). (As furnished to and consented to by the State Comptroller’s Office.) The bonds being issued are far riskier and for a very different transaction than was approved by the State Public Authorities Control Board (PACB). As required by the governing state legislation that original transaction was also sent to, commented upon and the approval determination was consented to by the State Comptroller’s Office. The new transaction which has not been approved by the PACB also lacks that statutorily required comptroller review, input and consent. The new transaction is much riskier and different from what was approved because:

a. The arena (supposed to generate income) is 20% smaller. The PACB (and the ESDC board) approved a transaction that involved the financing of an 850,000 square foot arena, not the 20% smaller 675,000 square foot arena that developer Forest City Ratner currently plans to build.

b. The arena (needing to be paid for with generated income) is substantially more costly. At the time the PACB issued an approval, the arena was projected to cost $637.2 million, only a fraction of the $1.1 billion (including infrastructure) it is currently projected to cost according to the recent disclosures of the Preliminary Offering Statement. $1.1 billion represents an increase of 73% over $637.2 million.

c. The arena is less functional. The smaller arena will be less functional. The diminished functionality means among other things that, as noted above, the arena will not (as would previously have been possible) be able to host an NHL hockey team with 43-55 arena events per year.

d. Larger Atlantic Yards financing now a decades-long option for the developer. The larger Atlantic Yards megadevelopment as part of which the arena financing was approved has also changed very substantially (and is much more undefined than ever). It is now a muti-decade option on multi-acre mega-monopoly on the part of the developer that will involve subjecting the community to years of unnecessary developer-created blight as parts of the community are torn down and once-thriving alternative development is stymied.

5. No ESDC Board Approval for Smaller Arena. Not only has the PACB not approved the far riskier and different transaction being brought to the bond market; the ESDC board members have also not acted to approve the financing of the new smaller arena that Forest City Ratner proposes to build.

6. PACB Approval (and Comptroller Review and Consent) and Public Policy of Requiring Public Benefit: $220 Million Net Loss. While it may be argued whether the PACB and the Comptroller take into account the generation of public benefit and public policy issues when they conduct their review of proposed project financings, it should be noted that the transaction now getting underway involves no benefit to the public, whereas the transaction that was previously brought to the PACB and the Comptroller’s office for approval did. The New York City Independent Budget Office has reviewed the new arena financing transaction being brought to market and concluded that it will represent a $220 million net loss to the public ($39.5 million in direct losses and $180.5 million in opportunity losses). That is not the total cost to the public: That is the current project net loss; the project will cost much more.

7. Secret Approval of Additional $400 million in Bonds For Arena That Will Substantivally Increase Total Net Loss to the Public. On September 17th the public authorities issuing these bonds secretively and in violation of the New York State open meetings and sunshine laws approved the groundwork to issue another $400 million in tax-exempt infrastructure bonds, the proceeds of which can be turned over to the developer to reimburse it for its costs of building the arena, thus significantly boosting the net loss to the public of this transaction. Those additional bonds have also not been approved by the PACB or the comptroller. Absent a recission of these actions by the public authorities there can be no assurance that the public is not about to be saddled with these extra undisclosed costs.

8. Bonds Negative Effect on Credit of the State. Though the taxpayer-backed bonds are technically non-recourse to the state for additional funds in the event of a default, the state is still in jeopardy due to their riskiness. Though there is no state guarantee of the bonds, state public authority officials have not ruled out the possibility that the state would rescue the bonds in the event of their default. One possible backdoor method being set up to effect such rescue is the secretly approved issuance (at taxpayer expense) of the additional $400 million in bonds described in the above paragraph. Even if the state were not to rescue the bonds, the PACB was created to review and approve the issuance of all bonds, including such non-recourse or limited-recourse bonds issued by state authorities because the negative effect of default on the state and all other state issuers is recognized.

9. Public Authorities Out of Control? We believe that you each independently have authority to step in to halt these transactions and investigate them. To say that such is not the case would be to say that our public authorities are extraordinarily out of control.

It is not the purpose of this letter to criticize your fellow politicians and public officials, but it is important to note that the issuance of these bonds is being played out against an Alice-in-Wonderland denial to the public of realities, fiscal and others, by holders of public office who should be exercising their oversight to restrain the abuses in these transactions:

1. Denial of Responsibility by Mayor Bloomberg. Bloomberg has denied the financial facts of excessive subsidy for Ratner Atlantic Yards mega-monology with incredible assertions both preceding and following his actions. On Wednesday, May 20th Bloomberg publicly said that the Atlantic Yards project would receive no more subsidy. On May 29th it was revealed that a deal was in the works to give millions more, what turned out to be a package worth more than $180 million in additional no-bid subsidies to Ratner. These subsidies facilitated by the mayor (which can still be halted) are being given to Ratner via handouts from the MTA’s board, approved by the mayor’s representatives. Just this week, commenting on the MTA’s lack of funds (the $200 million shortfall in its 2009 budget), Bloomberg, as if he himself was not responsible, said: "I don't know why anybody is surprised at what is happening to the MTA," . . . "It's a piggy bank that keeps getting raided.”

2. Denial by Governor Paterson. As of last Wednesday, Governor Paterson announced that New York State, with only $3 million of cash on hand, is running out of money. He has been urging legislators to find ways to cut back on state spending and speaking about the dire cutbacks that he will be forced to make without the legislature taking action. Yet how can Governor Paterson expect legislators to take him seriously about legislative branch-controlled spending when he has refused to do anything about Atlantic Yards, which is the premier example of executive branch-controlled pork barrel spending. Upon her recent departure from the state housing finance agencies, Housing Finance Agency CEO Priscilla Almodovar commented caustically about the cronyism of housing approved by the Pataki administration. There can be no better example of such Pataki administration cronyism than its attempted no-bid award of a huge mega-monoply on Brooklyn development to Forest City Ratner.

Necessary Investigation of Eminent Domain Abuses. Finally we must also raise with you the background of eminent domain abuse by state and city officials about which the state Attorney General’s office has initiated investigations respecting conduct relating to Willets Point. The situation with respect to Willets Point involving misconduct by city officials is not an isolated incident. (We are aware of news reports that the Bloomberg administration has been resisting subpoenas from the Attorney General’s office by countering with political threats.) It is tip of a much larger iceberg. As you found, your investigation into Willets Point quickly expanded into investigating activities of the Brooklyn Downtown Partnership, which brings it very close to Atlantic Yards itself. (You should probably also be looking at Coney Island as well.)

The recent decision in the Kaur case respecting the abuse of eminent domain by Columbia University makes this clear how far the abuse of eminent domain by government officials extends. We borrow the language of lawyer, legal scholar, and eminent domain expert Gideon Kanner summarizing his assessment of what happened in Kaur:

. . . in the Kaur case, the New York Appellate Division did examine the unseemly facts underlying the decision to condemn and found them to give rise to a miasma of favoritism, conflict of interest, procedural mistreatment of the condemnees, and deliberate blighting of the area.

The cast of characters in the Kaur case (substituting Forest City Ratner for Columbia University) is virtually identical. The facts of abuse are very much the same, in some respects even worse. They need to be investigated. Senator Perkins has written a letter to Governor Paterson asking for a state moratorium on the use of eminent domain in which he offers his opinion that the “actions on the part of the ESDC are part of an insidious form of discrimination and civil rights violations that must not stand.”

We suggest that investigation needs to start now, not in six months or a year from now. We suggest that your investigation should also extend to how in the case of Atlantic Yards public officials have coordinated such abuses of eminent domain with other illegal acts such as the non-compliance of the MTA with the Public Authorities Accountability Act. The investigation should commence before New York is subjected to a wasteland such as was left in New London, Connecticut in the aftermath of the Kelo decision and before these rushed-to-market bonds default.

From this brief list of problems it should be evident that the skimping on due diligence and normal procedures in service of the private developer's deadline poses great risk to the State, the public and the potential buyers of these bonds. Once again, we believe investigation by each of your offices will find serious problems and wrongdoing in the financing process such that an immediate halt to this unapproved financing transaction is warranted.


Sincerely,


Michael D. D. White

What’s Up At Dock Street, Really?

City Council Members Eric Gioia and David Yassky held a press conference Saturday morning on their continuing investigation into the proposed Walentas Dock Street project in DUMBO proposed to be built where it will block views of the Brooklyn Bridge. We try to avoid press release journalism but the Gioia and Yassky press conference was so on-target we’d like to report precisely what they said. They made it clear we have plenty of reason to be alarmed by the conduct of city administration officials and the kind of backroom dealing they are apparently willing to engage in to manipulate favored real estate deals through the approval process.

And to be fair, we will also acquaint you extensively with the thinking of a (possibly now erstwhile) proponent of the Dock Street project who came to the press conference that will, appropriately, give us the opportunity to discuss some related things about the Atlantic Yards mega-boondoggle.

The “Bundle” Bungle

When we first wrote about the Dock Street project we directed ourselves to the inappropriate bundling of the project together with a middle school:

Is there wisdom to the bundling of these decisions? Does the bundling enhance each choice or just cause each choice to be suspect? Shouldn’t we now ask, if the building is a good size, shape and height, if it has to be “sold” to the public by incorporating a school? Is the school really good planning or the one that the public actually wants if it is being tacked-on to “sell” a project of a likely unwanted size, shape and height?

(See: Wednesday, February 4, 2009, Reject the “Bundle” Bungle: Saying “No” to Walentas Dock Street Project Next to the Brooklyn Bridge. For more see: Saturday, March 14, 2009, At the City Planning Commission Hearings on Proposed Dock Street Project: A Reprise.)

From Faustian to Foxily Faux

The New York Times had already referred to this approval of a school conditional on allowing a developer to build a project of extra height as “a Faustian bargain.”Councilman Gioia, when we talked with him at the end of the press conference, referred to it more accurately as a “false choice.” The point of the press conference was to focus on the fact that internal e-mails of the School Construction Authority disclose that the SCA was clearly manipulating to put the school into the Dock Street project in order to get the project approved. Absent using the school as a sweetener to get the project approved, it seems clear the SCA wasn’t interested in providing a school or acknowledging that it was needed. The SCA did, however, think it expedient to perform a charade of pretending to consider other sites presented to it so it could pretend that it had done a cost-benefit analysis.

This is from the New York Post:

. . . while the SCA says it looked at other sites to ensure the most cost-effective school is built, documents suggest otherwise.

For instance, an e-mail dated Dec. 8 from SCA Executive Director Lorraine Grillo to another staffer shows the lack of attention a Water Street site suggested by Yassky actually received compared to the Walentas' plan for nearby Dock Street in DUMBO.

"Now I know that if we don't do the Walentas project that we don't really want to do anything else over there, but I think we have to follow up on this just so we can say that the Walentas project is such a good deal," the e-mail says.

(See: Dumbo Stumble, E-mail Shows Fix Was In: Pol, by Rich Calder, April 1, 2009.)

Yassky and Gioia

David Yassky is the City Councilman in whose district the project would be and although he is opposing the Dock Street project, he has also been asking for a new middle school for some time. It was his office’s Freedom of Information Law (FOIL) request that turned up the smoking gun e-mails. Eric Gioia is a member of City Council land use and zoning committee that will vote on this project. He got involved in the investigation when he grilled SCA Vice President Ross Holden about the e-mails at a City Council hearing on the project. (See: City Council Troubled by Dock Street Project, by Ben Muessig, May 22, 2009.)

It is worth mentioning that Mr. Yassky and Mr. Gioia are running, respectively for the positions of City Comptroller and Public Advocate, both positions where an ability to pay attention to numbers, to question ostensible versus true purpose, and to investigate effectively will be critical attributes.
Mr. Gioia’s Eloquence

Here is what Mr. Gioia had to say at the press conference Saturday:

I am here for a very simple reason. The day before the hearing on this issue I was presented with a package on this issue including some e-mails that I found incredibly disturbing. When I saw these e-mails I knew I had to act. Very simply, government is not supposed to act one way in private and another way in public. It is that kind of conduct that drains people’s confidence and faith in the honesty of government. It is that kind of behavior that drives people away from the process. When good people walk away from government, who walks onto the playing field but lawyers and lobbyists and special interests and we are all worse because of that. The overarching goal of elected officials in this city really has to be to rebuild people’s faith in our process, to rebuild people’s faith in government. All government is a way to stay working together, overcoming superficial differences by common values, common goals and to grow in the same direction.

When people begin to smell something funny, when people begin to see e-mails between government officials that say, in essence, that they are going to deceive elected officials and then the community, that is the sort of thing that turns people off from government. These e-mails raise some very serious questions about the School Construction Authority. These are questions the School Construction Authority has an absolute obligation to answer before this project moves forward. The integrity of this process has been tainted by these e-mails. These e-mails would lead a reasonable person to believe that this middle school was designed simply to justify a real estate deal and that is wrong.

The School Construction Authority in their testimony before the City Council told me, `Councilman, you’re wrong, that’s not what this is about and we have evidence that shows that those e-mails are out of context.’ At that hearing I asked for those e-mails to be produced. They told me that they had them at the ready. I suggested that if they had them ready they could provide them at the end of the day. Well, a week went by and we didn’t hear from the School Construction Authority. A few more days went and we did not hear from the School Construction Authority. So yesterday I contacted them and I said `I’m a really fair guy. If you’ve got evidence that shows that these e-mails would portray things falsely, please provide them. And so my office actually went down and picked up the package of information the School Construction Authority had prepared for me. I read the e-mails yesterday afternoon. I read the entire package last night and I did not find a single thing to refute the e-mail that I raised at the City Council.
And so I will say this. The School Construction Authority and the city government, the city has an obligation to clear the air in this situation. If they have exculpatory evidence then they should make that clear and if they don’t then this project has to be stopped. Because this is exactly,- this is exactly- the way the government is NOT supposed to work. And I will say that there have been times in my neighborhood when there have been projects in my neighborhood and there have been two sides and vigorous opposition. And that’s OK and the truth is that everyone can’t always agree and sometimes government won’t make the right decision and there is no promise that we can always fix that. But what we have to promise is that there be an open, transparent and accountable system. And when that fails we need to go back to the drawing board and start over again. And that, to me, is what this is all about.

Mr. Yassky: A Proposition on Proving Our Worst Suspicions

Councilman Gioia handed off to David Yassky who said:

I just want to remind everyone here, particularly the journalists and people who are here today, about some of the history, because four years ago there was a proposal, same owner, same site, same big building right next to the Brooklyn Bridge and the neighborhood stood together and said, on behalf of everyone in the city, in the country, in the world who cares about the Brooklyn Bridge we are going to oppose this project and we got it stopped. That was 2005. And then someone came up with the clever idea that `if we say we will put a school in it well then maybe we can get them to go along with it.’

Now I see a lot of my neighbors and constituents here. I know that you are here, you live in Downtown Brooklyn area. Yes, we need a school. Yes, we want a school. That’s why we have been demanding a middle school from the School Construction Authority for three solid years. We’ve been telling the School Construction Authority that we need a school in Downtown Brooklyn and all they said was NO, you know you’re fine, you don’t need a school.

Well, the developer comes along and says I’ve got an idea, how about this project, how about we put a school in it and all of the sudden the School Construction Authority changes its mind and says yes, we’ll put a school here. And I was wondering: Now why is that? What could explain? Maybe it really is the strength of our advocacy they finally decided even though I hadn’t seen it anywhere else. . . The School Construction Authority decided, yeah, we’re going to listen to a neighborhood about what it really needs.

And then this e-mail comes out. And then this e-mail come out, this e-mail that says in response to us saying here are some other sites where we would rather see a school. We in this neighborhood think, yes, we need a school, here’s the best place for it. Here are three better places for it than right here. And this e-mail comes out that says that if we don’t do the Walentas project we are not going to do a school anywhere nearby here.

Now that is disgusting. And that is very worrisome. Eric Gioia is right: That is government at its very worst. That just confirms people’s worst suspicions about what goes on in the back rooms out of public view.

And when we asked the head of the School Construction Authority what is this? Maybe a month ago now- - I said well, does his e-mail really reflect your position? This is the only place you will do a middle school? - Oh no, that’s not our position. - Well then, how about these other sites? - Oh no, we ‘ve got a problem with this one, a problem with that one, a problem with other one. That e-mail, you know, we are pretending that is not us, but in fact, this is the only place we will look at for a school.

Outrageous! Outrageous! Now the School Construction Authority: I want them on notice, that after we defeat this project in the City Council, they better come back and put a middle school here. Because, if they do not then they will have proved that they were participating in a sham. If the School Construction Authority does not come back and put a school in Downtown Brooklyn after this project goes down then they will have proved that our worst suspicions about them are actually true.

Dubious

Others spoke afterwards. Gus Sheha, president of the DUMBO Neighborhood Alliance said, among other things:

The Brooklyn Bridge should not be the pawn in the dirty politics of developers in dubious dealings by city agencies entrusted to protect the taxpaying public.

Another Wired Deal: Speaker Quinn, Katz, Council and Cash

Kristian Roebling great-great-grandson of Washington and Emily Warren Roebling who built the bridge reprised his testimony before the City Council. You can read more about him in this Jim Dwyer piece from the New York Times, About New York: Money and Politics Meet at the Brooklyn Bridge (May 22, 2009). In it Mr. Dwyer writes:

Whatever its merits, the Dock Street development is as wired politically as the bridge is with steel.

As Dwyer explains, it all comes down to money and campaign contributions to City Council Speaker Christine Quinn and company:

Just before new rules severely limited campaign contributions by companies doing business with the city, Two Trees accounted for at least $74,250 in donations to the two City Council members with the most power over the development, Speaker Christine C. Quinn and Melinda R. Katz, chairwoman of the Council’s Land Use Committee. The company has also spent about $400,000 lobbying the Council and city agencies

“I think Two Trees is an example of the many developers who are able to wield huge influence by the donations they make,” said Councilman Tony Avella, chairman of the subcommittee on zoning. “The real estate industry donates the most money to elected officials in New York and they control the agenda.” Mr. Avella, who has announced that he is running for mayor, opposes the project.

As we previously wrote, Borough President Marty Markowitz more or less told us that the pending City Council approval for the project was rigged. (See: Sunday, April 26, 2009, Markowitz, McCullough, Me and Other Merry Minions of the Blogosphere.)

Ed Brown and Troop

Here is an unanticipated surprise. We found that one of the most interesting things at the press conference was speaking with Ed Brown. Mr. Brown had led a group to the press conference to demonstrate in favor of the Walentas Dock Street project. We thought if we talked with Mr. Brown we might learn something interesting and we did. For reasons that will become obvious as we provide our account, it is important to note that we spoke to Mr. Brown before the press conference was underway and before Mr. Gioia and Mr. Yassky had made the statements we set forth above.
Perking on Perkins Hearing

Just the day before we had been at Senator Bill Perkins State Senate hearing on Atlantic Yards where there had been extravagantly raucous demonstrators in endeavoring to use noise (steel whistles included) to drown out any thoughtful legislative inquisitiveness about what is really going on with the Atlantic Yards megadevelopment. (See: Friday, May 29, 2009, Today’s State Senate Hearings on Atlantic Yards and Noticing New York Testimony and Monday, June 1, 2009, Negotiating With Your Contractor: The Atlantic Yards As Kitchen Renovation Metaphor.) Thoughtful and considered, Mr. Brown was a much different sort of demonstrator from the disruptors of the proceedings we had encountered at the hearing the day before. (For more thoughts on the Perkins hearing disruptions from the Daily News, see: June 2, 2009, Time to stop bullying at Atlantic Yards.)

Mr. Brown Representing . . .

Mr. Brown is a member of the local Community Board 2, the board responsible for the area into which the Dock Street project is proposed to go. He is the tenants association president for the Ingersoll Housing Development. He explained that he was there with the group that he had bought, residents of public housing, to represent the Ingersoll Houses, the Walt Whitman Houses and also the Farragut Houses. He had heard about the press conference from an e-mail he received. He said that he was there to support the project because it would give the residents of public housing the chance to send their kids to a diverse middle school within the community.

Developments Causing Discomfort, Including Atlantic Yards

A member of Community Board 2 for just over two years Mr. Browns said that he particularly liked to follow issues with respect to development because the residents of public housing were being affected by so much development that was causing discomfort because, with all the development going on in and around the community, residents just didn’t feel that they “were being included in the plans for the future of Downtown Brooklyn.” He said that, Dock Street aside, there was discomfort with the Atlantic Yards project and several other developments that had taken place in their immediate area. By contrast, he said the Walentases had “reached out, this is the first developer who had reached out BEFORE a project, rather than `it’s already there’ - - and then they engage us once we speak in opposition to it.”

The Walentas Approach

He said the Walentases had come to his group prior to the project’s coming up for approval, “for whatever reason” to let them know what the project entailed and the benefits it would have, not only for the community, but for their particular group. He said those benefits would be the middle school and also the affordable housing. He explained that there were many people in affordable housing that were looking to get out of public housing and stay in Downtown Brooklyn and that all the condominiums and all the high-end apartments with unaffordable rents coming to Downtown Brooklyn made the affordable housing component of the project very important.

Mr. Brown said that the Walentases had reached out to the tenants association (perhaps a little more than a year ago) and had come to some of the schools in the area to make presentations about the project. He said that he had been skeptical about the project at first because it was another developer developing in Downtown Brooklyn and had wondered whether his community would benefit in any way. He said it was the “middle school piece . . . that really captured our attention and then the affordable housing piece.” He said that this was something that hadn’t been seen in this area in approximately the past five or six years.

Atlantic Yards Hearing

As previously observed, Mr Brown had volunteered Atlantic Yards as an example of a project that was a particular source of community discomfort. We asked about Senator Perkins’ hearing on Atlantic Yards the day before and Mr. Brown told us that he has also gotten an e-mail about it and that while he had wanted to attend the hearing he had been unable to because of a prior engagement. He said that one of things he was concerned about with Atlantic Yards was affordable housing. (We have more commentary on that below.)

Not Anti-development but Basic Issues and the Overall Health of the City

He explained that his group was not at all anti-development but that a stigma is attached to people in public housing and that he was working to have people understand that the residents are good, hard-working, law-abiding citizens who are not involved in crime or antisocial behavior or conducting themselves in a way that was detrimental to the overall health of the city of New York. He said that not only was new affordable housing important, but jobs also were because Ingersoll and the other housing developments had upwards of 60% unemployment. He said that when people were employed it served to change the dynamics of everything for the better.

Looking Into One of the Main Criticism of Dock Street

We asked Mr. Brown whether he knew that one of the main criticisms of this project was that the community had repeatedly asked for a school, and in fact was doing a lot of work to go out and find sites that were appropriate for schools and had identified a number of them and was being told over and over by the city administration that they were not going to be provided with a school at the same time that e-mail now showed that the city administration was at the same time working to put the school in this project as a sweetener so that a project the community had previously voted down would then be approved for an up-zoning by the community. I asked him if that sounded like a manipulation by the city administration and the developer.

Mr. Brown said that he had been unaware of this and indicated such information was important to understanding the “full dynamics” of what was going on. He said that now being so informed he would have to go back and do some research on the issue, reiterating that one of the main things that had captured the attention of his group was the placement of the school in the project. Mr. Brown’s next thought was to muse on how change reflected by the new Obama administration represented an opportunity to avoid the polarization of the past and to build truly diverse communities. We confirmed with Mr. Brown that while he was in favor of a new school in Downtown Brooklyn, he was not necessarily in favor, subject to investigation, of manipulations to use this school to get an overscaled project approved that was previously disapproved by the community. Said Mr. Brown:

Oh, I can adamantly say that. You know that if there is any manipulation or underhanded moves taking place to make this thing happen I can say that, no, I am not in favor of anything of that nature.

I explained that was one of the things the press conference would be about so there was a reason to listen carefully and that maybe afterward he would have some more thoughts. Mr. Brown was in favor of looking into things. Accordingly, we suggested that proceeding with the e-mail investigation seemed to be just the ticket.

Affordable Housing: Illusive, at Least in the Case of Atlantic Yards

At this point some of the project opponents listening to our exchange spoke up, wanting to make points about how the affordable housing in the Dock Street project (being described just as “below-market rents”) would not be truly affordable. This then caused me to mention how the quote: “affordable housing” at Atlantic Yards for which ACORN is to blame is largely a sham. I mentioned the peculiarity of the middle band “negotiated” by ACORN which would effectively bar people with those incomes from getting the benefit of occupying the project. See the chart below (click to enlarge):

Incomes below the “missing band” in the above chart will be units required in any event by the tax code (so ACORN negotiated no additional benefit there) while the units provided to families in income bands above that level (especially given the MISSING income band) are being provided essentially at or close to market (so, once again, ACORN essentially negotiated no additional benefit there either). This, of course, gets to the heart of the problematic issue of “community benefit agreements” as sham and manipulations. For more on the way in which ACORN sold out the community see the following: Saturday, June 28, 2008, Selling out the Community for Beans (A Giant Wrong) Thursday, July 24, 2008, Falling Acorn! How Far from the Tree? Thursday, April 2, 2009, Jane Jacobs Atlantic Yards Report Card #14: Project Creates Population Diversity? NO Friday, April 10, 2009, As AMI climbs, a significant slice of Atlantic Yards "affordable housing" seems to track market.

We note that as the morning proceeded Mr. Brown and the opponents of the project remained very much engaged in apparently thoughtful, amicable, productive and mutually beneficial discussions exchanging information and thoughts.
(Ed Brown)

Moral of the Immorality

The window afforded by the School Construction Authority e-mails into the level of manipulation in which the Bloomberg administration is willing to engage should be a red flag and clarion call to action. Not only do we need to be able to trust our public officials to live up to a much higher standard but lawsuit after lawsuit (for instance, in the case of Atlantic Yards) hinge on the courts deferring to the notion that these same public officials can be counted upon to act in good faith and an unbiased manner, and that is something we are repeatedly seeing that the Bloomberg administration officials do not do. As the Bloomberg and Paterson administrations are equally responsible for Atlantic Yards, it appears clear we have a severe problem at both city and state levels of government.

There is an increasingly obvious absurdity to the judicial deference our courts are giving to biased public officials who consciously manipulate the public and disregard facts and fairness. (See: Saturday, July 19, 2008, Reality Denied!) When it comes to things such as eminent domain, our courts, by virtue of such absurd deference, are putting the protection of fundamental constitutional rights out of reach of every citizen. Our public officials, who have proved that they are not worthy, would clearly like for no New York resident to ever be able to win an eminent domain case against the government. And yet, against and for whom are the Bill of Rights-based eminent domain provisions of the New York State and federal constitutions meant to afford fundamental protections if not protection for the individual against the government? We look at the Dock Street manipulation and we say: These are the public officials to whom the courts defer and whom they assume act in good faith? It is absolutely time to think again.

Negotiating With Your Contractor: The Atlantic Yards As Kitchen Renovation Metaphor

At Friday’s state senate hearing on Atlantic Yards, Marisa Lago (head of the Empire State Development Corporation and responsible for Atlantic Yards on behalf of Governor Paterson) tried to make current negotiations with proposed project developer, Forest City Ratner easy to explain by likening Atlantic Yards to a kitchen renovation. That therefore allowed Ms. Lago to tell Senators Bill Perkins, Velmanette Montgomery and Assemblyman Hakeem Jeffries that Forest City Ratner is going to give the public a lot less than the public was once supposedly going to get by telling the legeslators that there isn’t going to be a garbage disposal, the level of trim and finishes won’t be the same (Formica countertops instead of granite?) and that the stove was only going to have four burners rather than six.

We’ll figure that the four burners instead of six outcome was meant to be suggestive of the fact that Forest City Ratner is now, among other things, only going to be giving the MTA a 7-train capacity train yard rather than a 9-train capacity yard. (a 22% cutback). So much for the future growth of a growing city! Along with this were the revelations that Forest City Ratner wants to pay the MTA less than previously specified for its land, wants more money from the public and is going to take a lot longer to deliver any public benefit. Some dates for delivery of public benefit may simply go unspecified. (See: Friday, May 29, 2009, Today’s State Senate Hearings on Atlantic Yards and Noticing New York Testimony.)

We rather like the kitchen renovation metaphor. Maybe it provided Ms. Lago with an out to avoid saying things in less blunt, specific or informative terms but we think that it does help make some things easier to explain. We will come back to that in a minute but first let’s note what this is really all about in basic, big-picture terms. It’s about government negotiations with a private developer, what the developer gets and what the public is going to foot the bill for while the developer takes away private benefit. It is also about whether given the “weakness in the economy,” public authorities should reopen agreements to tilt things more in favor of the private developer though it would be “at the expense of the authority’s primary mission.”

The New York Times had an interesting editorial Wednesday, Stalemate at Ground Zero, taking some positions that ought to be relevant. (We just quoted from that editorial above.) In this case, the Times was writing about negotiations respecting redevelopment of the World Trade Center site.

Mr. Silverstein . . . [who is building at the Trade Center site] . . wants to reopen a 2006 building agreement with the authority, citing delays by the authority and the weakness in the economy.

. . . . Mr. Silverstein made his pitch that the authority should use its money to help him build two skyscrapers that the private market won’t finance in the current climate. Basically he is asking the authority, which has limited resources and many other demands, to get even deeper into real estate speculation.

* * * *

The authority’s board has authorized over $800 million so far to help with Mr. Silverstein’s financing. The mayor and his dealmakers should not drain any more of the funds the authority needs to maintain and manage the bridges, tunnels, ports, terminals and airports in the metropolitan area. We all want the ground zero memorial and the other structures finished. But it cannot come at the expense of the authority’s primary mission.

Because it seems that the Times has let its business relationship with Forest City Ratner influence it coverage, we doubt that the Times will be publishing any similar editorials about Atlantic Yards. We are happy to be here to fill the void.

Should “weakness in the economy” cause a public authority like the MTA to reopen its negotiations with Forest City Ratner and agree to take even less for its land “at the expense of the authority’s primary mission?” (Remember that, going back, Ratner was not even willing to match the offer of another developer to pay more to the MTA for its land than Forest City Ratner was originally willing to pay.)

In fact, is“weakness in the economy” a reason to give more to a developer or is a downturn in the economy a reason to do exactly the reverse? We have previously written about how:

. . . state and local governments everywhere else are saving significant money on public sector work by getting bids during this economic downturn, and Forest City Ratner claims it is similarly going to reduce costs for itself through the lower bids they can get during the economic downturn. .

(See: Thursday, April 16, 2009, The Great Recession: A Stimulus to Get Our City Back to “Bidness?”)

The latest on this (in an article appearing only one day after the Times editorial) is that Ratner has reportedly reduced his cost of building his Beekman Tower by negotiating with the construction unions “a series of concessions on work rules that proponents said would save builders as much as 20 percent on labor costs.” (See: Savings on Labor Allow Work on Residential Skyscraper to Resume, by Charles V. Bagli, May 28, 2009.)

As we said before, it looks like the New York taxpayer is the only one who isn’t being invited to the party to get the benefits of saving through such bidding and negotiation. This takes us back to Ms. Lago’s kitchen renovation metaphor. Now is a great time to be in the market for a kitchen renovation! Contractors are hungry for work and they are bidding for it aggressively. The same thing applies to Atlantic Yards.

When it comes to kitchen and apartment renovations we have a few rules which we would like to supply for the sake of analogy. Those of us who have actually renovated our apartments, bathroom or kitchens know these things but it is time for our public officials to wake up and do what makes sense when spending the really big (billions) bucks:

NOTICING NEW YORK’S KITCHEN RENOVATION RULES
(Applicable also to NYC megadevelopments)

1. When selecting a contractor, get bids. Forest City Ratner was selected to build the 22-acre Atlantic Yards without an effective bid process. If you don’t get bids, expect to get soaked.

2. If you can (as noted above), it is good if you can bid out your kitchen renovation when things are otherwise slow in the construction business.

3. Establish a schedule by which the contractor must complete the renovation. If you establish a long, protracted schedule and distant deadline for completing construction, letting the contractor complete at his leisure (and work only when it is most convenient in terms of scheduling his labor, picking up his materials, prioritizing your job versus somebody else’s), expect the contractor to give you a really good break on price. But also consider that it will cost you a lot in that you have to pay rent or maintenance and your mortgage for a long time while not being able to use your property. Atlantic Yards has few real deadlines. From a pragmatic standpoint most of the deadlines are essentially nonexistent, many of them not even existing within the span of many people’s professional lifetimes. To the extent that deadlines are supposed to represent a day of reckoning, a time when the contractor can be held to account, a time to determine whether standards have been met, Forest City Ratner seems to have escaped such accountability. About all that is being required is that of FCR as Atlantic Yards developer is that it is supposed get the project underway by the end of the year. The sole requirement to simply get the project underway only benefits FCR by locking them into the job and has nothing to do with completion or delivery of public benefit. Without practical deadlines, Forest City Ratner is essentially strapping on a feedbag and the fact that it can munch at its leisure, taking decades to complete the monopoly it has been given (speeding up or slowing down at will) amounts to an extraordinary public subsidy for the firm. Apparently, our public officials believe that this subsidy will go undetected by the public.

4. Specify ahead of time all the work to be done before bidding out the job. This of, of course, is pretty basic stuff, but notice that this wasn’t done with Atlantic Yards.

5. Don’t let the contractor demolish the kitchen before you have a contract. It puts you in a tremendously weak negotiating position. How are you going to negotiate effectively when you have to eat out at restaurants or order take-out and there is nowhere to do the dishes? You’ll be sitting in a pile of construction dust and will probably feel that you need to agree to practically any outrageous proposal the contractor trots in. This is essentially the kind of situation Forest City Ratner has worked to create by tearing down much of the neighborhood while not having funding or a go-ahead to replace any of it. This includes demolishing the Ward Bakery Building and the Carlton Avenue bridge and creating unnecessary blight.

6. Don’t front-load the payments to the contractor. If you give all your money to the contractor up front it eliminates the incentive for the contractor to come back on a timely basis to finish the rest of the work. It also tends to lock you into continuing to use the contractor for the job because you won’t have money to engage a replacement contractor when you discover that you want to fire the original one. So why have the city and state been giving Forest City Ratner their contributions to Atlantic Yards up front?

7. If you advance money to the contractor that is going to be used to buy materials, you probably want to specify that the materials bought will belong to you rather than the contractor. That way you will be all set and ready to redirect the work to a new contractor whenever you need to. When you switch contractors, you don’t want your old contractor blackmailing you, saying that he is not going to turn over to you the custom-made granite countertops or the special-order tiles he took possession of at your expense. The city and state have been careless and are now at an analogous disadvantage whenever they decide to get rid of Forest City Ratner because Ratner took money that the city gave them (that was supposed to upgrade infrastructure) and used it to buy and take title to property within the Atlantic Yards footprint; Forest City Ratner is likely to try to hold that property hostage when the ESDC and the city send them packing.

8. If you’re trying to economize and save money, don’t let the contractor turn the job into a bigger, more costly job than it needs to be by going crazy and ripping out and throwing away a lot of walls, baseboard moldings and appliances that are perfectly serviceable and ought still to be used. If you want to save money, don’t rip out walls that are sound just because they have a few cracks. If new plumbing was recently installed, don’t rip it out to replace it all over again. Don’t let your contractor get rid of sound appliances and fixtures that could serve you perfectly well just so that the contractor can make a profit on selling you everything all new even though that is not what you needed. That is a form of churning. Have you noticed that Atlantic Yards involves plans to demolish some perfectly wonderful co-op and condominium buildings that were just fully and completely renovated?

9. Check out your contractor’s credit worthiness before engaging him. Forest City Ratner is teetering financially. On reason we have government officials who are likely going to be telling us that the public needs to come to the financial rescue of FCR because of the “weakness in the economy” is because of FCR’s own financial weakness. If you were doing a kitchen renovation you want to start with a contractor strong enough so that you would not have to face such ridiculous arguments.

10. Maintain the option to terminate and bring in another contractor- especially if the contractor wants to renegotiate after accepting the job. If a contractor doesn’t believe you are going to be able to replace him, he is going to try to take advantage of you during negotiations- Like asking for extra concessions because the economy is weak. How ridiculous is it that Forest City Ratner doesn’t think they can be replaced when the work being talked about won’t be done until as much as thirty years in the future and Forest City Ratner hasn’t even been specific what it is they are going to produce or the price they will produce it for?

We expect we could go on with other analogies about what is being done wrong at Atlantic Yards and that anyone with home renovation experience could add additional points of wisdom to this list. For instance, don’t get taken in by the contractor’s high-pressure sales job to buy super-glitzy name brand stuff that he can sell to you at an especially high mark-up. Maybe you do want a Sub-Zero refrigerator for your home rather than a top-of-the-line GE product, but do you really want to get suckered into paying extra for some Frank Gehry frippery that leaks? Everyone should feel free to add their advice to ours in the comments section to this post. Our public officials have a lot to learn about kitchen renovations!

Permission to Speak Frankly: How We Know More and Less From Breakfast Interviews With Marisa Lago

Last week Empire State Development Corporation CEO Marisa Lago was the interviewee in the “on the record” part of the "On/Off the Record" breakfast sponsored by City Hall News. A fraction more light can now be shed on that interview given Ms. Lago’s participation in another breakfast this week and her on-the-record, answers, previously unavailable to all the general public, to questions we asked about Atlantic Yards.

The subject of last week’s City Hall News breakfast interview was economic development in general. Atlantic Yards provided a large part of the morning’s fare, City Hall News interviewer Edward-Isaac Dovere conscientiously bringing it a number of times amongst a short list of the most important big projects for which the state, through Ms. Lago and ESDC, is responsible. All of those big projects may be considered troubled as we will touch upon here.

Atlantic Yards Report has already covered the key revelation (of the “obvious”) of last week’s breakfast interview: Atlantic Yards is going to take far longer than previously averred by the state in court proceedings and far longer than the public was told or has otherwise been officially acknowledged. Based on what Ms. Lago said, Atlantic Yards isn’t going to take 10 years as previously planned: It is going to take “decades” (See: Thursday, April 09, 2009, ESDC CEO Lago admits the obvious: Atlantic Yards would take “decades”.)

You should definitely read Norman Oder’s Atlantic Yards Report piece on the morning interview especially for how it parses out the inconsistency of Ms. Lago’s “revelation” with prior information ESDC supplied to the public. That information was also used to create the misleading court record based upon which ESDC litigated. Other things occurred during the morning that we think supply insight into the public agency’s economic development process. We would like to let you know about these this as best we can. We say “as best we can” because we are hampered in telling you what you certainly ought to know by the peculiar format of the breakfast interview: Only some of the morning’s event, the interview by Mr. Dovere and Ms. Lago’s response were on the record. Unfortunately, what impedes us is that the publicly attended question and answer session that followed the interview was “off the record.”

We are going to respect the breakfast’s “off the record” rules, but we don’t agree that they are a good thing. In fact, we think they are representative of something exceedingly bad for society, the idea, that there can be concentric circles of access to public officials, and that depending upon how far “in” you are, what club you can be a member of, you will get to know a respectively greater portion of the “truth” that our public officials know and can relate when they speak with greater candor.

Have you ever suspected that within the most inner circles our public officials and those close to them speak absolutely frankly about Atlantic Yards, including acknowledging that it is a "wired deal" being done, not because it benefits the public but because the political fix is in, that it is a burlesque of counterfeit process structured to give Mr. Bruce Ratner a special deal based on relationships and political contributions? Do you wonder whether the multi-decade time line for Atlantic Yards referred to as previously “obvious” by Norman Oder has long been a subject of frank discussion in inner circles long before it was officially disclosed by Ms. Lago? Is that why the official documents signed by public agencies long ago actually accommodate this multi-decade developer monopoly? Don’t bother to wonder.

By that same token, there were perhaps 50 people at the City Hall news breakfast, including bank tellers and officers at the TD Bank (317 Madison Avenue, corner of Madison and 42nd Street) which played host to the event. Those individuals will know a lot more about what Ms. Lago said when speaking (somewhat) more frankly about development of our city than those of you who were not present. You will know less because we are going to respect the rules and not report anything that was “off the record” that morning.

We will, however, tell you more of what you should know that was actually on the record. We also figured out how to inform you about at least some of what you ought to know that was off the record: We are putting on the record our Noticing New York Atlantic Yards question that we orally put to Ms. Lago the morning of the breakfast and later resubmitted to the ESDC press office in writing for the on the record response she has now supplied.

Also at the breakfast were City Council candidate Josh Skaller (City Council District 39) who had an Atlantic Yards question of his own (more on this coming up) and New York State Senator Bill Perkins, who has held hearings about eminent domain abuse (a sore Atlantic Yard subject) and will be asking his own set of questions about Atlantic Yards at hearings he will be having on the project. (See: Tuesday, April 14, 2009,Questions for Sen. Perkins: Why did ESDC punt to the city's DOT on the Carlton Avenue Bridge.)


(Image of Mr. Skaller from Only The Blog Knows Brooklyn.)

How Many Decades of Blight is ESDC Assisting Atlantic Yards Developer Forest City to Create?

First, let us return to the subject already covered by Atlantic Yards Report. How long has Ms. Lago admitted that Atlantic yards will take? How many “DECADES” will it be?

Norman Oder’s strictly construed analysis is that Ms. Lagos’s admission that it will be “decades” (plural) means that Atlantic yards will take at least 20 years. We think however that the fair import of Ms Lago’s remarks is that Atlantic Yards is likely to take the better part of three or four decades, or perhaps even longer. It is especially troubling to us that for what is likely to be the better part of a half century, ESDC will be giving an extended development monopoly over more than 30 acres to BYOB (“Bring Your Own Blight”) developer/subsidy collector Forest City Ratner.

Ms. Lago when describing how long Atlantic Yards would take said it was “similar” in “scale” to “Roosevelt Island, a project that has grown over decades, 42nd Street, a project that has grown over the past 25 years.” (Emphasis supplied.) More specifically, Roosevelt Island got underway at the beginning of the ‘70s and the UDC lease that initiated things was signed in 1969. The project is not yet finished so it is already at least a four decade project. Times Square, as noted, has taken at least 25 years. (BTW: The fact that eminent domain is still being used for Times Square redevelopment at this late date to favor certain developer’s acquisitions raises troubling policy questions.)

Here is what Ms. Lago said at last week’s breakfast:

Mr. Dovere: Let’s finish, in terms of talking about projects, with talking about everybody’s favorite, the Atlantic Yards which doesn’t seem to be one that generates a lot of answers all the time.

Ms Lago: Obviously, challenging project again. Projects conceived in a different time and in a different economy - But, a few things: One, the focus now is very much on moving forward with the Nets stadium and with the housing that is on that first block, the first phase of the project. Attenuated time lines, I think, are a reality for private sector and for public sector projects. There is nothing wrong with that. We look at the history of the transformational projects that have occurred in the city. Earlier I was discussing with some of the folks here, Roosevelt Island, a project that has grown over decades, 42nd Street, a project that has grown over the past 25 years and the scale of the scale of the Atlantic Yards is similar in that it is remaking, it is reknitting a portion of the city. So, as I said, focus on what can get done now in the current climate, what is financable now. And also recognizing that it is a project that is scheduled to grow out over multi-years, decades, not over months.

What Is the Proper Way for the State to Foster Economic Development? A “New Realism!”

In predicting a multi-decade time frame for Atlantic Yards Ms. Lago may have been incorporating some of her thinking, expressed just moments before, about the development of Moynihan Station. She said there was a “new realism of saying that plans that had been conceived in frothier times when there was an expectation that millions of square feet of new office towers could crop up, were unlikely to occur.”

The other thing we noted when she was talking about this “new realism” is that Ms. Lago seems to be adopting our Noticing New York thinking about how Moynihan Station should be developed. We think that the government should do what it does best, infrastructure, and that the Bloomberg administration has wasted its years in office on this project by virtue of being distracted by an unnecessary effort to create “public/private partnerships” which in the end surrenders too much control and responsibility to developers. Ms. Lago therefore sounded rather like us when she said (emphasis supplied):

And so it is a back to the basics and a focus on ongoing discussions with Port, ESDC, the city, the various parties in interest, about focusing on the transportation facets. We know that Senator Schumer has been very helpful in advocating for a focus on stimulus funding. That’s the type of project that is going to take years, will provide jobs along the way and doesn’t in any way foreclose, I think quite the opposite, sets the stage for private sector development down the road. It won’t happen in the first phase, but by having an enhanced transportation infrastructure it will be the catalyst for rebirth of the far west side.

That seems to comport with what we have been saying. Here is part of a longer analysis of the problem previously provided by Noticing New York (and, yes, we believe our longer analysis is worth referring to):

. . . . If you are not building a new train station but negotiating to buy and redesign a whole neighborhood with the goal of putting private developer profit in your pocket, you are talking a whole different time frame and the lead winds up being taken by entities whose eye is on a different ball. Developers were focusing on building towers where Madison Square Garden is and enacting laws to transfer development rights to adjacent properties they owned or were trying to buy.

(See: Monday, February 23, 2009, Un-funny Valentines Arriving Late: Your Community Interests at Heart.)

The fact of the matter is, development has a way of happening on it own as Seth Pinsky, President of the New York City Economic Development Corporation, recently admitted at another City Hall News "On/Off the Record" breakfast session. (See: Thursday, April 09, 2009, NYC EDC head on recent past: "We’ve been much more the 'Real Estate Development Corporation'".) Mr. Pinsky’s admission: “What occurred to me was that, really, for much of the last several years, even though we call ourselves the Economic Development Corporation . . . the economy has been growing on its own without much need for the city’s interference.” We might add to “without much need for the city’s interference” the following which naturally goes along: Without any need for special multi-billion subsidy deals for specially handpicked developer friends of the mayor and other politicians.

If the city does development the right way and invests in infrastructure such as transit (Moynihan Station included), it can expect development, as Ms. Lago was admitting, to follow. To paraphrase urban planner Alex Garvin, `development-oriented transit’ is preferable to that which the Bloomberg administration is doing too much of: `transit-oriented development’ (e.g. Atlantic Yards). For instance, city investment to put light rail, bike lanes and trees along 21st Street in Astoria as Mr. Garvin recommends (going west to the East River to create a new “public realm”) would, Mr. Garvin predicts, create tremendous amounts of new housing and the community would NOT be opposed to the investment. (See: Tuesday, July 22, 2008, At MCNY panel, defending dissent and promoting the better way to develop (not like Atlantic Yards).) Garvin’s “back to basics” prescription in this regard is “spend more money on the public realm.” (See: Monday, November 03, 2008, Overdevelopment, zoning, and the public realm (and AY).)

(Here, for reference, is the extended version of Ms. Lago’s statements at the breakfast:

Moynihan Station, as I am sure you know, the Governor, this past summer before I joined, was looking to the Port Authority to take this forward. I think, again that was part of the new realism of saying that plans that had been conceived in frothier times when there was an expectation that millions of square feet of new office towers could crop up, were unlikely to occur. Why? Because the market is telling us that there isn’t the demand, there isn’t the private sector financing. And so it is a back to the basics and a focus on ongoing discussions with Port, ESDC, the city, the various parties in interest, about focusing on the transportation facets. We know that Senator Schumer has been very helpful in advocating for a focus on stimulus funding. That’s the type of project that is going to take years, will provide jobs along the way and doesn’t in any way foreclose, I think quite the opposite, sets the stage for private sector development down the road. It won’t happen in the first phase, but by having an enhanced transportation infrastructure it will be the catalyst for rebirth of the far west side.)

Struggling to Get a Few Questions and Answers about Atlantic Yards on the Record

As noted, the Q&A session was “off the record” but since we think it is important for the public to know what was said about Atlantic Yards, here is our solution for partially informing you. We can tell you on the record what our question to Ms. Lago was. Also, because we conferred with City Council candidate Josh Skaller, we can tell you for the record the question he asked Ms. Lago about Atlantic Yards. While we can’t tell you what Ms. Lago’s answers were at the breakfast and we don’t even think we can tell you whether our questions were, in fact answered, Noticing New York submitted these questions to Ms. Lago for on the record responses which we got. Originally, ESDC was not willing to answer Mr. Skaller’s question if it was submitted through us, but when we said that we would adopt it for submission as a second question of our own we were able to get an answer. Mr. Skaller is also obtaining an answer to his question directly.

Noticing New York’s Question to Ms. Lago About Atlantic Yards

We asked Ms. Lago the following.

We have seen with the Wall Street crisis that the lack of transparency and proper valuation has led to “toxic assets” being held by a swath of financial institutions across the economy. Doing finance, I think you are in a culturally linked area. When I was doing the kind of work that you are doing I used to think that if you couldn’t find a worthwhile project it was time to stop providing subsidies and maybe take away an agency’s programs and powers. In that vein how do you justify a developer-driven, -initiated and -designed project like Atlantic Yards, where ESDC has admitted that it never weighed the public benefit as opposed to the private benefit that was designed into that project by the developer. I think that is contrary to what you said you were calling for in the Empire Zone program where you said that you were analyzing actual benefit.

That was the question we asked orally. In our written follow-up we were able elucidate our reference to Ms. Lago’s earlier remarks at the breakfast about the Empire Zone program (emphasis supplied):

Regarding my question, Ms. Lago will remember that, when speaking of the Empire Zone program, she talked about the importance of evaluating what is funded in the program for delivery of actual benefit, saying that ESDC currently has in the program some businesses that don’t even return a dollar’s worth of benefit for each tax dollar of tax break which is given to them. She explained that this had come about when the program morphed over the years and its focus was lost so that accountable measures of benefit were also lost. She said that was not a sustainable approach and that reform of the program was to include evaluating firms for removal from the program.

(We take it that our readers will perceive by analogy that public agencies really and truly do drift off course for political or other reasons so that they wind up being involved in delivering projects with little or no benefit or project which are actually deleterious to the public good like Atlantic Yards.)

We have received Ms. Lago’s written response to our question from ESDC. Here it is:

Although AY is a developer initiated project - we have carefully reviewed the expected impact of the project and the expected benefits to be generated from the project - in terms of jobs, fiscal benefits, the production of affordable housing and the removal of blight. We think this is a good deal for the City and State - especially now.

We don’t think we are allowed to tell you whether this response is as satisfactory as the answer we either did, or did not, receive at the breakfast, or whether it was the same or even similar. Only the 50 members of the public who were at the breakfast will have the privilege of evaluating that. We will point out however that we disagree with the on the record assessment that the project is, or ever was, “a good deal for the City and State.” That is partly because we don’t think the project delivers any real benefit and it is also because we have years of experience as a public official negotiating public benefit. As a negotiator experienced in this field we think that it is impossible for ESDC to say that it is a “good deal” given that ESDC has admitted in court that it never weighed the public benefit as opposed to the private benefit that was designed into that project by the developer even though the project was developer driven, initiated and designed. (See: Thursday, March 5, 2009, Missing a Leg To Stand On: ESDC Didn’t Consider Developer Profit, the Main Thing Atlantic Yards is About.)

(Here for consideration and comparison, here is Ms. Lago speaking more frankly at the breakfast about the Empire Zone Program, another ESDC program for which she is responsible, that sometimes fails to create value:

ML: A second is the Empire Zone program. This is program which has been much maligned for years, and we were fortunate in this legislative session to put in place a couple of very significant reforms to the program. One is a requirement that new businesses entering the program produce $20 dollars of benefit. And what is benefit? It’s the wages that are paid and it’s the capital investment that businesses make for every dollar of tax credit. And in a particularly deft move, a wise move, there is a recognition that manufacturing jobs are key jobs for the state and so for manufacturing firms the ratio for benefit to the state was10 to 1. Now the program sunsets in a year and that, I think, poses an opportunity, a challenge and an opportunity, which is working with the business community to design a program, the economic development strategy of a program, that will replace the Empire Zone program.

Asked to explain the arcane program and the hoped for effect Ms. Lago continued.

ML: The Empire Zone program started out in the ‘80s as an attempt to put together a very rich package of tax benefits for a small handful of extremely economically depressed communities throughout the state. So the notion that the state would have a tool to attract jobs to those areas that were the most intractable. It has ballooned over the years. There are now 85 zones. There are 9000 companies in these zones and as the program morphed over the years the focus on the most economically distressed areas was lost and the measure, the accountability of what was the state getting in return was also lost. We currently have in the program some businesses that don’t even return a dollar’s worth of benefit for each tax dollar of tax break which is given to them. That is just not a sustainable approach. And that was one of the reforms, that those firms will be evaluated for removal from the program. Now, currently, the Empire Zone program costs over $500 million a year. It’s a half a billion program. It has become quite untargeted: 85 zones, 9000 firms. I think it’s incumbent on us to step back and say if we are to design a successful program what are the strategic industries that we want to focus on and also get back to the roots of particular areas- what are the economically distressed areas that we want to target. We know that it’s a useful attraction tool for companies that are thinking of coming to the state, or unfortunately, when a company is thinking of relocating out of state. But it does need to be more far more focused, I think we can employ the $500 million more effectively.)

The Question From City Council Candidate Josh Skaller “Adopted”by Noticing New York As Its Own

Candidate Josh Skaller’s question was:

Given delays in construction and the difficulty they are going to have actually to bring the Atlantic Yards project about and given the amount of money being spent on Atlantic Yards, couldn’t that money be better spent on other smaller projects, such a smaller local jobs? Especially given the need for direct job stimulation in New York?

Ms. Lago’s on the record response to this question is:

We expect that the AY project will generate a substantial number of construction jobs - commencing in 2010 - as well as permanent jobs once the arena and project get built out.

The response while vague actually provides some real news: The project won’t commence until 2010. Notwithstanding the ever-receding commencement dates that have been officially offered heretofore, that’s a later date than anyone has previously talked about.

Some Other Questions We have For Ms. Lago

As can be noted from Ms. Lago’s on the record response to our question, “the expected benefits to be generated from the project” include “the removal of blight.” Based on a chat we had with Ms. Lago after the breakfast’s Q&A concluded we also asked ESDC press office for more information as to Ms. Lago's impression, based on her personal experience, that there is blight in the neighborhood around Atlantic Yards. In answer to this, we have so far been informed that Ms. Lago likes to bicycle in Brooklyn. This limited answer does not fully cover what Ms. Lago told us about how she formed her personal experience-based impression that there is blight in the neighborhood. We want to know when her personal impressions were formed and we are waiting for more information about this. Also, what particular areas were involved in contributing to Ms. Lagos’ personal impression?

Another Week, Another Breakfast With Ms Lago

This week, as noted, there was another breakfast where Ms. Lago discussed development and Atlantic Yards. The breakfast featured the heads of the State and City development agencies, Ms. Lago and Robert Leiber, respectively.

We weren’t able to attend, but we heard about it through WYNC reporter Matthew Schuerman. He wrote about it and was interviewed about it on Brian Lehrer immediately afterward. (See: WNYC News Blog, Projects Whose Names None Dare Speak, by Matthew Schuerman, April 14, 2009, and listen to The Brian Lehrer Show / April 14, 2009 / 2,000 and Counting, Tuesday, April 14, 2009.)

A lot of the same ground was covered as the previous week with the same projects being mentioned. There were, however, some slight, but critical variations.

Atlantic Yards, (et al), “Not Dead yet. . Far From Dead. . . Supposed to take Lots of Time. . Plenty of Years to Go”

Has ESDC known all along that Atlantic Yards was going to take decades (as we suspect), longer than they were previously telling the public and longer than they were telling the courts in the litigation? If what Mr. Schuerman said on the Brian Lehrer show was true, then Ms. Lago was at this week’s breakfast transmuting her earlier “revelation” of a longer Atlantic Yards time table into something that, in fact, has been known for some time whether or not the public and courts were fairly put on notice: Speaking about Atlantic Yards and some other big projects “They were supposed to take lots of time to build and we still have plenty of years to go.”

Here is the whole of what Mr. Schuerman said on Brian Lehrer (at 7:55), saying that the two economic development heads were:

“basically assuring the New York Building Congress, a construction industry group here in New York City, that all these projects you hear that are on the rocks, Atlantic Yards, West Side Railyards, Willets Point: They’re not dead yet, in fact, they’re far from dead. They were supposed to take lots of time to build and we still have plenty of years to go. And stimulus funding did come up in regards to one maybe dead or maybe not dead project, Moynihan Station, on Manhattan’s West Side. Senator Schumer a while ago said that Amtrak should give $100 million that it has through the stimulus package - and give it to Moynihan Station. And the one bit of news, there wasn’t much this morning, but the one bit of news was Marisa Lago the head of the Empire State Development Corporation, saying that it was unclear whether any part of that project was shovel ready and would actually qualify for stimulus funding.

Mr. Schuerman’s short written account of the breakfast with its provocative headline “Projects Whose Names None Dare Speak” focused more dramatically on the tap dancing the public officials did to avoid mentioning the city’s big projects which are “the public private partnerships”and their big delays, particularly Moynihan Station. Mr. Schuerman wrote:

New York Times reporter Charles Bagli, one of the moderators, got impatient at one point, telling panelists, “I was struck by the fact that so many of the projects–the public private partnerships that dominated the headlines, that dominated the public approval process–were not mentioned or were barely mentioned this morning.”

* * * *

Marisa Lago, of Empire State Development, said Atlantic Yards was “clearly a challenging project in this environment.” [Sound like a scripted repeat of the earlier breakfast?] She said her agency was focusing on meeting a December 31st deadline to qualify for tax-exempt bonds. [Humm: What about that 2010 start mentioned above?]

On Hudson Yards, Robert Lieber deputy mayor for economic development, said it would be “decades before that is completely built out.” [If that sounds like a scripted repeat of the earlier breakfast, someone else was handed the script!]

Bagli, the reporter, brought up another hibernating project: Moynihan Station–which was first conceived in the early 1990s as a renovation of the Farley Post Office on Eighth Avenue, exploded in scope, and has since returned to smaller, but indeterminate, shape. (Bagli called it the project that “none dare call its name.” . . . .)

Lago, the state economic development chief, threw cold water on Senator Schumer’s idea to convince Amtrak to devote $100 million of its stimulus funding to the station, saying officials had not figured out what part of Moynihan could qualify as “shovel ready.”

There you have it: More than 15 years, and three-and-a-half environmental reviews later, Moynihan Station still isn’t shovel ready.

It doesn’t seem like the projects delayed by Bloombergian “public private partnerships” are getting much appreciation. The aforementioned Charles Bagli of the Times has another article about more delays at the Ground Zero redevelopment site (As Finance Offices Empty, Developers Rethink Ground Zero, April 15, 2009).

Speculation about Inspector Generals Investigating Projects Like Atlantic Yards If They Get Stimulus Money

Does is seem as if all this dancing around, failure and lack of frankness on the part of public officials doesn’t stand up to scrutiny? There may be more scrutiny coming. Among other things, the same Brian Lehrer program (with a different moderator standing in for Lehrer) concluded (at 16:25) with an interesting prediction of investigative journalism headlines in this area (if there are still newspapers around 18 to 24 months from now.):

Moderator: This calls into question, Rick Newman, the issue that I put off earlier which is transparency, which obviously has a lot of people concerned, where is this money going, how is it being spent, who’s accountable? What are you seeing now, on a national level to make sure that this process does unfold in a fair and equitable way?

Rick Newman: We’ve seen very little oversight so far because there’s just not enough information yet. But here is a prediction: In a year or eighteen months, I think, (if there are any newspapers left) we’re going to see some very interesting investigative headlines about portions of stimulus money being used for illicit purposes and for pet projects at the state and local level. And here’s why: I think that in Washington there is a great deal of oversight. You know, it’s practically a cottage industry; you’ve got the Government Accounting Office, you’ve got all these subcommittees in Congress, inspector generals in every department of the federal government - - Not so much at the state and local level where oversight tends to be more lax and, you know this is kind of a feeding frenzy - - And I think the Obama administration knows that. And I think they are trying to find the right balance between flushing money into the system which is one way, one of several ways, to help get the economy started and getting it out throughout the country, which you have to do, and getting it out quickly. And I think they are kind of making a deal with the devil by accepting what is some inevitable waste, fraud and abuse. So by the time we start to hear about this in eighteen months or two years, if we are lucky the economy will be back on its feet, and Obama is probably gambling that he will be able to say, “Hey look, we kick-started, we jump-started the economy, we will look into this, prosecute it if necessary but things are going good.” We’ll see what happens. It’s going to be interesting because if that time line plays out that will be right around the time of the 2010 elections.

Mr. Newman’s prediction reminds us of what we wrote about how multiple inspector generals might be actively investigating Atlantic Yards if stimulus money is ever used for it:

It is interesting when just one office like a State inspector General’s Office has jurisdiction to look into improprieties. They may ignore them or choose to be lethargically inactive. What may raise interest sufficient to get an investigation rolling under one state administration may differ from another administration, and vice versa. We have noticed, however, that the dynamic often changes significantly when at least two such offices share jurisdiction over a matter: Casual disregard of a matter’s significance recedes as an option and competition can take hold. We certainly don’t ever want to see Atlantic Yards put on a list of projects to potentially receive federal stimulus money. But if that were ever to happen, a shift in the dynamic of who wants to investigate what and when and with how much vigor could cause things to become very interesting.

(See: Thursday, February 26, 2009, Dear Eliot, . . . other things kept undercover may bear investigation.)

Earlier on we spoke of our disquiet with the idea of surrounding our public officials with concentric circles of access, with those being closer in having access to greater candor about what is going on with the development process in this city. We find objectionable the idea that as you go further and further into these circles, more “truth” is available and that it’s not until you have accessed the innermost concentric ring that real truth is available. Unfortunately, the reason we think that there is no candor is because the truth would be so objectionable to the public if revealed. That makes the prospect that the truth might come out through a future inspector general’s investigation exceedingly interesting.