Thursday, August 14, 2008

In legal battle over AY environmental review, a realistic timetable is a casualty

The gulf between what’s legal and what’s truthful is on display in the appellate briefs in the legal case challenging the Atlantic Yards environmental review. The Empire State Development Corporation (ESDC) and developer Forest City Ratner (FCR) have responded at length to a host of issues raised by the appellants, Develop Don’t Destroy and 25 other civic groups, who saw their case dismissed at the trial court level in January.

For now, however, I’d like to focus on whether or not it was legitimate for the ESDC to assume, when it approved the project in December 2006, that the arena would open in October 2009, that Phase 1 would be finished by 2010, and the entire project would be finished by 2016.

The answer, according to lawyers for the ESDC and FCR, is yes, given that there was a timetable that said it was possible to physically construct the project within that time. Whether that timetable was realistic is another story.

ESDC: vague generalities

ESDC's brief states:
Appellants argued that it is “extremely unlikely” the Project will be completed by the 2016 build year, and that it will “almost certainly” require from five to ten years beyond that date to be completed. Judge Madden rejected this claim as being backed up only by “vague generalities and isolated statements made outside the environmental review process.”

[Appellants] add a few bells and whistles to their unsuccessful argument below, without addressing the fundamental deficiencies identified by Justice Madden… The primary basis for this argument remains the “vague generalities” and “isolated statements” discounted by Justice Madden. In addition, Appellants make the irrelevant observation that the start date for the construction schedule that formed the basis for ESDC’s selection of the build year slipped by a few months.


The ESDC points out the document:
The build year of 2016 for the Project was confirmed by a detailed quarter-by-quarter schedule prepared by Turner Construction Company, one of the largest construction contractors in the United States, which laid out the expected sequence and timing of all major activities required for completion of the project.
…Appellants proffer no credible evidence to indicate that the schedule prepared by Turner Construction and carefully reviewed by ESDC and its consultants was faulty in any material way. They provide no affidavits from persons knowledgeable in project scheduling, construction, or project management, and “do not identify any specific inaccuracies in the construction schedule.”


Actually, they could have done so. It turns out that, while the quarter-by-quarter schedule was not updated between the Draft Environmental Impact Statement (EIS) and the Final EIS, the Construction Impacts chapter was updated, doubling the time needed to reconstruct the Carlton Avenue bridge.

Add the two years needed to rebuild the Carlton Avenue Bridge to the one year needed to rebuild the Sixth Avenue Bridge and the result is three years--meaning that it was unrealistic to expect the arena to open for the 2009 season, even though the ESDC said it would (and so did Forest City Ratner).

"Forest City Ratner tells us that while the arena might be able to open without the bridge in operation, the goal is to have the bridge open in coordination with the arena's opening," ESDC spokesman A.J. Carter said last November. I’d say it would be completely unrealistic to open the arena without the bridge open.

What about Chuck Ratner?

Both the ESDC and FCR go to great lengths to discount statements made by Forest City Enterprises CEO Chuck Ratner in March 2007. The ESDC brief states:
In their attempt to discredit the 2016 build year, Appellants point to Charles Ratner’s comment that the project may last fifteen years. What they fail to mention, however, is that Mr. Ratner explained that his 15-year period referred “to the total time, from the idea or conception of the development to completion of the final building” and that he further stated that “[t]he actual construction of Atlantic Yards will take 10 years.” Mr. Ratner’s statement fully comports with the 2016 Build Year.


The FCR brief says:
Chuck Ratner’s statement... was mistaken and corrected immediately and, as the motion court recognized, is not persuasive evidence that the build years were unreasonable as of ESDC’s approval of the Project in December 2006.


Well, what if he’d said it three months before? And why should the court accept Ratner’s corrections? Remember, in the very same interview, he acknowledged:
That is--this is going to be a 15-year buildout, so obviously, we believe over time that we’ll be able to make up for this, as we have. MetroTech was a perfect example. We had the same kind of issue.

Indeed, MetroTech was supposed to take five years. It took 14.

Ratner then went off on a peroration on how even his 15-year estimate could be wrong: I’m confident that Bob is right, we will start within that time frame. I’m not at all confident of how long it will take us to finish.
We’re very good at estimating markets, we’re very good at estimating rents, at estimating lease-ups, and estimating costs. We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality.

In fact, though Ratner claimed the arena would open in 2009, at the time of his speaking, the three-year bridge reconstruction schedule pointed to 2011.

Short delay important?

The ESDC brief notes:
Appellants note that certain preparatory work slated to begin in November 2006 did not commence until February 2007 and declare that the “construction schedule… was already demonstrably inaccurate…” They then blow this asserted slippage of a few months out of all proportion… Appellants make no attempt to explain how a de minimis three month deferral of preparatory activities would result in a delay of the Project for five to ten years.


Well, maybe it wouldn’t. But it speaks to the reasonableness of the statements in the FEIS.

What about the Funding Agreement?

The ESDC says the court should ignore the State Funding Agreement, because it was signed in September 2007 and did not exist at the time the public approvals were issued.

Beyond that, the ESDC argues that it’s a mischaracterization to say the agreement “afforded FCRC twelve years… to build Phase I alone, and an indeterminate amount of time to build Phase 2,” because yet-to-be issued project documentation will require “commercially reasonable efforts to achieve construction of the Arena and the other buildings in accordance with the project schedule set forth in the GPP.”

Well, that's what it says in the funding agreement; we haven't seen the project documentation yet nor the penalties for non-compliance.

Legal delays

Moreover, said ESDC, it’s inappropriate for legal delays to cause constant updating of EIS’s. FCR brief continues:
Petitioners also contend that, when ESDC approved the Project, it... knew that eminent domain would delay the project.
This contention is outrageous. No court ever has held that a public agency conducting a SEQRA review is required to incorporate potential litigation into the construction schedule for a project for purposes of establishing a build year for environmental analysis... Moreover, to incorporate potential litigation into an environmental review would be wholly speculative...


Maybe courts won't enter into such an analysis. But does it pass the sniff test to think ESDC expected legal delays wouldn't affect the construction schedule? (Updated: After all, as a reader points out, the federal eminent domain case had been filed two months earlier.)

The rule of reason

Those challenging an EIS must prove that the agency was unreasonable and capricious. Thus, FCR’s brief concludes:
Because Petitioners have not established that ESDC’s selection of the build years for analysis in the EIS was unreasonable as of the time that ESDC approved the Project, there is no basis upon which to invalidate ESDC’s compliance with SEQRA.

Maybe not. But can we believe the construction schedule? Not when Chuck Ratner questions it himself.

And not when, in its 2007 Form 10-K Annual Report, Forest City Enterprises offered this boilerplate warning:
There is also the potential for increased costs and delays to the project as a result of (i) increasing construction costs, (ii) scarcity of labor and supplies, (iii) our inability to obtain tax exempt financing or the availability of financing generally, (iv) increasing rates for financing, and (v) other potential litigation seeking to enjoin or prevent the project for which there may not be insurance coverage.


And in its 2007 Annual Report to investors, FCE said:
While we cannot make any assurances on the timing or delivery of these projects, our track record speaks to our ability to bring large, complex projects to fruition.

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