Friday, December 05, 2008

Ravitch Commission says (if you read between the lines): Don’t do deals like Atlantic Yards

The big news yesterday out of the Commission on Metropolitan Transportation Authority Financing, led by Richard Ravitch, concerned proposals for a“mobility tax” on payrolls; tolls on now-free bridges; and a much smaller fare increase than feared.

However, reading between the lines, the Ravitch Commission, appointed in June by New York Governor David Paterson, also seems to be questioning the MTA’s stewardship of the Atlantic Yards deal, calling for a reform in governance and an increase in transparency.

AY in 2005

Remember, the MTA made a controversial September 2005 decision to negotiate solely with developer Forest City Ratner, which had offered $50 million in cash, though rival developer Extell bid $150 million, for a parcel appraised for the MTA at $214.5 million, inclusive of the cost of a platform.

Forest City Ratner contended its bid was worth far more, and its bid did promise $29 million in mass transit improvements (aka a new subway entrance), not part of the Extell bid, which was far less elaborate, given that the rival had a far more limited time to prepare.

Then again, Extell was apparently including the cost of a platform in its $150 million bid, thus boosting the total value over $200 million, while FCR contended that the platform it would build was worth an additional $99 million.

Note that the MTA’s appraisal said a platform should cost $56.7 million, so that was subtracted from a $271.2 million total development value to reach the $214.5 million appraised value. Suffice it to say that, while the FCR and Extell bids were not apples to apples (as opponents like DDDB suggest), FCR’s claims should not have been taken at face value.

Notably, one board member, Mitchell Pally, dissented significantly from the "done deal," and board chairman Peter Kalikow, a real estate executive who was a contributor to and appointee of AY advocate Gov. George Pataki, famously dissed the MTA's own appraiser, saying that the $214.5 million "is just some guy's idea of what it's worth."

"That was his opinion, and it wasn't borne out by the marketplace," Kalikow said, somehow forgetting that, given that Forest City Ratner was anointed as the developer for 18 months before an RFP was sent out to bidders, the platform wasn’t exactly level.

Governance changes

In a section on governance, the Commission suggests reforms:
Public authorities like MTA are intended to strike a balance between political accountability and political independence. Their governing boards, under the guidance of a Chairman, are expected to be sufficiently independent to make difficult and sometimes unpopular business decisions outside of the arena of elected politics, but to be held accountable to both elected officials and the public through objective measures of service and financial performances. The Commission is of the view that MTA’s current governance structure does not effectively balance these interests.

Before 2005, the Chairman acted as a CEO with the power to delegate powers to an Executive Director, but after 2005—and in time for the Atlantic Yards deal—executive responsibility was vested in an Executive Director serving at the will and pleasure of the board. While the Commission takes pains to say its recommendations do “not reflect on the individuals who have or are serving in the positions potentially affected by our recommendations” and makes no reference to deals like Atlantic Yards, it suggests a major change.

The report states:
The Commission is of the view that executive powers for running the MTA should be restored to an independent full-time MTA Chairman, serving for a fixed term. It is only a Chairman who can be perceived as sufficiently independent of all elected officials that can have the necessary credibility with all MTA constituencies, and particularly the Legislature, to successfully promote and execute the public programs necessary to enhance our regional public transportation system. Neither an Executive Director, recommended by the Governor and serving at the pleasure of the Board, nor a Chairman lacking the power to direct management of the agency so as to deliver on the commitments made to obtain funding, can fulfill these essential objectives.

More transparency needed

The Commission also calls for increased transparency, suggesting changes not via legislation but related “to agency processes, organization and culture.” While the recommendations deal with issues of the balance between capital costs and operating objectives, and procurement and delivery mechanisms, they also call for increased information.

The report states:
The Commission has also reviewed the capital program documentation made available by MTA to the public on a routine basis and believes that improvements in the specificity and detail of this reporting should be required so as to facilitate better understanding of the agencies’ actual performance in the execution of current and future capital programs. The MTA now makes available a considerable amount of information through the capital plan itself, amendments to the plan, monthly reports to the MTA Boards Capital Program Oversight Committee (CPOC), and the Capital section of the MTA’s Financial Plan that is released periodically over the course of the year. While there is no dearth of information, it is not altogether useful in its present form. Fundamentally, none of these documents permit a comprehensive review of the status of the MTA capital plan. For many projects, relevant information is unavailable or incomplete. And information presented in CPOC reports does not follow the project listings in the capital plan, does not cover many projects in the plan and is not made available on the MTA website.

Where's Vanderbilt Yard info?

Indeed, there’s barely a mention of the Vanderbilt Yard (search) on the MTA site, much less a way to track progress.

From the 2006 MTA Annual Report:
In Brooklyn, the development company Forest City Ratner is planning a multi-use project to be built in part over the Vanderbilt Yard of Long Island Rail Road adjacent to its Flatbush Avenue-Atlantic Terminal Station. The deal will become final once all of the requisite approvals are in place. Forest City Ratner has agreed to pay the MTA $100 million for the right to build a portion of its Atlantic Yard project over the tracks. Key to the project is an arena that will be home to the Nets professional basketball team that is currently playing in New Jersey.

From the 2007 MTA Annual Report:
In Brooklyn, the development company Forest City Ratner continues its planning for a multi-use project to be built in part over the Vanderbilt Yard of the Long Island Rail Road, adjacent to its Flatbush Avenue-Atlantic Terminal Station. The deal will become final once all of the requisite approvals are in place. Forest City Ratner has agreed to pay the MTA $100 million for the right to build a portion of its Atlantic Yard project over the current yard and to build a new yard for LIRR on adjacent LIRR property. Key to the project is an arena that will be home to the Nets professional basketball team that is currently playing in New Jersey.

That's not very informative.

Where's the $100 million?

In an MTA webinar last April, executive director Elliot (Lee) Sander expressed concern about the whereabouts of the $100 million in cash that developer Forest City Ratner in 2005 agreed to pay for the authority's Vanderbilt Yard. He said the money is assigned to the 2005-09 capital program--for which I could find no current reference on the MTA web site.

His statement:
There was approximately a billion dollars associated with the sale of MTA real estate assets to support that program. There are some monies there that look like there may be challenges to proceed upon right now. There is money there--100 million dollars associated with the sale of Atlantic Yards, and I think many of you have read in the newspapers some of the difficulty Forest City is having with that development, so hopefully that will proceed, but we want to make sure that that happens—but we’re concerned about that.

"Closing on the sale of the Vanderbilt Yards has been delayed as the parties work through a number of issues, including outstanding litigation," MTA spokesman Jeremy Soffin told yesterday's Daily News.

Maybe the new transparency will inform as whether the $100 million would be available for the 2005-09 capital program.

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