Wednesday, May 02, 2007

From UDC, rebuilding slums, to the ESDC, which "loves business"

Amid all the arguments about the Atlantic Yards project, perhaps the most fundamental issue has never been raised. The Empire State Development Corporation (ESDC), in its original conception, was never intended to manage projects like Forest City Ratner's 22-acre megadevelopment of mostly luxury housing in the center of a rising real estate market.

That may not affect the legal cases, but the historical context is vital: the ESDC, founded as the Urban Development Corporation (UDC) in 1968, was granted "truly amazing powers" (in planner Alex Garvin's description) to override zoning and exercise eminent domain as a response to urban riots and what were commonly referred to as "slum conditions." (Graphic from Rutgers project on riots.)

Today, more than a quarter-century later, those goals have broadened, as the UDC grew to emphasize economic development as part of its mission and in 1995 formally began doing business as the ESDC, which incorporated other agencies.

The history gets a neat switch in legal papers filed in the Atlantic Yards eminent domain case. The original legislative effort to encourage "maximum" private participation in ESDC projects, cited as justification for embracing Forest City Ratner's Atlantic Yards plan without a look to rivals, was hardly focused on developments like Atlantic Yards.

Rather, it was intended to get the private sector to finally invest in the low- and middle-income subsidized housing. (Atlantic Yards would contain some of both, but they're hardly the raison d'etre.)

Moreover, the ESDC practices a neat maneuver in its legal papers. It credits a state appellate court decision as stating that the ESDC's “primary mission . . . is to encourage economic investment." A closer look shows that the language comes directly from the ESDC's own web site and in some ways distorts it.

"Extreme measures"

The press coverage of the UDC's founding adds some valuable details. In the 2/28/68 article (right) announcing the plan, Gov. Nelson Rockefeller, according to the New York Times, "charged that the nation's cities had failed to meet their responsibilities in curbing urban blight" and said the state had to take "extreme measures" before the summer, the anniversary of urban riots (notably in Newark and Detroit) in 1967. The article ran as the second lead, in the top left of the front page.

The governor blamed delays in urban redevelopment on "impenetrable layers of bureaucratic red tape," "petty politics at local levels" and the lack of incentives to attract private developers in the faces of such obstacles. Because the new rules would speed the process, the cost of planning and building projects would decline, thus attracting private investors who otherwise might be reluctant to participate.

The Times gave a couple of examples of how the UDC might work. In one case, the corporation might sell its own bonds "to build, on its own, a structure for light industry in a slum," then lease it to a factory tenant, with the rental money paying off bonds. (Sounds like the Barclays Center?)

With housing, the UDC would get a mortgage loan from the Housing Finance Agency, then pay back the loan with tenants' rents--but the goal would be to get a private developer to take over the project as soon as possible.

Voices in support, opposition

In follow-up coverage, and local officials and builders offered mixed opinions, with some mayors wary of state encroachment. Others had strong opinions pro or con.

In a 3/4/68 letter to the Times, Charlotte Natale, president of the Greenwich Village Association, wrote critically, "One can agree with the Governor's impatience with delay caused by red tape, but much of the city's delay in the housing program is the result of trying to break the deadly patterns of the past, of consulting with community groups and of trying to prevent the wiping out of neighborhoods."

A supporter of the plan, in a 3/22/68 letter to the Times, wrote that it was "crucial" to ignore local building and zoning regulations to create housing, because "no single governmental regulation has contributed more to the creation and maintenance of the city ghetto."

The writer, Jack Talsky, general counsel of the West Haven (CT) Redevelopment Agency, argued that the "Riverdales, Scarsdales, and Bronxvilles" could not exclude the ghetto dwellers. In that case, the zoning to be overriden was that which restricted multiple dwellings or low-income housing, not, as in the case of Atlantic Yards, density limits or the placement of an arena within 200 feet of a residential district.

The Times twice editorialized that the plan went too far. In a 4/3/68 editorial headlined "Governor's Noncompromise," the Times observed critically, "He apparently remains unwilling to require that the corporation observe local zoning laws, which is a crucial issue. With the power of eminent domain, the corporation could become a free-wheeling, virtually autonomous agency unrestrained by regulation and unanswerable even to the Governor except through his powers of appointing the corporation's directors."

The editorial stance on eminent domain, which has since benefited the new Times Tower across from the Port Authority Bus Terminal, has, shall we say, evolved. (In a 6/26/06 editorial headlined Responsible Use of Eminent Domain, the Times said it "has long been a key tool by which cities can upgrade deteriorating neighborhoods and assemble land for affordable housing" but added that "[e]minent domain should be used only for truly public purposes.")

State argument

A 3/8/68 article in the Times, headlined "Governor Insists City Must Yield," quoted Rockefeller as saying that state action was justified because New York City was not building enough housing for the poor. Charles Urstadt, the state's deputy commissioner of housing, promised that the state would be cautious in overriding home rule.

"Our power would only be used where necessary," he told the Times. "But things are at a standstill in the city and someone has to have the final say, has to break the logjam. Our power would be almost like a tie-breaking vote." (That power, of course, has evolved; in cases like Atlantic Yards, the city has encouraged the role of the ESDC.)

Urstadt said that investors were steering clear of the Mitchell-Lama housing program and others because delays tied up their capital. Instead, the UDC would assume "all the initial risks of developing a housing project," then sell it to a private investor as s oon as possible, in the Times's summary. That was "maximum" private participation.

Passage under pressure

The bill passed six weeks later, during a time of mourning. The Times on 4/10/68 published an eight-column (full page), two-line headline regarding the funeral of the assassinated Rev. Martin Luther King Jr. A large photo of the funeral procession took up a quarter of a page.

Below that photo, as the reproduced segment shows, the passage of the UDC shared prominence with civil rights legislation in Washington and unrest in Newark. It truly was a time of ferment and heartache, and the summer was just months away. The "Rockefeller plan for slums" had to pass.

Rebuilding the slums

The new agency, with the power "to move into city cores and clear away slums even without the invitation or approval of local governments," was aiming to clean up truly depressed areas. The UDC would have the authority to issue $1 billion of its own bonds, with that expected to generate $5 billion in urban renewal investment.

The passage wasn't easy. Some upstate Republicans thought the program would help New York City too much. Some Democrats thought the program wouldn't work. And New York Mayor John Lindsay thought that the new UDC would trample on home rule.

No riding roughshod

The Times article closed with a quote from Senate Majority Leader Earl W. Brydges, who said, "No community has any inherent sovereignty.. If they don't do their job, we'll have to do it for them." Still, he declared, "There's no intention to ride roughshod over the rights of any community."

Enter the ESDC

So, when and how did the role of the UDC evolve from slum clearance to NyLovesBiz.com? Fast forward some 27 years. As the Buffalo News reported 2/2/95, new Governor George Pataki "Pataki has proposed sweeping changes that would consolidate the Department of Economic Development and Urban Development Corp. into a new agency, known as the Empire State Development Corp. Thirty initiatives will be abolished as a result."

In the Times, the first mention of the renamed ESDC came in another front page story, but the 6/4/95 article dominated not the news section but the real estate section. With the profile of new agency head Charles Gargano, the ESDC was no longer about slums; the headline was "Building a Business-Friendly New York."

The renaming solidified a process that had begun well before the Pataki administration, and was clearly expanding beyond urban areas. Predecessor Gov. Mario M. Cuomo supported a broad array of projects for the agency, including a waterfront park, the redevelopment of Times Square, an international trade center and hotel in Harlem, and a rail link from John F. Kennedy and LaGuardia airports to Manhattan.

As for the name change, the Times reported:
Mr. Gargano is even changing the name of the Urban Development Corporation, to the Empire State Development Corporation. The change reflects a decentralizing of the corporation in which the staffs at its regional offices will be "beefed up," Mr. Gargano said, to make these centers "one-stop shops" for businesses seeking development assistance. Outside New York City, the offices are in Albany, Binghamton, Buffalo, Fishkill, Ogdensburg, Plainview, Rochester, Syracuse and Utica.

Gargano did not go unscrutinized. In a 9/3/95 article headlined "A Powerful Fund-Raiser Who Also Oversees State Contracts," the Times reported on the tensions between Gargano's recent role as Pataki's chief fund-raiser and his current role heading state economic development efforts:
At times these last seven months, it has been hard to know which Charles Gargano was sitting at the table -- the one asking state business leaders for money or the one giving them the taxpayers' money.

Mr. Gargano is not accused of violating any laws. But his dual roles raise ethical questions that even the Governor has acknowledged in recent weeks that his administration must handle more carefully.


Now, as Gargano has finally left office, he's getting some further scrutiny, as the Village Voice has reported.

Looking at the law

The text of the law is worth a look, especially the segment about "private participation."

The lengthy Urban Development Corporation Act 174/68 in part declares the state policy to correct substandard, insanitary, blighted, deteriorated or deteriorating conditions, factors and characteristics by the clearance, replanning, reconstruction, redevelopment, rehabilitation, restoration or conservation of such areas, and of areas reasonably accessible thereto the undertaking of public and private improvement programs related thereto, including the provision of educational, recreational and cultural facilities, and the encouragement of participation in these programs by private enterprise.

For these purposes, there should be created a corporate governmental agency to be known as the "New York state urban development corporation" which, through issuance of bonds and notes to the private, investing public, by encouraging maximum participation by the private sector of the economy, including the sale or lease of the corporation's interest in projects at the earliest time deemed feasible, and through participation in programs undertaken by the state, its agencies and subdivisions, and by municipalities and the federal government, may provide or obtain the capital resources necessary to acquire, construct, reconstruct, rehabilitate or improve such industrial, manufacturing, commercial, educational, recreational and cultural facilities, and housing accommodations for persons and families of low income, and facilities incidental or appurtenant thereto, and to carry out the clearance, replanning, reconstruction and rehabilitation of such substandard and insanitary areas.
(Emphases added)

Maximum participation, 2007

When legislators in 1968 wrote a law, that, as an ESDC lawyer said in court two months ago, “tells ESDC to encourage maximum participation by the private sector,” were they contemplating a project like Atlantic Yards?

Unlikely, given the emphasis on "persons and families of low income." As the Times reported the day after the law passed, the goal was to get companies involved to revitalize the "slums.":
The "superagency" would offer financial help to private investors and developers to do the renewal work. If none could be found, the corporation itself could undertake the project.

What happened in the case of Atlantic Yards? Andrew Alper, then president of the New York City Economic Development Corporation, said at a City Council hearing in May 2004, "So, they came to us, we did not come to them. And it is not really up to us then to go out and find to try to a better deal."

Forest City Ratner attorney Jeffrey Braun echoed that at the first oral argument in the Atlantic Yards eminent domain case, on 2/7/07, saying that the courts shouldn't penalize "a developer for coming to the public agencies with a good idea."

Still, the "good idea" behind the Atlantic Yards project certainly differs from the projects envisioned by the legislators who passed the original law. That goal of "maximum participation" likely also will come up Thursday at the hearing in the case challenging the Atlantic Yards environmental review.

Court debate

At the 3/30/07 eminent domain case hearing, ESDC attorney Douglas Kraus invoked the agency's history: "Interestingly, the Urban Development Corporation, which created the Empire State Development Corp., set out in the act that the ESDC is to seek out maximum private participation in the projects that it approves."

He continued, challenging the plaintiffs' post-Kelo argument that the sequence should first involve a request for proposals. "Well, that's a nice rule, and the legislature could have adopted that principle when they enacted the Urban Development Corporation [40] years ago, but that's not--they didn't. They said in the UDC Act--we cited this in our brief--that the purpose of the act and the objective of the Urban Development Corporation should be to encourage maximum private participation. "

Forest City Ratner attorney Braun continued the argument: "The UDC was created to have the power to override local zoning. That's a very fundamental reason why the state legislature created that body. That function and that power has been sustained by the courts on numerous occasions as being proper. The UDC is charged by the State Legislature [with] trying to maximize private participation, the participation of private investment in redevelopment projects."

But the UDC was created with different goals than the ESDC and the effort to maximize private participation had very different roots.

The legal backup

There are some curious twists in an ESDC memorandum of law behind a motion to dismiss the eminent domain case:
ESDC, a creature of the New York State Urban Development Corporation Act of 1968 (the “UDC Act”), is one of several entities to which the State Legislature has delegated the sovereign power of eminent domain.... The agency’s “primary mission . . . is to encourage economic investment throughout New York State, and it does so in part by promoting large-scale real estate projects that create and retain jobs and/or reinvigorate distressed areas.” Develop Don’t Destroy Brooklyn v. Empire State Dev. Corp., 31 A.D.3d 144, 146, 816 N.Y.S.2d 424, 427 (1st Dep’t 2006). In carrying out its statutory mission and exercising its powers of eminent domain, ESDC is specifically directed to “encourag[e] maximum participation by the private sector of the economy.” N.Y. Unconsol. Law § 6252; see E. Thirteenth St. Cmty. Ass’n v. New York State Urban Dev. Corp., 189 A.D.2d 352, 358, 595 N.Y.S.2d 961, 964-65 (1st Dep’t 1993).
(Emphasis added)

Note how the "statutory mission" is not the same as the "primary mission;" the statute does not contain the language of the "primary mission," though the latter could be considered a partial summary.

ESDC's circular logic

The ESDC's statutory mission, which does include encouraging economic development, is broader than the self-described primary mission.

The source for the primary mission, as noted above in the memorandum of law, is an appellate court decision last year in Develop Don't Destroy Brooklyn's unsuccessful challenge to ESDC's authorization of emergency demolitions.

Even though the description is credited to a court, it comes directly from ESDC's own memorandum of law, which stated (p. 5):
ESDC is New York State's lead economic development agency. Its primary mission is to encourage economic investment and prosperity in the state. To this end, ESDC offers a wide range of development programs, and helps promote large-scale real estate projects that create and retain jobs and/or re-invigorate distressed areas.

The footnoted source for that definition is the agency's own mission statement.

It's a neat maneuver. The ESDC now claims in court that a New York State appellate court has provided a description of its primary mission. But that description comes directly from the agency's own legal papers.

And the mission statement does not directly track the language noted above in the ESDC's own memo. The mission statement contains the following language:
Empire State Development (ESD) is New York State's lead economic development agency. ...Our mission is to provide the highest level of assistance and service to businesses in order to encourage economic investment and prosperity in New York State. We work closely with businesses to: identify creative solutions to challenging problems, generate enhanced opportunities for growth, and help them achieve their uniquely important, short- and long-term goals.

Both the definition cited by the court or the ESDC's exact mission statement have their roots in the original UDC law. But the emphases have changed, as we've come a long way from the long hot summer that birthed the UDC and its "truly amazing powers."

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