Thursday, February 11, 2010

Did you say "slush fund"?

City Council member Larry Seabrook was indicted earlier this week for money laundering, extortion, and fraud, and the indictment revealed that he got a subcontract for Yankee Stadium awarded to a Bronx boiler manufacturer not on the original bidder list. (The New York Times called the manufacturer a "close associate" of his). Under pressure to work with local businesses, the manufacturer was awarded the job even though its bid was $13,000 higher than the low bid. Allegedly, Seabrook then got the manufacturer to pay him $50,000--with most of the payments going to shady community organizations that he controlled. Seabrook, who never disclosed his relationship to those community groups, also used them to funnel hundreds of thousands of dollars in City Council discretionary funds to himself and his family.

City Comptroller John Liu is now pressing for changes to the development approval process. Liu called the New York City CBAs an "embarrassment," and said that standards need to be created to regulate these deals:

From Atlantic Yards to Yankee Stadium to the Columbia University expansion, the public has seen a string of broken promises to communities and questionable involvement by some government officials. Furthermore, an additional layer of unpredictability confronts developers when they engage in private negotiations over benefits associated with their projects. In fact, studies have singled out New York City's community benefit agreements as examples of what not to do.

He's setting up a task force to propose best practices, and he's also going to look at the standards for Industrial Development Agencies, which, in New York, exist mainly to channel subsidies to developers. As Liu explains, individual projects are often worthwhile and deserving of public funds, but a clear process is needed to define priorities for the distribution of scarce subsidies.

The Atlantic Yards Report points out the Seabrook scandal raises questions about the Atlantic Yards CBA:

Most of the signatories of the AY Community Benefits Agreement did not exist before the project arose, and all are funded by the developer, Forest City Ratner's MaryAnne Gilmartin finally acknowledged last July. . . .

One of the CBA signatories, ACORN, got a $1.5 million loan/bailout from the developer. Another, the "dubious nonprofit" Brooklyn Endeavor Experience, has spent most of its funding on pest management at its building, First Atlantic Terminal, even though "such tasks are not really part of BEE's mandate". Meanwhile, Darryl Greene, the subject of an intense controversy regarding a deal for a video casino, also has ties to the CBA. "An RFP for an Independent Compliance Monitor was issued by Greene's Darman Group in March 2007, nearly three years ago, but no such position was ever announced."

New York City has had trouble with development amenities for a long time, so the problems with the Atlantic Yards, Yankee Stadium, and Columbia CBAs are in some ways unsurprising. A 1988 report from the Association of the Bar of the City of New York recommended doing away with CBA-type deals:
While at first blush it appears useful to require developers to meet community needs by providing amenities of various sorts in return for project approvals, in a city chronically short of funds for public purposes, the practice of requiring them to build amenities unrelated to needs created by their project has undesirable consequences for government and should be discontinued.

Requirements to provide amenities unrelated to project needs at bottom constitute taxes, which are not levied evenhandedly on the basis of neutral principles but are required from developers on a case by case basis. These ad hoc requirements cast government in an unjust and therefor untenable role.

Such a practice also tends to undercut the decision making process. Government decision makers can be induced to approve projects in order to obtain amenities unrelated to the project's needs, rather than from an examination of projects solely on their merits. The use of such amenities thus tends to have a distorting effect of decision making.

They also distort the city's priorities and capital planning. While such amenities unrelated to project needs seem attractive to meet such needs are those for senior citizen housing, parks and libraries in some communities, these may or may not be the city's greatest priorities. Priorities should be worked out carefully on a city-wide basis, not ad hoc on a community basis. Capital planning should also not be ad hoc.

Short term considerations should not overwhelm sound principles, particularly in New York City, which has spent years since the fiscal crisis in eliminating past practices that represented an accumulation of such gimmicks.

The requirement of building unrelated amenities also can make the city less attractive for developers. They thus can interfere with long term objectives of promoting rational development in the city.

While developers perhaps can adjust, the practice threatens to corrode the integrity of city government and its zoning and land use laws. That price is too high for any of the advantages claimed.

Good luck Mr. Liu.

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