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

The Craftily Negative Promise Offered For Bonds Being Sold For Nets Arena: It’s Not “Assumed” Islanders Hockey Team Is Coming to Basketball Arena

This post has been updated to include additional analysis. We first posted with all the pictures. The pictures spoke so well for themselves we wanted to get them up without delay. (Click on any image to enlarge.)

In a marketing analysis commissioned by Forest City Ratner that has been made part of the Barclays Center Arena Preliminary Official Statement prepared by Goldman Sachs to market bonds for Forest City Ratner’s Nets arena bonds it says:

For purposes of this analysis, it has not been assumed that the New York Islanders would relocate to the Barclays Center.

(See: Friday, December 04, 2009, Market analysis (commissioned by Ratner) suggests arena would have no trouble attracting events, might even host hockey.)

This we-mentioned-but-we-can't-promise language is official statement language intended to keep people off the hook legally, but it does serve to introduce a definite (positive) possibility that, “Gee, just maybe, the Islanders will relocate to the Barclay’s Center.” In fact, this sentence follows another rather silly sentence that makes it sound like it would be fairly easy for the Islanders to relocate to the basketball arena:

If built as planned, the arena would need to be retrofitted to accommodate the ice-making abilities the NHL requires for its franchises.

"Ice-making abilities the NHL requires of its franchises"? Sounds so official! And so simple! But silly: Like you wouldn't expect a hockey team to play on ice? But is it just as simple as putting in some ice as this language suggests?

We think that disguises the bigger issue of bringing in the Islanders; whether the arena is actually large enough to do so.

Fitting Examination of the Suspect Promise in the Ratner/Goldman Bond Sale Document

Would a hockey rink fit? We think schematics posted by Atlantic Yards Report today probably answer that question in the negative. Evaluate the information and images we have to offer on this score. When you’re done you may also conclude that statements put into Goldman’s Preliminary Official Statement to help market the bonds are a joke (as well as misleading).

First, let's compare. How big is a basketball court in yards? An NBA basketball court is 94 feet x 50 feet. (31.33 yards x 16.67 yards) How big is a hockey rink? More than twice as long and 70% wider. The official size of a hockey rink is 200 ft long and 85 ft wide. (It is also surrounded by "boards" made of wood or fiberglass which will be not less than 40" high, and no higher than 48" above the ice surface. “Any variations from any of the foregoing dimensions shall require official authorization by the League.”
At the outset of this post we had a composite of images from Wikipedia that shows the comparative sizes of a basketball court and a hockey rink which we repeat above.

Below is the schematic of the proposed Forest City Ratner basketball arena.
Click on the image to the right if you'd like to see the larger version of the above image made available by Atlantic Yards Report today (Monday, December 07, 2009, Comparing the Gehry arena outline/orientation with its successor, thanks to an Ellerbe Becket interior design) click on the smaller image on the side.

Below is the schematic of the proposed Forest City Ratner basketball arena with the comparative basketball court and hockey arena overlaid with the basketball court in the center.
Below is the schematic of the proposed Forest City Ratner basketball arena with the comparative basketball court and hockey arena overlaid with the hockey rink in the center.
Below is the schematic of the proposed Forest City Ratner basketball arena with alternate overlays of the comparative basketball court and hockey arena overlaid that may help to envision more clearly how much is lost in terms of seating and also, apparently, functional access to the arena.

Consistent With Previous No Hockey Assessment

Previously, Atlantic Yards Report wrote that “inside sources” said that the redesigned arena would not accommodate hockey. This received public focus and became an embarrassment for Brooklyn Borough President Marty Markowitz when he subsequently made remarks that assumed the smaller redesigned arena would still accommodate the Islanders hockey team. (See: Thursday, June 04, 2009, Guess what: the Brooklyn arena, accommodating Ratner's short-term goal, would be too small to fit in hockey and Thursday, October 08, 2009, From hoops to hockey? Markowitz, contemplating Islanders' move to Brooklyn, disregards the planned arena's limitations.)

Why Mentioning Hockey Team as Real Possibility Is Material to sale of Bonds (& Moody’s Sizable Mistake)

We doubt that resurrecting a possible promise that the Islanders could come to the arena was put into the Forest City Ratner/Goldman Sachs Preliminary Offering Statement to assuage Marty Markowitz’s embarrassment. The reason why the question of whether the Islanders could actually relocate to the arena is very material to the sale of the bonds (and to the bonds needing a new PACB approval that the state Comptroller should scrutinize) is because the cash flow projections for the arena are apparently weak because so few events can be projected to be held in the arena. There will be only a projected 200 events a year in the arena. Related to this is the fact that somehow Moody’s Investor’s Service seems to have made a sizable 11% cash flow mistake in the analysis of how many events there will be. One has to wonder how that happened. It most certainly involves the human intermediaries highlighting facts in their communications. (See: Wednesday, December 02, 2009, Ratings agency Moody's, asked why it assumes 225 events a year at the AY arena, won't discuss it.)

It could help reassure Moody’s that their mistake was perhaps less significant if hockey were actually a real possibility for the arena. National Hockey League teams play at least 82 games a year in the regular season and including playoffs they play at least 4 four more games, with 110 games being the maximum number of games played including both playoffs and the regular season. That means that if a hockey team plays in an arena, the team plays a minimum of 43 home games per year and as many as 55. But if a hockey team can’t play in the arena those numbers are big potential numbers to subtract from alongside the 200 to 224/225 events Moody’s was looking at.

Hockey, Bond Risk and Loose Ends

We previously wrote about how the fact that a hockey team apparently can’t play in the Nets basketball arena involves a material increase in risk. That was when we were writing about the sloppiness and extraordinary number of loose ends that plague the proposed issuance of these bonds. (See: Wednesday, October 28, 2009, So Many Unchecked Approval Boxes: Why Any Sensible Bond Buyer Should Probably Steer Clear of Buying Atlantic Yards Nets Arena Bonds and November 1, 2009, ESDC’s Bond Buyer Happy Talk About Restructuring and Refunding Arena Bonds.) More recently, others, like Neil deMause of Field of Schemes, have commented on how close to the financial edge this transaction is. (See: As Atlantic Yards Gets Pricier, How Much Red Ink Can Ratner Absorb? By Neil deMause in Atlantic Yards, Friday, Dec. 4 2009.)

We were writing in part about the risk to the bondholders of a transaction slapped together at the last minute but we were also writing about how that extra risk means that this is a far riskier and very different transaction from the one the Public Authorities Control Board approved. For instance, 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. (See: Saturday, October 03, 2009, Did the ESDC board members know they were approving a 675,000 sf arena?) And at the time the PACB issued an approval the arena, at $637.2 million, was projected to cost only a fraction of the $1.1 billion (including infrastructure) it is now projected to cost according to the recent disclosures of the Preliminary Offering Statement.

This means that the PACB needs to be re-reviewing the transaction to consider whether it should still give its approval to a transaction that now involves such an escalated risk. Develop Don’t Destroy Brooklyn has written to the state comptroller pointing out that the comptroller has concurrent responsibilities in this area that it would be dangerous for him to shirk. (See: Paterson, Silver, Sampson Must Vote on Atlantic Yards Financing, For Immediate Release: November 19, 2009) So far the comptroller has not stepped in to alter the transaction's path toward debacle. It will be telling if nothing is done and the bonds default.

We have previously noted that fictions about the Atlantic Yards mega-project have been continually foisted on the public with a Ratner-comes-first mentality. Those fictions have been tolerated by our public officials and sometimes collaborated in by them. We have therefore wondered what kind of transaction will be foisted upon the buyers of the Ratner arena bonds. (See:Wednesday, November 25, 2009, Picturing What Could Have Been Said If Public Officials Accepted Public Comment at the Atlantic Yards Bond Approval Meeting and see also Tuesday, December 1, 2009, Unfair Substitution of Fiction For Fact in the Atlantic Yards Dialogue.)

What Is the Purpose the Craftily Negative Promise of Not "Assuming" the Islanders Hockey Team Will Come to Basketball Arena?

Why does the Forest City Ratner/Goldman Sachs Preliminary Official Statement say that bringing a hockey team to the arena is as simple as installing ice-making equipment? Is that representation true? Or is it pure hockey-sales hokum?

Looking again at the schematics, it looks as if the only possible way to get a hockey rink into the arena would be to raise the floor of the hockey rink many feet up in a bowl-shaped seating area. The good news is that would leave plenty of room for the “ice-making abilities” (equipment) underneath. But wouldn’t this also eliminate or block most of the functional access to the arena? Wouldn’t it eliminate a huge percentage of the seating in what is already very small arena? (East/West it looks like approximately 50% of the seating rows about 26 out of 52 rows of seats drawn in the Ellerbe Beckett schematic would be lost.) How possible is it really to have a second level ice floor raised so many feet above the main floor?

So, readers give us your thoughts: Was this crafty negative promise in the bond sale documents accurate information intended to carefully convey the situation as it actually is? Is the main hurdle to bringing in a hockey team truly just the practical impediment of investing in some “ice-making abilities” as represented or is this a cold-blooded snow job? Maybe this is just an easy-to-identify example of the Ratner/Goldman team trying to use every trick in their book to get these bonds sold and, if it is, what other tricks have they got in their playbook? With Moody’s apparently already having made one big mistake, it doesn’t look as if the rating agencies will be reliable assessors of risk on this one. Time will tell: We’ll see what the Ratner/Goldman team manage to get away with. Or maybe they won’t.

Unfair Substitution of Fiction For Fact in the Atlantic Yards Dialogue

A prevailing hallmark of the promotion for Forest City Ratner’s proposed Atlantic Yards Brooklyn real estate mega-monopoly is the extremely unfair way that fiction has been routinely substituted for and intermingled with what are theoretically the actual facts. Not only have the fictions enlisted to support this abusive eminent domain taking been patently false factwise; they have for the most part not even been believable.

Things That Are Not True About Atlantic Yards

One supreme work of fiction in the mix has been the AKRF “blight” study. With high-end condominiums recently developed and built within and immediately outside of the megadevelopment’s footprint it is clear that there was no blight. Another unfortunate way that the intrusion of fiction has been amplified is that for the Court of Appeals decision its official “record” of non-facts was closed as of late 2006 by which choice the court ignored all sorts of conspicuous subsequent events that contradicted the fictions on the record.

Here is a list of other significant fictions that Forest City Ratner and the state officials servicing that firm have unfairly intruded into the public discussion. The list is not exhaustive. To make it so would be a difficult challenge.

● That the Ratner mega-monopoly is a public project

● That public officials working on the megadevelopment are looking out for the public interest

● That project will provide public benefit. (The truth: The basketball arena, the only identified portion of the mega-project about which anything is yet known will be at least $220 million net loss to the public and the rest of the project can readily be projected to be a net loss as well, since the mega-monopoly status conferred upon the developer decimates the public’s ability to subsequently negotiate for public benefit. Newly released information that state agencies were covertly planning the issuance of an additional $400 million in tax-exempt bonds means that the calculated net losses to the public could be driven even more deeply into the red if that now disavowed plan is reactivated.)

● That the megadevelopment is NOT driven primarily with an intent to benefit the developer (at the public’s expense).

● That the project will provide a significant amount affordable housing and is well designed to do so

● That the mega-project design involving the shutting down of streets and avenues in order to gift them over to the developer is a good design

● That it won’t almost certainly be decades (perhaps 3 to 4) before the mega-development replaces the swath of neighborhood it is tearing down. (The truth: There are likely to be vast parking lots for decades.)

● That there is reasonable assurance about what the developer will ultimately build or is committed to actually provide

● That politicians like Bloomberg who have promised not to give the mega-project more subsidy won’t surreptitiously keep slipping the project more subsidy nonetheless

● That Forest City Ratner has ownership and control of much more land than it actually has such as such the property it tried to take through collusive action from Henry Weinstein

● That there is crime in the area of the site anywhere other than in developer’s own shopping malls

● That there are no other developers who could develop portions of the site interested in competing with Forest City Ratner

● That Atlantic Yards is somehow different from comparable situations like that the one in New London, Connecticut, where after years of litigation and a perhaps more than a hundred million dollars to bulldoze a taxpaying neighborhood (all blessed as part of the “well considered plan” that was the subject of the U.S. Supreme Court’s infamous Kelo eminent domain opinion), Pfizer, the private entity that was the central reason for the destructive takings is abandoning the cleared site

● That it wasn’t clear that the public in modern-day terms and with a modern understanding of the issues wanted the state constitutional protection against eminent domain abuse to remain intact

● That there can’t be any constitutional protection afforded against eminent domain abuse in New York State because when interpreting such fundamental Bill-of-Rights protections the judiciary must defer to the legislative and executive branches which, according to the New York Times recent editorial assessment, is up for sale on a “pay to play” basis with few or “no limits.” According to the Times:

. . . big money rules in Albany. Big business, big unions, and any wealthy individual or interest group can buy access, block reforms, and sometimes even write their own laws.

(See: Editorial: It’s All About the Money, published: November 29, 2009)

In other words, these Bill-of-Rights protections for the individuals aren’t even getting erased from the state constitution (and the federal constitution) by courtesy of a majority vote of the community (which would be unobtainable); they can be bought and paid for, plain and simple, by anyone with access and a big campaign check.

Are any of the above-listed fictions believable? Not if you are paying attention to New York politics or have even an ounce of skepticism in your body. Are any of the above actually true? No, none these promulgated fictions are the least bit true.

How Unfair? Bruce Says “Supersize Me!”?

How unfair is it to mix facts with fictions when engaging in the public debate? Consider this story we’d like to tell about an exchange between an New York State official and a lawyer that conveys how entirely unfettered eminent domain abuse will now be in New York.. . . . . It is amazing what can come out, at a meeting open to the public, when state officials and those they hobnob with carelessly chat, thinking they will not be overheard or stand too close to an open microphone or a running recording device.

As you may know, last week we were at the offices of the Empire State Development Corporation for the meeting of the BALDC subsidiary agency the ESDC controls. BALDC is being used as a tool by ESDC to issue tax-exempt bonds for ESDC’s financing of the Atlantic Yards basketball arena. Last Tuesday the BALDC board of directors met to authorize issuance of tax-exempt arena basketball bonds. (See: Wednesday, November 25, 2009, Picturing What Could Have Been Said If Public Officials Accepted Public Comment at the Atlantic Yards Bond Approval Meeting.) The same day the Court of Appeals, the state’s highest court, released its opinion that eminent domain can be abused to create the Ratner mega-project. Naturally, the decision was something to talk about.

To start, some necessary background: First, let us remind you that we have pointed out how the purpose of Atlantic Yards is to give developer/subsidy-collector Forest City Ratner an unprecedented monopoly on a swath of Brooklyn real estate that eliminates the otherwise burgeoning competition in their own back yard. Next, you need to know this: In the reception area of its One MetroTech Center headquarters Forest City Ratner displays a full wall-sized live camera projection of the Atlantic Yards site. It has been pursuing a bidless acquisition of the site since at least June of 2003. From time to time the angle from which the site is viewed in the reception area changes, but whatever the shift in angle the displayed land that Ratner covets is the same.

Hard as it is to believe, it is absolutely true that Ratner displays the property in his office reception area. Of course, the land displayed isn’t owned by the Ratner organization, but it nevertheless is displayed in their reception area, the way other real estate firms would display their actually conquered assets. If you doubt us ask: Those who go up to visit Ratner know this. (We could cynically observe that Ratner ought to also mount on the wall as trophies a few counted-upon politicians, Mayor Bloomberg and Governor Paterson included. He can brazenly expect to get his land only if he considers them in his pocket. It will probably serve, however, simply to mount as wall plaques the myriad news stories of how readily Bloomberg and Paterson have capitulated in the facilitation of extra giveaways for the mega-project.)

The above background now provided, here for your discerning evaluation is this account of an exchange after last Tuesday’s court ruling. (FYI: People on the inside of these transactions can be inclined to regard the behavior of others on the inside with a certain amused casualness.) Here’s the exchange:

So he says to [Bruce] Ratner, “I guess with today’s Court of Appeals decision you finally get all that land* you’ve been projecting on your reception area’s wall.” Ratner doesn’t miss a beat: “Actually, with this Court of Appeals decision I’m going to have to get a bigger wall!”

(* This is technically incorrect. The Court of Appeals decision applied only to the half of the land needed for the arena that Ratner is seeking to acquire via eminent domain. Another half of the land needed for the arena is coming from the MTA and there is an entirely separate lawsuit brought by legislators and community groups to block any transfer of it to Ratner since he never bid for it and the land was never appraised as required under the provisions of the Public Authorities Accountability Act that were specifically intended to prevent such favored transactions. Further, other aspects of the eminent domain litigation are still in court, while another suit is being brought to reinstate claims based on the new, now substantially changed facts respecting Ratner’s attempted taking of the property.)

What’s Truly Most Unfair?

Is it believable that Ratner made this statement about needing to “get a bigger wall”? Yes, it is absolutely believable. This is the same man who (in what was apparently intended to be a puffy PR interview piece with Crain’s during the pendency of the Court of Appeals decision) said that the public didn’t have a right to know what the project he might build might consist of: “Why should people get to see plans?" he said. "This isn't a public project.” (See: Tuesday, November 17, 2009, Be Careful What (Change of Law) You Ask For; You Might NOT Get It: Atlantic Yards and 1967's Rejected NYS Constitutional Amendment.)

It is therefore absolutely believable that Ratner said he needed to “get a bigger wall” but is it really true that he said it? We can only guess. We haven’t bothered to contact the Ratner office to inquire. (We’ll leave it to others to confirm what statements Mr. Ratner might actually have made about his wall after the ruling, or those he will admit to.) We suspect that it would be rather awkward for Ratner to talk about his wall-of-desire in such conversations. Ratner is also likely to have trouble denying that he has actually made remarks like those in the exchange related. But whether or not Ratner actually said he needed to “get a bigger wall” the fact of the matter is that with last week’s Court of Appeals decision Mr. Ratner probably is speculating on the further enlargement of his holdings through eminent domain. And even if he didn’t actually say that he needs to “get a bigger wall” we wonder which is really more unfair; for people to start believing that he said it when he didn’t or that his company has been involved in interjecting into the public debate the far more multitudinous falsehoods that it regularly provides?

Is it actually true that Ratner said he needed to “get a bigger wall”? Perhaps we can helpfully analogize to the words cleverly used by lawyers defending the findings of “blight” on Ratner’s behalf to describe the non-existent blight of properties they wanted to seize. They said that properties "were found to have indicia of blight" because they had (here’s the indirect language they used) “one or more blight characteristics.” (See: Thursday, October 15, 2009, At eminent domain oral argument, judges skeptical of both sides; court spends more time on process, low-rent housing issue than AY as sweetheart deal.) Applying this formulation to Ratner’s saying that he needed to “get a bigger wall”: It has the characteristics of truth or what can be referred to as “one or more truth characteristics.”

Promising Predictions as Bloomberg’s Political Plaything

Knowing the “No”s of November, the Election Month

Back in September we commented skeptically on predictions that the Brooklyn Bridge Park would be opening by the end of the year. Some of what we said:

The public is being further titillated by the projection that spurs having been kicked so that the first phase of the long-delayed Brooklyn Bridge Park will be open by December, just two months after the mayoralty election. Really?

* * * *

Notably, much like the Times advises public officials to do in the case of Moynihan Station, the city is now suddenly moving Brooklyn Bridge Park forward (we’ll gauge how fast when December finally rolls in after the election) because it is setting the extraneous focus on development aside.

This was part of piece we did wherein we noticed a rash of new Bloomberg pre-election promises about development while commenting that by falling over himself to put developers ahead of the public interest Bloomberg had been particularly inept at actually producing development. (See: Wednesday, September 23, 2009, Getting Bloomberg Out of The Way to Honor Moynihan.)

It turns out that we didn’t actually have to wait for December to find out about the Brooklyn Bridge Park opening. We didn’t even have to let the election month of November conclude to find out. The mayoral election was November 3rd. On November 24th, a mere 21 days later, the Brooklyn Eagle ran a brief story that the opening of Brooklyn Bridge Park’s Pier 6 is being postponed. Now we are told that “It won’t be ready until spring.” (See: B’klyn Bridge Park Pier 6 Opening Postponed, by Brooklyn Eagle, 11-24-2009.) The story said only that Pier 6 won’t be open in December but since the story said that the reason that the opening is being delayed is “because they say a harsh winter could damage the facilities” it is entirely possible that we shall soon find out that the reasoning applies equally and that the opening of Pier 1, the other pier that was promised to be opened in December is also being postponed.

(Below is a picture, appearing with its original caption, of Pier 1 that we included in our September story followed by an up-to-date photo of the progress.)

(With about nine more weeks to go before its announced completion date, this is what Brooklyn Bridge Park’s Phase I looks like today.)

Predictably True: Election After-Math On NYC Budget

What a difference a matter of weeks can make if it takes you from pre- to post-election. We found out more quickly, only a week after the election, that Bloomberg was cutting the city budget almost 12%, the steepest cut since the cuts in response to the 9/11 crisis. (See: Bloomberg budget ax will cut to the bone, by Sally Goldenberg and David Seifman, November 11, 2009 and Mike's budget chopping spree, by Sally Goldenberg, November 17, 2009.) The cuts applicable to nearly all agencies were announced to take place in two phases (does that make either of them seem smaller?): 4% in fiscal year 2010, and 8% in FY 2011. But this was the announcement that was immediately post-election. Does anyone want to bet that the announcements of how much is actually being cut will also occur in two phases with additional cuts being announced in January when more serious budget deliberations are underway? When the Bloomberg administration announces the additional cuts, can they then get away with saying that they are just a percentage adjustment of the figures previously released or will the press add it all up together and announce that the cuts are 15%+ (or whatever it is) in cuts to the budget announced since Bloomberg won the election in November?

More Election After-Math

Some other numbers have received their post-election release as well. The current tally is that Bloomberg spent at least $102 million in direct campaign expenditures to get elected to his extended third term. (See: November 27, 2009, Bloomberg Spent $102 Million to Win 3rd Term, by Michael Barbaro.) Since this figure is post-election (as of Nov. 26) it will be close to the final figure although the Times points put hat it does not yet include Bloomberg’s “storied bonuses to campaign workers, which can top $100,000 a person.” Some of his storied bonuses are much higher: In 2005 he gave his campaign manager, Kevin Sheekey, a $400,000 bonus and Patricia (“Patti”) Harris, his top aide currently First Deputy Mayor got $350,000 for less than three month’s work. (See: Bonuses Uncertain for Bloomberg Election Aides, by Michael Barbaro, November 6, 2009.) Accordingly, our last Noticing New York estimate that he would spend $105 million looks like it was pretty dead on target, though near the end of the election we passed on word that the Times was estimating the incumbent mayor was “on pace to spend between $110 million and $140 million.” (See: Sunday, November 1, 2009, Bloomberg vs. Thomson (54% to 29%?): It’s Not What You Think. (For Instance the “P” is Missing and What Might “P” Stand For?).)

No matter that the Times’ last projected estimate was on the high side, it is still became a case of “never before in history” in many ways quite a while ago: Never has anyone in the United State of America spent so much of their personal money to hold political office, never was NYC’s mayor the wealthiest man in the city let alone become such with a multi-fold increase in wealth while serving in the office, never has a mayor had so many mind-boggling conflicts of interest with a personally-owned company that does business with so many of the same companies that the city itself has transactions with. No matter as well, because while our best estimate was that Bloomberg may have spent $102-105 million on direct campaign expenditures, these direct expenditures were dwarfed by his indirect campaign expenditures such as political contributions to buy endorsements ad charitable donations for political purposes. Counting those, we have noted, the total expenditures could be more on the order of $1 billion for Bloomberg’s third term.

Dueling Predictions

As our prediction on Bloomberg’s campaign spending was fairly dead-on accurate, let us try a few more predictions to duel with the guile of the prettifying before-the-fact promises that have been offered by the mayor. Try this one on for size: Columbia University will announce that it is deferring its plan to develop the swath of West Harlem for at least five years and at the same time is likely to announce that it is having problems technologically effecting the Jules Vernian giant underground bathtub basement that it used as a rationale to seize property through eminent domain. When will Columbia announce this? Not during the pendency of the litigation they are currently trying to win in order to uphold their abuse of eminent domain. They will hold back on the announcement as long as they can, perhaps hoping that by struggling longer with the bathtub technology and maybe shifting to a new architectural team they can conquer the problem before they have to acknowledge failure.

The reason that Columbia won’t announce anything like this during the pendency of the litigation is because litigations involving state agencies these days are more than a little like elections: Up-front government officials and the real estate development entities they go out of their way to assist are willing to say anything to win a lawsuit in the belief that once they have won it makes little difference that what they represented and promised wasn’t really true at all, irrespective of subsequent events disclosing the truth.

Witness the spectacle of that portion of the Atlantic Yards litigations that the Court of Appeals, the state’s highest court, just embarrassed itself with. The court managed to uphold a terrific abuse of eminent domain by deferring to a fairy tale version of the facts cooked up by state officials in service to the monopoly-seeking subsidy collector involved (Forest City Ratner). A key mechanism they used to do this provides an amazing example what we are talking about: The court based their decision on a “record” of non-facts that was officially closed as of late 2006, while they ignored conspicuous subsequent events that have continually demonstrated how false the facts of that “record” are in almost every respect.
The Amazing Carnage

Right now there are many litigations going on in efforts to stop Bloombergian real estate development: the aforementioned challenge to the Columbia University expansion, Atlantic Yards (a good several law suits), Willets Point, the Rudin/St. Vincent’s sell-off of the Greenwich Village Historic District, and the documented lying of finagling public officials on Dock Street. Many of these lawsuits involve the same conundrum of who are the courts going to believe, public officials creating a record of fictitious predictions or the contradicting realities that emerge. We won’t try to predict the outcome of all these litigations, but we will predict something else. While Bloomberg (if not stopped by lawsuits) may succeed in creating mega-project holes in the ground around New York, he will not in his third term as mayor succeed in creating successful developments to fill those holes.

Why do we confidently predict such carnage at sites like Coney Island, West Harlem where Columbia is taking over, Willets Point and Atlantic Yards? Because during the eight years that Bloomberg has been mayor (good economic years with a robust real estate market) Bloomberg has not been able to capitalize successfully on the simpler development opportunities that were already his to take advantage of: Ground Zero, Queens West, Moynihan Station (the new Penn Station) and, where we started. . . Brooklyn Bridge Park. Which brings us back to the words with which we concluded that article where we looked skeptically at the idea of the December Brooklyn Bridge Park openings together with many other promising predictions that administration officials furnished to the public intending that they be believed only for a limited period of time, only just long enough for Bloomberg to get a grant of power from the electorate in the election. This is what we wrote:

Some of Bloomberg’s developments may have been held up by litigation, but mostly they have been held up by his own misplaced focus, and if some have been litigated against, that too is largely the result of his own misfocus which has resulted in projects, often mega-projects, that are on top of everything else incredibly poorly designed.

It does not seem to us that Bloomberg (nor either his cohorts in development malfeasance) is a man to whom the electorate should be giving grants of power based on prettifying prognostications of what his destructions will lead to, whether those prettifying predictions come pre-election, pre-City Planning Commission, pre-City Council approvals, or pre-court litigations.

Schumer's Multi-Monopoly Positions Unhealthily Muddy Debate on an Issue With Left, Right and Center Appeal

Global warming, health care reform, complex scams to transfer wealth to already rich politically connected subsidy seekers: It can all get quite complex and the vested interests that oppose the public good know that they can tranquilize the public into soporific political inaction if they confuse the debate sufficiently. Health care reform is a case in poignant point: What should have been a relatively clear dialogue about what was good economics and best for the people has bogged down in confusion, with polls showing a shift. Initial strong support for health care reform has ebbed as Americans are increasingly misled and bewildered by manufactured non-issue, like “death panels.” Democrats like New York Senator Charles Schumer are attempting to interject clarity into the discussion, but politicians who are compromised by their inconsistencies have trouble delivering a clear message. Remember the amount of money spent to create public confusion is immense.

Monopolies: A Chance to Find Evil Left, Right and Center

We bring this up because this week we found Senator Schumer talking about an issue that is near and dear to our economics-loving heart: The evil of monopolies. No dummy, Senator Schumer is apparently quite aware that the issue should appeal “left, right and center” across the entire political spectrum. Problem is that Senator Schumer has a monopoly-supporting skeleton in his closet, one we have been speaking out against strenuously: Forest City Ratner’s proposed mega-monopoly in Schumer’s hometown of Brooklyn, New York. Jeepers, not only is Atlantic Yards in Schumer’s own borough, he might even be able to see it from where he lives in nearby Park Slope. Schumer can’t dodge knowledge of the ugly details of this scam.
(For more on image of proposed Forest City Ratner mega-monoploy above, see: Saturday, November 21, 2009, Mapping Out Forest City Ratner’s Monopolistic Strategy of Subsidy Collection.)

WNYC and Face the Nation on Sunday

Sunday afternoon WNYC’s radio news introduced other significant coverage (on All Things Considered) of the health care reform debate now at a critical juncture in Washington with a report on how Senator Schumer was emphasizing that the public option is an important part of having competition necessary for a functional health care system. We heard this introductory commentary from WNYC (emphasis supplied):

New York Senator Charles Schumer says health care reform that includes a public option can pass the Senate. He stresses a public option is crucial to guarantee competition:

WNYC then inserted a clip from CBS’s Face the Nation where Schumer had made his point earlier in the day. This is what the Senator said on Face the Nation (emphasis supplied):

Here’s the reason we need a public option. And we do, we very much do. The insurance industry is about the most highly concentrated industry in the country. In many states eighty-one percent of the insurance is by one company. In forty states two companies dominate. When there is no competition or very little competition, every economist left, right and center will tell you, the costs go way up. And that’s what’s happened here. So you need to inject some competition into the insurance industry. The best way to do that is a public option. And the program that we’ve put together is set up by the government, but then it’s on its own. There is no intent for it to compete unfairly against private insurance. . . . But I came up with the idea and the HELP Committee adopted it as well of a level playing field public option.

(Transcript available in addition to the video.)

Noting the quote was from the CBS program, WNYC wrapped up commenting:

Schumer says he is assuring his more conservative Democratic colleagues that the public option included in the Senate bill is "modest" and not the first step in a government takeover of the insurance industry.

Schumer is also reminding fellow Democratic senators that the bill would allow states to opt out of the public option.

He asks that they not prevent his constituents in New York from getting the public option they desire.

Schumer: Does He or Doesn’t He?

So does Senator Schumer believe in the evils of monopolies, like almost everyone in their heart of hearts does? Does he believe "his constituents in New York" deserve the protection of competition? If so, why does he support that the Atlantic Yards mega-monopoly? In our last post we made the point that “Once upon a time the U.S. Supreme Court went out of its way to say that one of the rare purposes for which eminent domain could be used was to break up land that was overwhelmingly concentrated in the hands of a few private landowners” yet public agencies supported by Senator Schumer are “doing the opposite: Using eminent domain to artificially concentrate monopoly ownership in the hands of Forest City Ratner.” (See: Wednesday, November 25, 2009, Picturing What Could Have Been Said If Public Officials Accepted Public Comment at the Atlantic Yards Bond Approval Meeting.)

Consider Who Is Telling You to Believe in Monopolies

Why would anyone believe that Atlantic Yards is good? Not because of the highly suspect studies funded at the instigation of and paid for by the developer. On Face the Nation Senator Schumer pointed out that “studies” bought and paid for by the industry involved ought to be rejected. Here is what he said about the health care reform study that Senator Jon Kyl was trying to promote as persuasive in the same Face the Nation debate:

Let me answer that. First the Lewin study, which Jon cites is widely discredited for one good reason--they’re fully funded by United Health, a health insurer.

Schumer went on to counter that the appropriate study figures to reference should be those of the Congressional Budget Office because “they’re not funded by anybody. They’re impartial and we both go by their readings.” Promoting the study of the CBO because they are impartial (which is definitely a good thing) is like, in the case of Atlantic Yards, promoting the figures of the NYC Independent Budget Office for the same reason: that they are impartial. These findings of the IBO which Bloomberg and the state agencies in service to the developer Forest City Ratner have summarily rejected says that the basketball arena those agencies are about to finance for the developer will be a $220 million net loss to the public.

Objections to the ACORN Endorsement, Left, Right and Self-Centered

That doesn’t leave Schumer with much reason to be supporting Atlantic Yards. It sort of forces one to go back to our story about how when the Senator was cornered about the subject of Atlantic Yards in a neighborhood barbershop he fled, saying that he had just accepted what ACORN told him about the project. (See: Monday, January 12, 2009, The Prospect of Caroline Kennedy as a New York Senator.) We previously discredited the way that ACORN sold out the community on Atlantic Yards but these days reliance on ACORN is not what politicians appealing to the left, right or center should want to be doing, given all the more recent events that have conspicuously brought to fore ACORN’s perpetually self-serving nature.

A Sad Forking Result

“Speaking with a forked tongue” was once frequently used as a term to describe lying. Whether or not it is strictly lying, speaking of the evils of monopoly as you follow a forking path, where sometimes you support monopolies while sometimes you don’t confuses the public dialogue. When the dialogue is allowed to be confused with such inexplicable compromises of integrity the wrong side wins far too often in this world.

Picturing What Could Have Been Said If Public Officials Accepted Public Comment at the Atlantic Yards Bond Approval Meeting

We were at Tuesday’s Brooklyn Arena Local Development Corporation (“BALDC”) meeting where that authority approved the issuance of bonds to finance the proposed Atlantic Yards Nets basketball arena. What is that agency in relation to the Empire State Development Corporation and its co-located sister agency, the New York State Job Development Authority? What makes it distinct? Or is it? Don’t ask unless you want to get into some needlessly byzantine distinctions that don’t exactly help the public understand or hold its government authorities accountable. If you do want to get into these distinctions and get an explanation for why this agency was trying to run off the radar without taking public comment or making information available ahead of time, read Atlantic Yards Report with all the gory details: Arena bonds authorization coming Tuesday: questions about transparency, PILOTs, and infrastructure spending remain (Monday, November 23, 2009).

Picturing Imperfect

We went to the meeting and were perfectly prepared to say something about the bonds being authorized for issuance but since the public officials there were not interested in public comment we brought images telling what we had to say, which we held aloft in succession as the meeting proceeded, right through to the bitter end. Below are those images, followed by the words that would accompany them if given the opportunity. Atlantic Yards Report covered the board meeting and our “brandishing” of our “mini-poster” messages in a post that also includes videos. The last of that post’s imbedded videos includes an interview we did with NY1 covering many of our concerns. (See: Wednesday, November 25, 2009, Arena bonds authorized, underwriter Goldman confident, but questions remain about rating, insurance, market.)

A Precedent Not to Be Proud Of

One thing to note first. Shortly before the 10:00 AM meeting began, word came down that the state’s highest court, the Court of Appeals, had decided against the plaintiffs in one of the many cases brought to oppose the use of eminent domain for Atlantic Yards. It was an important case and a significant loss in many ways. As a post in the The Volokh Conspiracy says:

The case is also significant because it is the first major state supreme court defeat for property rights on a public use issue since Kelo. Over the last 10 years, the tide had been going the other way, with more and more state high courts applying restrictive definitions of “public use” and forbidding economic development takings of the kind upheld in Kelo, including important decisions in Ohio, Oklahoma, and Michigan, among others. Hopefully, Goldstein will not be the start of a counterrevolution.

The people in the Empire State Development Corporation offices where the “BALDC” meeting was held were not gloating obscenely about the court decision. Why should they? They have nothing to be proud about. There is no reason to be proud of what they are trying to do at Atlantic Yards. They have no reason to be proud of the legal arguments offered to try to sustain their proposed abuse of eminent domain there and they have no reason to be proud of how they “won” the court decision which, because it consigns to the trash heap the protection of fundamental constitutional rights, has many people wondering if the decision in the state’s highest court was simply politically rigged like so much of what happens with Atlantic Yards. We will come back to spend some time on the “logic” (or lack of it) of the opinion offered by the court when it determined that the public should not be protected against politically connected developers. That will be in a later post.

Our Visuals and Putting Words to the Pictures

Here then are the visuals we held aloft at the meeting followed by the message we would have delivered if our comment had been allowed in words.

1. Why? Why are you financing something that will be $220 million net loss to the public?
2. And what kind of net loss will the rest of the Atlantic Yards site be to the public? You don’t know because you haven’t done the analysis and you have set public up for a big net loss by giving the developer a monopoly on site development options, freely renouncing your negotiating power.3. And why are you using the power of the government to consolidate Forest City Ratner’s monopoly on developing Brooklyn? Once upon a time the U.S. Supreme Court went out of its way to say that one of the rare purposes for which eminent domain could be used was to break up land that was overwhelmingly concentrated in the hands of a few private landowners. You are doing the opposite: Using eminent domain to artificially concentrate monopoly ownership in the hands of Forest City Ratner.4. There are of course many questions to be asked about why you are issuing bonds with so many tell-tale loose ends. We could ask you why, for instance you aren’t reviewing and approving the involvement of Mikhail Prokhorov as a proposed principal in this transaction?

5. Of all the multiple loose ends that make this so transaction dangerous, perhaps the most important to ask you about is this: Why are you financing an arena that is different from the one that the ESDC board and the PACB actually approved and which will be so much more risk for the bondholders? You are financing an arena which, among other things is so much smaller that it won’t be able to host a second team playing hockey.
6. Of course, you should be worrying that these bonds will default and consequently don’t deserve a good rating. A default will negatively affect the market for all New York issuers. But that is not all you should be worrying about. Moody’s has warned that the entire state is weeks away from a substantial downgrade of its credit rating if it doesn’t close its budget gap. Governor Paterson is asking the legislature to take steps to close that gap but who can take the governor seriously when on his behalf you are still pursuing this supremely wasteful financing that is driving the state into a deeper financial hole. You are responsible for the misapplication of billions of public money to Atlantic Yards.
7. The consequence of your misconduct doesn’t end here. Sometimes the question comes up whether the most productive use of our time is to address the kind of misconduct and waste by public officials we see here or to turn instead to issues such as global warming that threaten the entire planet. There is really no distinction: The selfish pursuit of things that don’t make economic sense, that harm the larger community so that one company with too much political power can destructively get more than their fair share of the pie is all part the same bigger picture.

8. Sometimes sports stadiums and arenas are worth a lot less than the public pays for them. Above the Silverdome stadium that just sold at auction for less than the price of a one-bedroom apartment.
9. Your Ratner-comes-first infliction of harm on the greater community should be a warning sign to anyone who might consider buying these bonds. What kind of transaction will you foist on them? What kind of song and dance will you use to misrepresent things to them? We know the fictions you’ve been selling us:

Ostensible, pretextual, is what you gave to us
Aweful vice, a Ratner heist, is what we’re loath to see

You made our lives preposterous, you can't blame us for feeling clamorous
Ostensible, pretextual, is what you gave to us

Obviously the conclusion above provides an appropriate musical accompaniment to our slide show.- So now you have, pictures, words and a tune to hum.

Going Weirdly From “Tutti Frutti” to “Rocky Road”

Before the meeting we were talking with one of the Goldman Sachs bankers involved in issuing the bonds, commenting that this must be the weirdest transaction on which they had ever worked. We were told that they had worked on some pretty weird transactions. We challenged them to name one as strange or involving so many oddities. Various other transactions were named. . . and discarded as candidates. We never came up with a transaction that even marginally approached being comparably strange. We commented that this transaction probably had within it every element of every weird deal that had been done anywhere else that strange things were going on in New York. Our banker mentioned that he sometimes tells people he does “Tutti Frutti” deals. Then he sighed, and perhaps realizing what was more apropos to this deal, he said, “Or I sometimes tell them I do `Rocky Road.’” “This,” we said certainly involves more than one scoop of “Rocky Road.” And god knows how many scoops of something else.

Press Conference on Bonds for More Expensive, Different Arena Than Approved, With Lower Capacity to Generate Income

After the board meeting was over there was a press conference where the Goldman Bankers and ESDC (“BALDC”) officials answered questions about the proposed issuance and marketing of the “Rocky Road” bonds. As Atlantic Yards Report reported, we asked about the fact that the bonds proposed to be issued are much riskier and are different from the financing approved by the ESDC board and the Public Authorities Control Board (“PACB”). The arena is significantly smaller, less functional and less capable of producing revenue, and much more revenue is going to be needed to pay for it because it is going to cost far more than the PACB was told. We thought it was interesting that Goldman bankers has said at the meeting that they were going to take the bonds out on “road show,” an atypical move that indicates to us that they view these bonds as an extreme version of “story bonds,” bonds that bondholders won’t feel comfortable buying based on what is in the offering statement unless it is supplemented with a lot of explanation, hand-holding and soothing about the transaction’s many ugly warts.

Question Dodging?

Initially one of the Goldman Bankers, Marvin Marcus (as seen in one of the videos), tried to block our risk question put to another Goldman banker, Goldman Sachs Managing Director Gregory Carey, saying that Goldman only wanted to take questions from “the press.” The tactic seemed particular unfair given that Mr. Marcus had told us only a half-hour before that he had actually been reading our work. We had only left it undetermined where he had been reading what we write, in Noticing New York, the Huffington Post, the New York Sun, the Brooklyn Paper, or a consolidation with a pick-up of a Reuters story or somewhere else.

What Would Jane Jacobs Do?

Atlantic Yards Report commented that with our sometimes multiple hats, which involve not only writing commentary but also asking questions and asking for accountability by via activist tactics we may sometimes make it more difficult to get answers to our legitimate and tough questions. Acknowledged. We do give consideration about how to structure our role. Noticing New York is a truth-seeking, truth-exposing endeavor. The model for what we do is probably closest to Jane Jacobs, who wrote extensive commentary on urban events and at the same time used devices to illustrate and contrast her point of view with the point of view (and sometimes false facts) that stage-managed events attempt to promulgate. We don’t think there are easy answers to how to report on events about which one may have a point of view except to be honest in reporting one’s point of view. We will continue to think about this. Meanwhile we think our visuals present questions that need to be asked and answered.

Dealing With Greater Risk?

Goldman’s Carey responded to our question about the extra risk as you can see from the detailed Atlantic Yards Report account saying, among other things, that there was “less leverage on this transaction” than with respect to the old transaction. “Less leverage” is often a way to reduce risk in a transaction when it is being acknowledged to be riskier, so in a way that could be viewed as an indirect acknowledgment that the deal, as should be obvious, is riskier than the one that was approved by the PACB and the ESDC board, but Carey gave a bottom-line, on-script answer that “we actually view this as a much more secure transaction.” In our view, the PACB didn’t approve such “less leverage” fix-ups of a risky transaction. Mr. Carey did not himself offer a point of view on the PACB approval saying he wasn't familiar with what the PACB approved.

State of Risk?

Relating to this question of approved risk, WNYC’s Matt Schuerman asked ESDC attorney Jonathan Beyer, ESDC Chief Financial Officer Frances Walton (“BALDC President) ESDC Senior Counsel Steve Matlin if the state would be willing to let BALDC’s Ratner bonds default when financial difficulties materialized. Here, reported in AYR, is the response he got, which though technically accurate bears some explanation:

"I don't know if I'd characterize it as willing," Beyer responded, "it's just that the documents do not require us to make any payments."

"This is a bondholder risk," added ESDC Senior Counsel Steve Matlin. "That's what the bondholders are looking at when they're purchasing bonds."

"That's not saying the exact same thing," Scheurman followed up. "You might actually decide, though you're not obligated, to bail out these bonds."

"That's speculation," Walton said, shaking her head.

What all this means is that although the bonds are issued by an authority that is a form of state agency, the bonds are non-recourse against the state itself, which means that the bondholders are at risk if these riskier bonds default. Because the state is not required to rescue defaulting bonds, it can technically walk away from them and it might. But if the state does walk away and lets the bondholders suffer when the bonds default, it will hurt the market for all New York State bond issuers, so the state may want to step in to prevent that from happening. Either way, the state takes a loss. That’s why the PACB was created to give prior review and approval to or prevent the kind of extra risky transactions that can provoke such problems from going out to market. Nevertheless, ESDC and BALDC want to avoid taking the inherently riskier transaction back to the PACB. In fact, they don’t even want to answer questions about the risk they are exposing the state and te bondholders to.

Questions About Transaction’s Greater Risk Left Unanswered

We asked the three PACB officials about the inherently more risky nature of this transaction involving a smaller, less functional arena than approved though it needs to somehow generate income to pay back a much higher construction cost. As Atlantic Yards Report details in its account, first they ignored me. Then they tried to avoid the question as not being from “accredited media.” Finally they walked away as we commented that we took this to mean that they had no response to our question about the greater and unapproved risk of the bond transaction the “BALDC” board had just authorized.

On old saying goes: “If you can’t stand the heat, get out of the kitchen.” Here we would adapt it as follows: “If you can’t answer questions about the risk, don’t issue the bonds.”

If you want to see in video form much of what we would have said in presenting our images to the state officials uninteresting in taking comment go to this video from Atlantic Yards Report (the quality of the video is better if you click on the first version of the video below which is from the AYR post- original videography by Jonathan Barkey).