Monday, February 8, 2010

Award of No-Bid Mega-Monopoly Means Forest City Ratner Hopes To Claim an Awful Lot of Housing Subsidy, ALSO Without Bid

(Above, a housing subsidy schedule for the Atlantic Yards mega-monopoly from which a greater total for subsidy figures can be calculated. Click to enlarge.)

Forest City Ratner is looking to glom onto an awful lot of housing subsidy with respect to its proposed Atlantic Yards megadevelopment. If you’re interested in knowing how much, this article attempts to close in on that figure. It’s in the neighborhood of about at least half a billion dollars, probably a fair amount more and the transaction has been set up so Forest City Ratner can blackmail the public for that money.

Atlantic Yards Report FOILs Atlantic Yards Arena Bond Sale Closing Documents

Thanks to the assiduous Freedom of Information Act work and analysis of Norman Oder, who is posting Atlantic Yards Closing documents on his Atlantic Yards Report, we are getting a much more detailed picture about how beneficial the mega-project deal is intended to be for Forest City Ratner. With each new unveiling of documents and the accompanying analysis we see more evidence confirming that the dominant purpose of the mega-scheme being effected by public officials is to serve the developer’s interest. See AYR’s January 26, 2010 (Tuesday) roundup article with it compilation of links, A round-up of news generated by the master closing documents (also covered by Develop Don’ Destroy Brooklyn: The Master Closing Documents, Revealed, 1.26.10), which links we are duplicating below (all seven articles were posted Monday, January 25, 2010):
New documents hint at potential affordable housing dodge: "all-affordable buildings" with no low-income units, but subsidized units at market rates

Is new subway entrance to arena block worth $50 million (as MTA claimed)? New mortgage doc says $28 million covers entrance plus Carlton Avenue Bridge

Did the city give Forest City Ratner $31 million more for arena land? Despite previous reports, the answer is yes (Updated)

Gotta get paid: BALDC bond issue fee dwarfed by payments to bond counsel and underwriting counsel

Finally, in landlord-tenant agreement, an official grant of arena naming rights; was there one in January 2007?

Agreement says Forest City Ratner must reinforce subway supports on its own dime, but does anyone know how much it would cost?

More details on the arena block, thanks to a new schematic, with building envelopes
See also (more recently):
• Wednesday, January 27, 2010, Despite promise of ten-year AY buildout, ESDC deadlines allow 12 years for Phase 1, 15 years to start platform, 25 years for full project
HDC’s $144 Million Second Mortgage Subsidy For Not Much Affordability of Units In Return

The first of those articles listed above is the one from which we obtained the “Combination Housing Subsidies”schedule appearing in the image at the beginning of this post. That schedule provides a better window than we have had before on the amount of housing subsidy Forest City Ratner will be angling to obtain by virtue of the control that government agencies are giving Ratner (without any true or effective bid) over a vast mega-monopoly of prime Brooklyn real estate. (Monday, January 25, 2010, New documents hint at potential affordable housing dodge: "all-affordable buildings" with no low-income units, but subsidized units at market rates.)

The “Combination Housing Subsidies”schedule sets forth a number of possible occupancy “scenarios” for the project but only one of those scenarios, “Scenario #1,” matches (with some discrepancies) the proposed occupancy of the mega-project that people have actually been talking and which was theoretically negotiated to the community’s benefit by ACORN. We say “theoretically” because the occupancy consists essentially of:
• Affordable low-income units that are required by the tax code and would have to be in the project anyway.
• An income band (right above the income bands that the federal tax code will require) where families with incomes from $38,407.00 or 50% of AMI to $46,087 or 60% of AMI would specifically be ineligible to get affordable units in the mega-project, and
• Units above that specified income band that would be essentially what you could expect the market, unassisted by subsidy, to provide in the area.
See our own graphic above (click to enlarge) showing that occupancy. For more analysis on this (including the fact that neither Forest City Ratner’s Executive VP Mary Anne Gilmartin nor ACORN’s Bertha Lewis, currently the CEO, were willing to explain why an occupancy schedule so favorable to the developer was negotiated) see: Wednesday, July 29, 2009, First Day of ESDC Hearings on New Sight-Unseen Version of Atlantic Yards: Some Noticing New York’s Testimony and Questions Asked, Thursday, July 23, 2009, The Hit and Miss of Last Night’s Public “Information” Meeting on Atlantic Yards, Friday, April 10, 2009, As AMI climbs, a significant slice of Atlantic Yards "affordable housing" seems to track market, Thursday, April 2, 2009, Jane Jacobs Atlantic Yards Report Card #14: Project Creates Population Diversity? NO

(Below the official schedule of income and rents released in July 2006 by Forest City Ratner showing adjustments for family size and not explicitly showing the missing income band denied affordable housing. It uses earlier, lower, out-of-date income figures and rents. Click to enlarge.)
To read more about how ACORN essentially shilled for FCR by negotiating no real public benefit, see: July 24, 2008, Falling Acorn! How Far from the Tree? and Saturday, June 28, 2008, Selling out the Community for Beans (A Giant Wrong).)

How much is this so-called “affordable” occupancy that is so favorable to the developer going to cost public agencies in terms of the housing subsidies Ratner intends to garner by providing it?

Calculating $144 Million

The “Combination Housing Subsidies”schedule sets forth an example that lets us know about how much some of that subsidy from coming from the new York City Housing Development Corporation will be if you just do a little calculating. For a building of 400 units it will be $12,800,000. Since Forest City Ratner is actually supposed to build 4,500 non-condominium units receiving that subsidy the total cost of this particular subsidy would come to $144 million. That’s if Ratner fulfills its theoretical obligation to build these units. The “Combination Housing Subsidies”schedule contains at the top a mathematical example of how the subsidy would be calculated although the example contains an obvious typographical error that needs to be corrected with respect to the math:
For example, if the first tower built on the Arena Block contains 400 residential units under Scenario #1: where 50% of the units (200 units) would have rents set at market rate, 10% (40 units) at 150% AMI, 10% (40 units) at 120% AMI, 10% at 80% AMI (40 units), 17% at 48% AMI (68 units) and 3% at 38% AMI (12 units), and the associated subsidy would be $12,864,000 [sic, actually $12,800,000] in HDC/HPD 2nd mortgage subsidy ($65,000 x 40 at 120% AMI, $85 x 120 units at or below 80% AMI).
Adding the $144 Million to the Total of Previously Calculated Subsidies

That, of course, is neither the total amount of the subsidy proposed to be going to Atlantic Yards nor the entire amount when it comes to just the housing subsidies. We have previously calculated the total subsides for at Atlantic Yards at between $2 to $3 billion, providing a schedule of known subsides in April of 2008 that added up $2,157,260,000 with additional unknown figures being identified but not added in. (See: Your 'Net' Loss: $2B in Taxes to Ratner, By Rich Calder, April 14, 2008.) At the time we had done some calculations of what this HDC second mortgage subsidy (which we expected) would be but we did not add in a figure for it because we were not reasonably sure what it would actually be. (We had conservatively calculated it at $110 million so we were not terribly far off from the $144 million figure it is now turning out to be.)

Arena Subsidy Calculation Needs To Be Updated

The overall schedule for all the subsidies that Atlantic Yards is proposed to be receiving needs to be updated though the $2 to $3 billion overall estimate is still basically correct. In particular, some subsidy costs respecting the arena need to be revised downward because tax exempt bonds have been issued in a lower amount than we used in our last set of calculations, while other arena subsidy amounts need to be revised upwards. The city has slipped more money to the developer, ESDC is advancing monies ahead of schedule, the MTA is getting a less desirable rail yard and it is a rail yard that may cost the MTA more in the long run because it won’t be flexible enough to meet the MTA’s real future needs, an additional $400 million in tax-exempt bonds was secretly authorized which may be used to bail out or to give the developer some extra gifts in the future. The MTA has also essentially given away for free to Ratner the right to name its subway stops in the area of the project.

Housing Subsidies When taken Alone

Let us then tally up just some housing subsidies including this new $144 million figure.
$261.25 million: We can still estimate that the cost of the tax-exempt bonds for the housing will be $261.25 million. That is the combined cost to the city ($11.47), state ($20.96) and federal ($228.82) taxpayers (NYC residents are all three) of the tax exemption of the bonds. (Unlike the calculations with respect to the arena bonds where local real property taxes are diverted to pay the bonds we do not need to include the cost of such a diversion in the total cost of the bonds to the public.)

$18 million: Next we still include an estimated $18 million for Low Income Housing Tax Credit credits, based on conservative estimated basis of $320,000 per low income unit and LIHTC of $20,000 each for 900 units.

$39.37 million: Mortgage Recording Tax Exemption- Mortgage recording tax is 2.8% in NYC- At least the residential rental portion will be exempt from the tax.

$150 million: “Atlantic Yards Carve-Out”—the provision that gave Forest City Ratner a special bonus in the revision of the 421-a tax law.
That then totals $638.67 million. It does not yet include the millions that might need to be included for sales tax exemption on the residential units. It does not include the millions the MTA has given Ratner by selling its rail yards to Ratner for substantially less than their value. It does not include the millions the state and the city are giving Ratner for infrastructure costs. Very importantly it does not include the almost inconceivably huge giveaways to Ratner by virtue of a.) allowing Ratner to acquire much of the land for the project by paying much less than its value through the abuse of eminent domain and then, b.) making Ratner the special beneficiary of a tremendous upzoning at the expense of his neighbors.

The above figure also does not include any calculations with respect to a vague and complexly conditioned “commitment to build 600 . . for-sale units on or offsite is in the final development agreement.” The building of those units is predicated upon the receipt of an unspecified amount of subsidy. The amount of that subsidy would surely exceed another $15 million or perhaps even twice that. (If there were more such for-sale units, “1000" is mentioned as an upper limit, adjust those numbers proportionately.)

Is It Possible the Housing Subsidies Would Be Less?

It is possible (though perhaps not probable) that there could be circumstances where less housing subsidy would be delivered to the mega-project than Ratner is likely envisioning. As Atlantic Yards Report’s Norman Oder points out, these involve alternate scenarios (which can be seen in the “Combination Housing Subsidies” schedule) with the provision of less “affordable” housing than ACORN and other project proponents have been telling the public to expect. Atlantic Yards Report says:

It offers several more scenarios regarding affordable housing in the Atlantic Yards project, promising affordable units with no low-income units far less affordability to the constituents of ACORN, the advocacy organization that supplied the most foot soldiers at public hearings in favor of the project.

It opens up the possibility of subsidized buildings that are "100% affordable," with the majority of units aimed at households earning 165% of Area Median Income, or AMI.

Further, respecting the estimated $18 million in Low Income Housing Tax Credits, there appears to be another typo in the “Combination Housing Subsidies”schedule: It contains two statements apparently at odds with each other respecting whether Low Income Housing tax credits will be available to the project:
Scenarios 1, 5 & 6 assume that HDC will provide recycled private activity tax exempt bonds.
(Meaning Low Income Housing Tax Credits will not be available.)

Scenarios 1, 5 & 6 assume that HDC will provide new private activity bond cap to generate as-of-right 4% Federal Low Income Housing Tax Credits on qualifying units.
(Meaning Low Income Housing Tax Credits will be available.)

Diversion of Scarce Subsidies to Ratner

Here is what makes subsidies like the $144 million of newly calculable HDC 2nd mortgage subsidy, the $261.25 million in benefit from scarce tax-exempt bonds, and the Low Income Housing Tax credit sums going to Ratner especially important: Clearly Ratner is proposed to get more than a half billion dollars in scarce subsidies that could be going to other developers and better (actually worthwhile) projects. (In terms of scarcity, all or most of the $144 million HDC is providing is coming from a limited source: Monies that come from Battery Park City luxury, market rate units that were permitted to be built in lieu of the moderate rate housing that was originally supposed to be built there.)

The transaction has been set up to enable Forest City Ratner to blackmail the public to send those subsidies to Atlantic Yards at the expense of worthier projects. This is reflective of the way that the Atlantic Yards transaction has always been structured to give the developer an upper hand and the tactics are similar to the kind of negotiating Ratner has engaged in before with respect to its Beekman Tower project.

Beekman Blackmail

Ratner twice threatened to cease construction of its Beekman Tower project. The first time was in the summer of 2008. As reported then, Forest City Ratner threatened “to halt construction of the new school on Beekman St. unless they receive a 20-year tax break from the city.” Ratner was able to blackmail the community board to get its approval because the community was at that point already dependant on plans for the school. Not a nice form of payback since it should probably be considered that placing the school in the project was a benefit to Forest City Ratner in the first place. (See: Monday, September 8, 2008, Endorsements for Paul Newell for 64th Assembly District Seat.)

The second time Ratner made threats respecting a halt construction of the Beekman Tower it was the spring of 2009 and Ratner was threatening to build the building to half its originally planned height. Publicly the halt was to negotiate a better deal from the construction companies putting up the building. Because of a change in the economic climate Ratner was able rewrite the deal more to its benefit. Though it was never acknowledged, it is also possible that Ratner was having problems getting the credit in the credit markets it needed to be able to issue the final tranche of bonds to complete the project.

The tower was being financed by bonds issued by the New York City Housing Development Corporation (the same city-controlled public authority being asked to give Ratner the bonds and $144 million second mortgage subsidy). Although a spokesman for HDC told Norman Oder that it wasn’t a big deal if the building was only half completed, the truth is that HDC would then have gotten far fewer affordable units and far less bang for buck the in return for its financing and state tax exempt volume cap. (See: Friday, March 20, 2009, If FCR's Beekman Tower faces 50% cut, what does that say about Atlantic Yards promises (and designs)?)

Ideally HDC should have been in a position where its documents would have given it the right to object to the downsizing. There might have also been reason for HDC to object to an after-the-fact squeeze of the contractor since that kind of thing can lead to problems. There were, in fact, recent severe problems at the site during a January windstorm. (See: Tuesday, January 26, 2010, Forest City Ratner’s Two Buildings In Brooklyn Heights Need to be Condemned!)

Ratner Allowed to Blackmail For Housing Subsidy By Delaying Provision of Housing

If you look at 8.8 (g) on the page 24 of the Atlantic Yards Development Agreement (See below which is taken from: Wednesday, January 27, 2010, Despite promise of ten-year AY buildout, ESDC deadlines allow 12 years for Phase 1, 15 years to start platform, 25 years for full project)
you will note that while Ratner is not excused from building housing by a failure to get housing subsidies, the failure to get subsidies does entitle Ratner to delay in providing the housing.
Atlantic Yards Development Agreement Section 8

Specifically, Ratner is entitled to eight years of such delay in providing the housing just with respect to Phase I of the project. Here is the language (emphasis supplied):
G) Notwithstanding AYDC's and Interim Developer's obligations to Substantially Complete (or cause to be Substantially Completed) the Phase I Improvements by the Outside Phase I Substantial Completion Date, so long as the Affordable Housing Application Requirements have been satisfied in each case, any Affordable Housing Subsidy Unavailability with respect to a proposed residential building shall result in a one-year extension of the Outside Phase I Substantial Completion Date solely with respect to the gross square feet proposed for Affordable Housing Units in such building in the application for financing such Affordable Housing Units, up to an aggregate of eight (8) one-year extensions of such Outside Phase I Substantial Completion Date; provided, however the aggregate gross square feet eligible for such extension for Affordable Subsidy Unavailability shall in no event exceed 450,000 gross square feet in any year.
Ratner’s Ability to Pay An “Option Renewal Fee” In Order To Not Complete Within Originally Specified Decades

While Forest City Ratner is theoretically entitled to a total of eight years delay in the delivery of housing with respect to the first phase of the project, this is only the delay that Ratner is entitled to without paying for the delay. As observed by Norman Oder in the above Atlantic Yards Report article, Ratner has not only been given a very long time* to complete the mega-project without any penalty, twenty-five years in all, in addition the amounts that Ratner then has to pay for failure to complete within this specified are negligible.
(Here is the AYR summary of the specified schedule:
• six years to build the arena
• three or four years to start construction of the first tower
• five or six years to start construction of the second tower
• ten years to start construction of the third tower
• 12 years to build Phase 1 (which can be much smaller than officially promised)
• 15 years to start construction of the platform over the railyard
• 25 years to finish the project (which can be much smaller than officially promised)
ESDC in its documents has styled the amounts that Ratner has to pay for failure to meet the very generous schedule above as “penalties” which serves as window dressing to the notion that ESDC is controlling the developer, forcing Ratner to meet a schedule, but given the very small amounts Ratner has to pay when not hewing to the schedule, the amounts could better be described as payments for an “extension of Ratner’s option on the property” (very small option amounts at that). Perhaps they should merely be thought of as “expression of interest” payments. As Atlantic Yards Report puts it:

The damages Forest City Ratner faces in most cases--less than $10 million for an arena that's up to three years late, $5 million for each of three buildings if they're late--don't represent a lot of money, especially given that the developer just got a cash flow boost of $31 million to buy land.

That’s $5 million for a single building, for example the third tower on the arena block that would paid 18 years from now (the 10 years in the schedule above plus the 8 year housing subsidy extension), a “penalty” that will procure for Ratner an unspecified period of additional years. At most it would come to $80 million for all sixteen towers. Obviously, the present value of the amounts paid will be lower when paid so far in the future. We invite any of our readers to identify any time they know of when a smaller percentage has been charged for such a long-term extension of an option to develop land. Lastly, since Forest City Ratner could still threaten not to build the housing unless the “penalty”/”option renewal fee” was waived (or subsidy increased to pay for it) those amounts may never be paid at all.

Blackmailing Rather Than Bidding For More Than a Half Billion in Housing Subsidy

It is sometimes bemoaned by those who actually want sports arenas built in their cities (we think they are disastrous economic boondoggles) that the owners of sports teams make localities bid against each other for the “privilege” of having such facilities located in their cities. Conversely, normally when housing projects are proposed, their developers have to show that they would be more beneficial than alternative deals by other developers in order to claim subsidy, in essence a form of bid process. That’s the way it should be. (If ownership of Atlantic Yards were broken up it would be still be possible.) Here, however, ESDC has structured a deal where that process will be reversed. Forest City Ratner wants to lay claim to more than a half billion in housing subsidy that could (and actually should) be going to other developers. But Forest City Ratner won’t have to deliver a better project to get that subsidy. They can actually deliver a far worse, much more expensive one. Forest City Ratner won’t have to think in terms of “bidding” to get their project funded with subsidy. Because they have been given a multi-decade mega-monopoly they can blackmail the public for those subsidies. And partly because so much density has been piled on top of this site that will come with a mega-tab for the public to pay.

Saturday, February 6, 2010

Oops! Where Did That Blight Go? Sidewalk Cracks Are Just Too Damn Easy To Fix!

Ah! The ephemera of documentable “blight.” It is lucky that Noticing New York was around to provide photographic evidence of “blight” on Montague Street in the form of sidewalk cracks because now, with the passage of hardly a few days, we need to provide you with an update to tell you that some of the "blight" we carefully documented has already disappeared. Damn!: Who would have thought that sidewalks could be repaired so rapidly?

We have been writing a series of posts about the prevalence of sidewalk cracks in the city because sidewalks cracks are supposedly a characteristic of “blight” that can allow the Empire State Development Corporation (ESDC) or any other eminent domain abuse-minded agency to seize and hand over entire city blocks to politically-connected developers who want to “redevelop” those blocks.

We previously wrote (supplying documenting photographs) about how, applying this criteria:
• The“blight”-qualifying cracks in the sidewalk are so ubiquitous that they can be found:
• Surrounding Brooklyn’s Borough Hall,
• Anywhere in Manhattan that you might glance down, and
• In prestigious Brooklyn Heights, running the entire route from the premier homes on the Promenade to Borough Hall, no matter the street you pick to travel, Montague Street, Remsen Street.
(See: Friday, January 15, 2010, Up and Down, "Blight" Is Everywhere: Just Glance Down “At Any Point” and Find “Blight” Smiling Back to You.)

• The homes and blocks where Atlantic Yards supporters Senator Charles E. Schumer and Brooklyn Borough President Marty Markowitz live need to be condemned. (See: Thursday, January 21, 2010, Senator Schumer’s Block Is (Super) “Blighted”! (And Back to You, Marty).)

• Brooklyn Heights residents better start getting ready for a lot of demolition and zoning increases because with the two Brooklyn Heights blocks where there are Forest City Ratner-owned properties need to be condemned- - Lots of sidewalk cracks there too! (See: Tuesday, January 26, 2010, Forest City Ratner’s Two Buildings In Brooklyn Heights Need to be Condemned!)
We now provide this update to our first post from the series because on January 28, 2010, just 13 days afterwards, one of the "blighted" sidewalks we photographed for that post has been repaired! (See the photo of the repair at the beginning of this post and below is the photo that appeared, January 15, 2010, at the beginning of the post that was the first in our series, and after it a second photo of the repair.) Is it possible that property owners on Montague Street are reading Noticing New York and wanted to address the so-called “blight” we had documented?
The point is that, according to the ESDC, this quick and ready fix isn’t supposed to be the way that city residents deal with the “blight” of sidewalks cracks in their neighborhood. What ESDC believes should happen instead is that all the property on the entire block should be seized from the owners, all the buildings torn down and replaced by a politically-connected developer who will be assisted with extravagant public subsidies for which the developer will not have to bid. No matter, ESDC is still ahead in its determined race to find "blight" where and whenever it wants: Although this property owner on Montague Street quickly effected this repair the owner did not coordinate with the neighbors up and down the street (and on rest of block) to fix some of the other cracks we documented. . . .

. . . So according to ESDC, their property can still be wrested from them and torn down despite their vigilant efforts at maintenance.

Wednesday, February 3, 2010

Two Things About the Pataki Administration and a Hope About What Is Secretly Going on Behind the Scenes Respecting Atlantic Yards

When my friends criticize the Pataki administration, as many, being Democrats, are wont to do, I, who worked for the Republican Pataki administration for all its twelve years (a substantial fraction of my overall tenure in government), think of two things about that administration, one good, one bad. I myself am almost certainly much more of a Democrat in temperament than a Republican, though if the Republicans could live up to many of what should be their aspirations I would find myself sympathetic to them. Plus the countless failures of the Democrats to live up to what should be their own aspirations frequently leave me aghast and disappointed.

The bad thing I think about with respect to the Pataki administration is one that I know comes to mind for many people think when they remember the Pataki administration. I don’t know if it is number one on the people’s list of negatives when they think of that administration but it might potentially be. It is the role the administration played in launching the execrable idea of the Atlantic Yards megadevelopment in Brooklyn. The good thing I think about is something little known and largely uncredited to the administration, something that also gives me hope for an outcome with respect to Atlantic Yards that could, unbeknownst to nearly all, be secretly in the works. The good thing I think about is the administration’s decision to send a Republican State Senator to jail.

How do I know about the Pataki administration decisions that resulted in a Republican State Senator going to jail? As the second in command of the legal department of the state finance authorities where I worked I participated in the investigation that resulted in that outcome, including bringing certain facts to light.

Pataki Support of Investigation

I should be careful not to make this sound too simple. The people at the top of the Pataki administration didn’t decide to send a powerful Republican State Senator to jail; they decided in favor of supporting the investigations that sent the Senator to jail and they didn’t decide this out of the blue. To be frank, the administration needed to be pushed a little, which is to say they needed to know the facts they were dealing with, why it was the right choice, and why perhaps there really was no other acceptable choice but to cooperatively assist in the investigation. The Senator who went to jail in the end was Guy Velella from the Bronx.

Those at the top of the Pataki administration made the right choice but the pushing and the framing of the issues that brought about the right result came from below. There is a reason that what happened with respect to the Pataki administration sending Senator Velella to jail gives me hope with respect to what may be happening regarding Atlantic Yards. It relates to the same reason that the Pataki Administration is largely uncredited for its work in sending Senator Velella to jail: That work was a long and laborious process that went on in secret for years before the outcome was revealed. Much of what happened was so secret that, for instance, only when most of this time had passed was it revealed to some top political appointees and decision makers that their own phones had been tapped.


I should point out that one thing that was key to the investigation gaining momentum was that there were whistleblowers involved, public employees who came forward with critical information about what needed to be investigated. I point this out not only because it is important to the process but also because in terms of speculating about what might be happening behind the scenes as regards Atlantic Yards it is fascinating to note that the Empire State Development Corporation, the state agency theoretically most responsible for Atlantic Yards, does not have whistleblower protection policy even though it was legally required to have adopted one by the Public Authorities Accountability Act of 2005, the provisions of which were signed into law on January 13, 2006.

The fact that ESDC doesn’t have a whistleblower protection policy doesn’t mean that ESDC doesn’t have whistleblowers and as those whistleblowers would quickly find out if they went to a lawyer it doesn’t mean that they aren’t protected if they blow the whistle on ESDC’s bad practices. Further irrespective of what management has failed to advise them of, ESDC employees should also know that they are likely to be much more protected if they blow the whistle than if they do not. What does ESDC’s failure to follow the law by not having a whistleblower policy in place that it circulates to its employees mean? One thing it means is that in ESDC’s governmental culture a focus on other things takes precedence over these kinds of good governance measures. Does it also reflect a reluctance on the part of ESDC management to curtail internal misconduct including (as required by law) by encouraging that it be reported?

As a practical matter ESDC’s failure to provide and promulgate the required policy makes it more probable that ESDC whistblowers will report ESDC misconduct to outside agencies rather than internally and it also makes it less likely that officials higher up in the ESDC organization will wind up coordinating or cooperating in investigations that ensue or even know about them.

The Investigation That Could Be Going On

What activities of ESDC with respect to Atlantic Yards might be getting investigated right now? An intriguing hint might be seen with respect to the indictment of government officials in Yonkers which very importantly relates to a Forest City Ratner project. (Forest City Ratner is, of course, the developer of Atlantic Yards.) The indictments were with respect to an illegal scheme whereby Forest City Ratner paid public officials in Yonkers for a vote in the Yonkers City Council approving their project. (See: Thursday, January 7, 2010, Got “Bilked?” The New York Times Biased Report on Federal Investigation Involving Forest City Ratner.) Forest City Ratner has not been indicted yet with respect to those events nor have any of its “employees” but as part of the scheme Forest City Ratner did agree to engage as a “consultant” one of the indicted public officials even though it is clear that they certainly knew of the indicted official’s illegal conduct since the furnishing of that consultancy position was itself part of the indicted conduct. For more on how the fact pattern in Yonkers comports with the probabilities of a future indictment of Forest City Ratner see the post we linked to above.

Velella Investigation and Indictment

Senator Velella (and two others, his father and also an official from the housing agencies for whom I worked) eventually went to jail for patterns of illegal conduct that were quite similar to what happened in the Yonkers indictment situation. Guy Velella was indicted in 2002 on 25 counts of bribery and conspiracy for allegedly accepting at least $137,000 in exchange for steering public development contracts to parties from whom he was receiving payments. The charges involved illegal solicitations for far greater sums, “more than $250,000.” See the District Attorney’s May 9. 2002 Press Release and the Times article: State Senator Quits in Deal Over a Bribery Indictment, by James C. Mckinley Jr., May 15, 2004. (Years before in 1993, Velella was accused of fixing local school board elections though no charges were filed.)

The charges ranged from steering subsidized housing projects to developers to fixing the bid process so that contractors would get bridge painting contracts by paying to have their award politically influenced. One such bridge painting contract fix involved a contractor who had submitted a $37.7 million dollar bid to paint the Verrazano Narrows Bridge. That bid was actually supposed to be the low bid for the Verrazano but, at least with respect to another bridge painting contract also being “fixed” (the Dunn Memorial Bridge) there were concerns about whether the contractor was a "responsible" bidder because of past safety violations.

Shades of Velella

When looking at both the Yonkers indictments and the facts that emerged respecting events that sent Senator Velella and his cohorts to jail one has to wonder how distinguishable or different are the fact pattens and conduct of government officials with respect to Atlantic Yards, not to mention some of the overlapping patterns associated with the Columbia University expansion eminent domain case. Atlantic Yards (similarly the Columbia case) involves political manipulations to confer a massive mega-monopoly and an astounding heap of subsidies on a developer without any real, true or credible bid, and without any accompanying cost benefit analysis despite neutral and convincing analysis that the only actions now being taken ESDC and the city will result in net losses to the public.

Things Seen First Hand or Not Seen at All

I learned from the Velella investigation things that, until you have seen them first hand, may seem difficult to appreciate. One is how the smell of something wrong can, with due investigation, can escalate from a few facts and leads to a treasure chest of documenting evidence. (Velella and his cohorts pled guilty rather than stand trial. Velella also surrendered his law license.) Another is how investigations take on a life of their own when investigators know they are on to something. It probably helps when there are multiple investigators (or the possibility of them) following up on a scent because then none of them want to risk being considered lax in their follow-up either for a perceived lack of investigative skill or deference to the investigated. I learned that while people will tell you things that give you a clear general idea of what is going on (thus encouraging the investigators to steadfastly persevere) there may be delay and lull as those same people express reluctance to testify or provide more essential details. I learned that as much as you may think you know, it may still be only the tip of the iceberg. I also learned that late in the game additional information can flood in the most unexpectedly strange ways surprising those who are suddenly its recipients.

One thing of particular importance that I learned is that sometimes when bad things are happening that officials in power actually know about and want to stop, bad things those officials actually have the ability and probably duty under most conditions to stop, that the investigators may not want those bad activities halted. Instead the investigators may want more time to observe and collect evidence as the bad activities continue. Colloquially put, they will encourage that the perpetrators be given enough rope to hang themselves. It is not that investigators can order an agency to allow a continued breaking of the law or bad practices but you may find them strongly suggesting postponement of corrective action. It is uncomfortable but the investigators can provide some assurance that in the end when everything else comes out that they will be able to vouch that you were cooperating.

To whom might investigators be suggesting such things? Unless you are actually yourself amongst the small group of public officials to whom they are directly making such requests you are unlikely to be aware that such requests have been made or are being operatively honored. That may pose some quizzically challenging conundrums for observers trying to figure out why it seems bad actions are being tolerated. Who knows what conclusions observers will reach? I previously reported that when City Councilman Brad Lander was a candidate for the City Council office he recently won, he asserted that he “was the lone voice calling attention to corruption at the Pataki-era NYS Housing Finance Agency” (the Agency where I worked) which he said “had become a corrupt candy store.” There are many reasons a political candidate might resort to making those kinds of charges during a campaign: One of them is that from Mr. Lander's vantage he had no idea how much toil was going on internally at the agencies to foil the bad guys.

Only Those Who Need to Know

The fact is that investigations are conducted on a need to know basis. Even though some of us at the agency were close to the core of the Velella investigation and its very origin and even though we participated in and contributed to the investigation, there was much that the investigators did not tell us and that we did not know. Similarly there were other officials or public employees who also knew of some aspects of the investigation (in some cases less than we knew) but did not know how much they did not know. Some may have specifically known they didn’t know everything but still didn’t know what they didn’t know. A couple of things to note in this regard: It’s not a bad formula to encourage good behavior and secondly, since you yourself don’t know exactly where your puzzle pieces fit in when you provide them to investigators it is good to be vigilant and meticulous about the truth.

When Whistleblowers Don’t Come Forward

The willingness of whistleblowers to come forward is invaluable to maintaining a good public agency environment. While I also have praise for whistleblowers it should be noted that they need not be acting altruistically; it is also in the whistleblower’s own interest to do the right thing. Not coming forward when the opportunity presents itself, especially when one is in the higher echelons of public service, can have a price. I empathize that it can be extraordinarily difficult to come forward. There is almost always the implicit assumption to be made when one sees bad conduct high up in government that such conduct exists because it is tolerated by the `powers that be’ with the belief that it is supported as high up perhaps as a mayor or a governor.

A case in point I can offer is the scandal that occurred at the New York City Housing Development Corporation (HDC), a housing finance agency that is, coincidentally, expected to be asked to provide a vast amount of subsidized financing to the no-bid Atlantic Yards. As was ultimately disclosed and written about extensively, including in a series of scathingly detailed articles* by Tom Robbins that appeared in the Village Voice, the Executive Director of that agency was involved in considerable personal misconduct at the expense of that agency.

(* Some of those Tom Robbins articles include: The Lush Life of a Rudy Appointee: How a Politically Tied Aide Spent a Quarter of a Million Dollars on Food, Fun, and Travel, Tuesday, April 9, 2002, Harding's Conflict of Interest: After Pledging to Steer Clear of Dad's Law Firm, Son Aided a Client, Tuesday, July 9, 2002, Russell Harding's Vanity Fair: 'Voice' Trail Led to Charges, Tuesday, March 18, 2003, Harding's Hustle: Bonuses, Bargains, and Strip Clubs at the Housing Development Corporation, Tuesday, May 7, 2002, Harding's Collateral Damage: Bloomberg Drops the Hammer—Selectively, Tuesday, May 13, 2003.)

No doubt the sense of the agency employees (and potential whistleblowers) was that the conduct was tolerated by the mayor at the time, Rudolph Giuliani. The Executive Director in question, Russell Harding, was a son of Ray Harding, the head of the Liberal Party with whom Giuliani was aligned and someone whose political endorsement was politically important. For one thing, it meant having Guiliani’s name at the head of on an extra column when voters went into the voting booth.

It must have seemed to many within the agency that because of Giuliani assumed endorsement and/or tolerance of the misbehavior that there would have been great professional career risk to coming forward to report impropriety and further that there were forces at work to assure that it all would be kept from coming to light. But come to light it did. And when it came to light, those that were perceived as having tolerated (or perhaps merely failed to detect) the misbehavior suffered professionally from what they did not do instead of from what they did do. Some senior officials left the agency. Others who remained were not promoted. As onlookers we can only assume what the connections were. I know that much of the talk on the outside was that it was unfortunate that good capable public servants were hurt because they did not know what to do when those politically above them were loathsomely perceived as on the side of misconduct.

One Tom Robbins Village Voice article specifically addresses the failure of whistleblowers to come forward: Where Are the Whistle-Blowers? Why City Workers Don't Speak Out, by Tom Robbins Tuesday, July 2, 2002. According to Robbins the misconduct went unreported although:
How widely known were Harding's abuses? "Everybody knows" was the answer. "And everyone is terrified."
the goings-on were common knowledge
When Russell Harding pled guilty to fraud and conspiracy charges (in addition to the charges respecting child pornography on his office computer) he admitted to stealing more than $400,000 from the housing agency he once headed and agreed to serve up to 63 months in prison. Much of his stealing from the Agency was done by extravagant and ostentatious use of the agency credit cord and expense account for personal travel and dining. It was documented in excruciating detail right down to The Village Voice publishing an image of a receipt for the morning bagel Harding’s regularly had his agency pay for.

ESDC’s Failure to Adopt Required Whistleblower Policy

This brings us back to the glaring absence of the whistleblower protection policy that ESDC and its sister agencies failed to adopt as required. We must reiterate that the absence of whistleblower policy doesn’t mean that there aren’t whistleblowers at ESDC or that they aren’t entitled to protection, just that ESDC is running an operation where employees are not being informed that it is public policy to bring misconduct at the agencies to light.

Ideally, a public agency should promulgate the whistlblower protection policy it is required to have and make it a focus in a number of ways. The policy should be circulated to the employees on a regular basis. It should be furnished to all new employees so that they are aware of the policy from the very first day of their employment. The policy should be regularly reviewed by the agency’s board so that the board can make sure it is up to date, and be reminded of it importance while demonstrating to others that the policy is regarded as important enough to justify regular consideration. The policy should also be on the agency’s website so that employees can readily and unobtrusively access it (for example from home or a library) without feeling that they are calling uncomfortable attention to themselves.

I therefore expected that if ESDC had the policy it is required to I would likely find it on ESDC’s website. I hoped I would find it there even though ESDC is singularly nontransparent when it comes to the use of its website to provide information about the agency. This is appearently at least partly due to the fact that ESDC is lax about following requirements. (See: Thursday, December 17, 2009, Due diligence on the BALDC leads down a rabbit hole, while other state agencies are more transparent than ESDC/JDA/BALDC.) As for its website, it should be noted that it was just revised though again the agency apparently did not invest the kind of resources it could have in this public interface. (See: Tuesday, February 02, 2010, ESDC debuts new, more transparent web site; drops "New York Loves Business" but does claim it's "Open for Business".)

When we did not find a whistleblower policy on ESDC’s website we began to suspect what turned out to be true: ESDC and its co-located sister agencies never adopted a whistleblower protection policy. This was confirmed when contacting ESDC to obtain a copy of the required policy. We were told that “ESDC does not currently have such a policy.” I was told however that ESDC would be adopting a whistleblower policy because it was recognized that amendments to the Public Authority Accountability Act were enacted last fall which will be “effective this spring” require public authorities to have such a policy. (NOTE: I think this is a relatively significant scoop worth brandishing for other representatives of the press to pick up.)

The Law Has Required a Whistleblower Policy Since 2006

I responded by making clear that while the amendments that take effect this spring revisit the requirement of having a whistleblower policy with more extensive provisions to supervise the authorities, what I had been looking for was a policy adopted in compliance with and pursuant to the original Public Authorities Accountability Act of 2005. On its face the act’s provision applies to ESDC and we were not advised that there is any reason that ESDC believes it doesn’t.

More specifically, pursuant to that original act, signed into law on January 13, 2006 as Chapter 766 of the Laws of 2005:
§ 18. Title 2 of article 9 of the public authorities law is amended by adding a new section 2824 to read as follows:

§ 2824. Role and responsibilities of board members. 1. Board members of state and local authorities shall . . .

(e) establish written policies and procedures on personnel including policies protecting employees from retaliation for disclosing information concerning acts of wrongdoing, misconduct, malfeasance, or other inappropriate behavior by an employee or board member of the authority, investments, travel, the acquisition of real property and the disposition of real and personal property and the procurement of goods and services;
The act provided that it would take effect immediately and apply to the public authority fiscal year beginning on or after January 1, 2006. Ergo, ESDC was required to a have a whistleblower policy from 2006 on.

Promulgating the Policy

As for putting the policy on it website, the act doesn’t require that, but it does encourage other information to be on the agency’s website and other agencies have taken the hint to put their policies there.

The act does specify that the authorities' policies for the disposition of their property should be on their websites (and presumes Procurement Guidelines will be there too) and more generally provides:

To the extent practicable, each state authority shall make accessible to the public via its official internet web site documentation pertaining to its mission, current activities, most recent annual financial reports, current year budget and its most recent independent audit report unless such information is covered by subdivision two of section eighty-seven of the public officers law.

What might such a policy look like? I can point you to the policy you can find on the website for the New York State Housing Finance Agency and its sister co-located sister agencies (on a page that makes many other policies available). It is not bad policy if we don’t say so ourselves. It looks like this:


Toughened Whistleblower Requirements Coming in March

More whistleblower requirements that ESDC is supposed to follow are coming effective March 1, 2010 with the amendments to the Public Authorities Reform Act of 2009. These amendments to the 2005 Public Authorities Accountability Act strengthen the original whistleblower provisions by requiring a Whistleblower Access and Assistance Program in consultation with the Attorney General that (i) establishes toll-free phone lines available to employees, and (ii) offers advice and consultation on state and federal laws and further provides that an authority like ESDC may not fire, discharge, demote, suspend, threaten, harass, or discriminate against any employee for their whistleblower actions.

Don’t Assume What’s Not Happening

As I opened by saying, I think the worst thing the Pataki administration ever did was launch the atrocity known as Atlantic Yards, but the best thing I remember that it did was largely unknown: it supported the kind of investigation that could stop Atlantic Yards dead in its tracks.

I can easily imagine myself in the ESDC environment and I often see familiar faces at ESDC, people with whom I have worked. While I regularly wonder about the unjustified support for Atlantic Yards that I see coming from ESDC and other agencies, including the city agencies accountable to Bloomberg, I don’t want to be quick to judge individuals. You never know what is really going on or what you might discover their roles are if you could delve below the surface.

As you can tell from looking at the indictment of Senator Guy Velella, much can be happening for a long time before the fact that correction and redress is coming becomes apparent. The Velella indictment concerned actions that went as far back as late 1995. Velella was not publicly indicted until May 2002. Treasure troves of information that went into that indictment were found as late as the fall of 1999 but the investigation was underway for a long time before that. Still, justice takes time. The Senator didn’t plead guilty or resign his office until two years after his indictment in May of 2004.

Similarly, when Russell Harding finally pled guilty in March of 2005 (he was indicted in March 2003) it concerned misconduct that reportedly went all the way back to 1998. The Tom Robbins articles disclosing everything in detail started in April 2002.

Never Assume Information Will Stop Coming

Information never stops coming out and you never know from where. We mentioned Russell Harding, who ran the New York City Housing Development Corporation and should have had the whistle blown on him by the officials who worked under his direction. He eventually went to prison for felony (embezzlement, child porn) and came out in 2007. In August of 2008 Mr. Harding started a blog, called While the blog is perhaps suspect due to some obvious anger on his part, Mr. Harding started telling some convincing-sounding stories about misconduct by those high up in the Giuliani administration with whom he worked. (See: Saturday, September 27, 2008, In tale of Giuliani influence, insight into the flexibility in size of affordable housing units.)

When I see all the faces in the ESDC panoply, one thing I say to myself is that any of those people could already be whistleblowers. Some of them, unbeknownst to most of the rest of us, may even be very involved in assisting investigators to investigate the things that seem so very wrong at ESDC. And even if the individuals in question are not whistleblowers yet, they may soon be whistleblowers when ESDC finally, belatedly issues and circulates to its employees its new whistleblower policy which will apparently be at about the same time that the extra whistleblower protections kick in from the Public Authorities Reform Act of 2009.

Interplay of Whistleblowers and the Race for Attorney General

I would be remiss if I did not observe that the new law that brings the Attorney General’s office directly into the whistleblower picture could cause some synergistic dynamics to come into play. If Andrew Cuomo, the current attorney general, runs for governor as expected, the office will be taken over by a successor. We have already speculated that the race amongst the candidates to replace Mr. Cuomo as attorney general logically could turn into a race to investigate Atlantic Yards as well. That could mean a race between the candidates, and if needs be a race to show up Mr. Cuomo as well if he has not done a good job or appears to have been deterred from an active investigation by campaign contributions (read on).

Among the candidates interested in the Attorney General position is Assemblyman Richard Brodsky (as we wrote before) who made his bones as an expert on misconduct at public authorities, and with his investigations into the financing of Yankee Stadium, exactly the kind of abuse that is being ratcheted up a few levels with the financing of the Atlantic Yards basketball arena. Another interested candidate is former State Superintendent of Insurance, Eric R. Dinallo. Mr. Dinallo is not in a position to feign naivete about abusive favoritism with respect to the handing out of housing subsidies since his wife just stepped down as the head of the housing finance agencies where I used to work.

The Justice That Money Can Buy? How Atlantic Yards Is Already Before the State Attorney General’s Office

The dynamics of all this vying for position will all be complicated by political campaign contributions. Right now that can be seen most visibly with respect to Mr. Cuomo. The Times just ran an article about how “the real estate industry was the top giver to Mr. Cuomo” [the current attorney general now expected to run for governor (and someone I worked with on housing at my old agencies)] and how “over the past three years as he amassed $18 million, leaving him with a five-to-one advantage over Gov. David A. Paterson, a fellow Democrat.” (See: Real Estate Interests Help Cuomo Gain a Big Edge in Cash, by Christine Haughney, January 28, 2010.) The article says that in the last six months 17 percent of Mr. Cuomo’s money came from the real estate industry with it being 20 percent of what he has gotten from individuals.

As the Times puts it:
The money has come as Mr. Cuomo’s office has been flooded with complaints about construction in new developments, especially from buyers who are trying to break their sales contracts, claiming that builders are not living up to their promises.
And the Times also noted that “Bruce C. Ratner, the Atlantic Yards developer” was among the “prominent givers” to Mr. Cuomo, also noting that:
Many of the major developers’ projects, like the World Trade Center and Atlantic Yards, are likely to come before the next governor.
The Times reported that Mr. Cuomo purportedly has procedures to protect against conflicts of interest from those developers considered to have matters before his office:
Aides to Mr. Cuomo said he had set up a rigorous screening process that requires donors to certify that they have had no matter before his office for the past three months. They say he keeps a firewall between his campaign and the operation of his office, and goes further than any other state official in vetting contributors.
In this regard, the Times noted that three donations Mr. Cuomo had accepted from developer Shaya Boymelgreen “totaling $8,000 from Boymelgreen-related companies between Jan. 15, 2008, and May 11, 2009" would “After an inquiry from The Times” be returned by Mr. Cuomo. The Times had been able to document that “residents at the Newswalk building in Brooklyn” who were suing Boymelgreen had contacted Cuomo’s office about construction problems in 2006 and 2007 and that Mr. Cuomo’s office has taken no action.

The Times did not mention that Mr. Boymelgreen, who had given his political contributions to Cuomo “while his empire was unraveling,” was also intricately involved in Atlantic Yards related litigation where he colluded with Forest City Ratner to take property from Henry Weinstein for the project. Making Mr. Boymelgreen’s intricate relationship to the Atlantic Yards even more Byzantine, the very oddly shaped Atlantic Yards mega-project footprint wraps around the Newswalk building in a very suspicious way.

While the Times mentioned that Atlantic Yards is “likely to come before the next governor” the Times did not point out that Mr. Cuomo has already been asked as Attorney General to investigate Forest City Ratner in connection with Atlantic Yards, nor did it report that Mr. Cuomo has returned Mr. Ratner’s contributions to him. The article also passed up the opportunity to mention the Times’ own business relationship to Mr. Ratner.

Pending Requests to Attorney General Cuomo on Atlantic Yards

State Senator Bill Perkins has asked the Attorney General to issue an opinion with respect to whether the issuance of the Atlantic Yards arena bonds was legal. (See: Wednesday, December 23, 2009, Perkins to Cuomo: issue an opinion as to whether AY bond process was legal.) Perkins had already sent to Cuomo (and also State Comptroller DiNapoli) a copy of an earlier letter to the Governor raising Atlantic yards legal issues. (See: Saturday, December 19, 2009, Hail Mary or silver bullet: Perkins, raising questions of fraud in arena bond sale, asks Paterson to put Atlantic Yards on hold.) Develop Don’t Destroy Brooklyn has asked that the Attorney General Cuomo (and State Comptroller Thomas DiNapoli) investigate the issuance of the bonds. (See: Cuomo and DiNapoli Urged to Investigate Ratner's Arena Junk Yard Bonds, December 14, 2009.) Noticing New York sent its own letter similarly asking for such an investigation. (See: Sunday, December 13, 2009, To Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli: Investigate and Halt Issuance of Arena Bonds.) In addition to giving campaign contributions to Cuomo, Ratner is giving campaign contributions to DiNapoli. (See: Wednesday, January 06, 2010, Ratner, no longer a campaign contribution "refusenik," is already investing in Cuomo and DiNapoli 2010.)

All of this is to say that the issue of Atlantic Yards is clearly front and center before the Attorney General’s office. If Mr. Cuomo has not already begun an investigation of Atlantic Yards the dynamic could be very interesting when the new whistleblower-related requirement for public authorities take effect in March and are ultimately investigated (or not) by Mr. Cuomo and then by the Attorney General who is the successor to Mr. Cuomo. And who would like to guess how all this will play out? We note, by the way, that while it has been suggested that the provisions of the 2009 reform act taking place in March will not be retroactive, the effect of stronger whistleblower provisions cannot help but have a retroactive effect when bad conduct being reported has taken place in the past.

By the way, if anyone wants to suppose that Mr. Cuomo or his successor as state attorney general either aren’t currently investigating or won’t eventually investigate, I will point out that investigations don’t necessarily have to be conducted only by the state Attorney General’s Office. It was a local district attorney’s office (of which there are many with the power to act) that sent Senator Velella to jail and it was federal investigators who convicted the NYC’s Housing Development Corporation’s Russell Harding (and some others*) sending him to jail. And that’s all the more reason for Cuomo and his successor not to want to be shown up as lax in their responsibilities.

(* Former city housing commissioner Richard Roberts pled guilty to lying about receipt of a $38,000 SUV and Harding aide Luke Cusack also admitted conspiracy and theft.)

Pataki vs. Cuomo

Whether or not Mr. Cuomo ultimately investigates vigorously I remind you that Governor Pataki, who replaced Mr. Cuomo’s father as governor, did, as we noted at the outset, support the kind of investigation we are talking about.

December’s Little Birdie?

One of the last times someone solemnly asked me what I expected to happen next with respect to Atlantic Yards was on a snowy Saturday coming home from the public meeting in Harlem where State Senator Bill Perkins requested Governor David Paterson to declare a moratorium on the state’s abuse of eminent domain (followed up by a quick impromptu press conference with the Governor). ESDC was poised to assist Forest City Ratner in with the ill-advised issuance of arena bonds the developer was nevertheless desperate to see issued. (See: Saturday, December 19, 2009, Hail Mary or silver bullet: Perkins, raising questions of fraud in arena bond sale, asks Paterson to put Atlantic Yards on hold.) We said then that we really didn’t know what would happen because the wild cards were impossible to predict and we speculated that something might turn up in the way of indictments.

Oddly enough, it was just a few business days later that the indictments concerning Forest City Ratner’s Ridge Hill project in Yonkers were announced. (See: Wednesday, January 06, 2010
Forest City Ratner, unnamed/unindicted, cited as giving indicted man consulting job after he got Yonkers Council Member to change vote on Ridge Hill.)

Did I actually know something back in December or was I just a good judge about the kind of things that might be happening behind the scenes?