Monday, June 30, 2008

FCR consultant Zimbalist adds millions to AY subsidy total, calls for ULURP hearings (not quite)

Andrew Zimbalist, the sports economist Forest City Ratner hired to produce a dubious study of Atlantic Yards costs and benefits, mostly dismissed a very big thing: the economic value of the tax-exempt bonds used to build the arena. And when writing about a very similar financing plan for the West Side Stadium, he called such bonds the equivalent of a public contribution.

So, would the $800 million in tax-exempt bonds for AY count as a public subsidy? Not under Zimbalist's logic, given that, in a 1/22/06 New York Times op-ed, he blessed a similar financing plan for the new Yankees Stadium, contrasting it with the West Side Stadium by noting that "the Bronx is already in a tax abatement zone."

But maybe that's not quite right--and it deserves scrutiny as the State Assembly takes up tax-exempt financing for the Yankees, if not the Nets, during a hearing on Wednesday.

There's increasingly less justification for such tax exemptions. Just as the city's longstanding 421-a tax exemption for outer-borough residential construction recently got an overhaul, given that the residential market had long since improved in certain neighborhoods, so have there been recent calls to reform the city's Industrial and Commercial Incentive Program (ICIP), on which the AY arena tax exemption would rely.

The PILOTs game

Let's recap. Neither Zimbalist's May 2004 report nor his June 2005 update looked deeply at the financing arrangement: the use of tax-exempt bonds repaid via PILOTs, or payments in lieu of taxes. Atlantic Yards critics, notably lawyer and urban planner Michael D.D. White, have argued that this essentially would give Forest City Ratner the arena for free, since it would be paying only the equivalent of real estate taxes, rather than both taxes and construction bond repayments.

The government's argument is that the waiving of taxes is an inducement to build (of course that should've raised the value of the railyard bid), while the PILOT arrangement--now questioned by federal regulators--allows the issuance of bonds. In fact, the Independent Budget Office, in its September 2005 report, did not treat it as the equivalent of a direct subsidy.

Zimbalist on the West Side Stadium

However, consider this contrast. In an 11/14/04 New York Times op-ed on the West Side Stadium headlined Games People Play, Zimbalist attacked PILOTs:
The proposed financing plan for the stadium contains other hidden public costs. Under the plan, the city and state would form a local development corporation. Among other things, this quasi-public entity would issue bonds to finance roughly $400 million of the Jets' $800 million contribution. The team would cover the debt service on those bonds. But it would do so under a financial arrangement known as a "pilot," or payment in lieu of taxes. To the extent that this payback scheme is in place of the Jets' paying sales and property taxes, doesn't it make sense for the $400 million to be considered a public, rather than a private, contribution?
(Emphasis added)

Note that, of the projected $950 million cost of the Atlantic Yards arena, Forest City Ratner CEO Bruce Ratner told the New York Times that $800 million in tax-exempt bonds would be sought.

Zimbalist didn't address that issue in his report. Rather, he suggested that only $200 million in direct contributions was expected and also inaccurately speculated that additional contributions were unlikely.

Foregone property taxes?

Zimbalist stated in his report on AY:
Second, FCRC will pay no property tax on the improved value (the arena) on the land. Nonetheless, to be cautious, I add the foregone property taxes as a cost to the city, after taking account of the as-of-right ICIP tax abatement program that would apply to any commercial building project on the site.


Zimbalist calculated a 2006 net present value of $24.6 million for those foregone property taxes; the only property taxes that would count would be the modest ones outside of the ICIP abatement. Thus the PILOTs disappear.

IBO's George Sweeting explained the arena tax benefit:
ICIP in that part of Brooklyn provides for 16 years of full exemption followed by a 9 year phase-in towards full taxes. There is also 'inflation protection' in the first twelve years.


ICIP reform

ICIP, which was created in November 1984 (its precursor was created in 1976), was due to expire today: June 30, 2008. A report, titled Senseless Subsidies, issued 5/29/08 by Manhattan Borough President Scott Stringer criticized the tax break:
Finally, in the spring of 2007, prior to the most recent reauthorization of ICIP, the City's Economic Development Corporation working with the Office of Management and Budget and Department of Finance, completed a study that identified ways to restructure and streamline ICIP to better target the types of development most in need of incentives. While the proposed reforms were not widely released, reportedly because of fear that they would be unpopular with developers, they were cheered by progressive and good-government groups. In the end, the state and the City failed to adopt the proposed reforms and passed legislation extending ICIP in its current form for one year, until June 30, 2008.


Stringer's report recommended some changes:
Already, in a large portion of Manhattan, ICIP exemptions are available only to businesses making a construction expenditure that is proportionally larger than expenditures made elsewhere in New York City. Other parts of the City benefiting in past years from strong real estate development should be similarly identified, and the qualification criteria for ICIP exemptions in these areas should be expanded to include a determination of need made by the NYC Economic Development Corporation. Such a determination of need would temper ICIP's unrestrained as-of-right approach, which has produced enormous fiscal losses for the City.
(Emphasis added)

Among the provisions driving the fiscal loss to the city, according to NYC EDC's report, include long benefit periods and inflation protection, both of which can cost the city but are worth little to developers as they make their decisions. The report recommends a shorter benefit period and elimination of inflation protection.

Both could shrink the tax exemption for the arena site, and thus could cap the amount of the PILOTs that would essentially be subsidies.

Only modest changes

As it turns out, the city supported only modest reforms, according to the New York Observer, citing both political pressure and the fear of slowing development. Mayor Mike Bloomberg, however, called the changes the result of "a hard look." (Here's the bill.)

Still, it's worth recalculating the amount of foregone property tax. And, as Zimbalist should have done, it's worth analyzing whether such incentives are in fact necessary for building on what Forest City Enterprises executive Chuck Ratner calls "a great piece of real estate."

In other words, if the financing for the West Side Stadium was a "payback scheme," wouldn't the same apply to the financing for the AY arena?

Zimbalist on democracy

In the West Side Stadium op-ed, Zimbalist wrote:
When Rudolph W. Giuliani was mayor, he opposed the idea of a referendum on public financing for a new Yankee Stadium on Manhattan's West Side. His reasoning was that were it put to a referendum, New Yorkers would vote it down.

Now Mayor Michael R. Bloomberg is doing Mayor Giuliani one better. He plans not only to avoid a popular vote but also to bypass a budgetary vote of the people's elected representatives on the City Council.

If the stadium's economic benefits are as obvious as Joe Namath asserts, the project's supporters should have no problem with standard democratic operating procedures and full disclosure.


Of course, with Atlantic Yards, the financing was not put to a referendum.

Nor did the City Council get a vote, as the project bypassed ULURP, the city's Uniform Land Use Review Procedure. If the arena's economic benefits are as obvious as the city, state, and developer assert, then there should have been full disclosure and democratic oversight, according to Zimbalist's logic.

But he's said nothing of the sort regarding Atlantic Yards.

To federal regulators, ESDC claims Forest City Ratner has "acquired" 85% of AY site

I've already pointed out how, in a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department, the New York City Industrial Development Authority and the Empire State Development Corporation (ESDC) cite Forest City Ratner's chimerical ten-year timetable in arguing that the PILOTs (payments in lieu of taxes) plan for arena financing should stand, even though the feds want to change the rules for tax-exempt bonds.

Here's another stretch. According to the "Atlantic Yards Chronology" (p. 6 of this PDF):
Forest City Ratner Companies ("FCRC"), the developer of the Project, has already acquired approximately 85% of the project site.

The word "acquired" covers a lot of ground. On the developer's own web site, the FAQ states:
With recent acquisitions included, FCRC now owns or controls 86 percent of the land needed for Atlantic Yards.
(Emphasis added)

What's the difference?

Here's a December 2006 property ownership map from the Empire State Development Corporation, which shows that the Metropolitan Transportation Authority railyard and city streets are not owned by the developer.

Also, remember that the developer once claimed 90% before a court said that property it claimed to control (Lots 5, 6, & 13 on Block 1129) was improperly leased. That case is under appeal. More background here on the difference between ownership and control.

In other words, the project isn't quite as far along as claimed.

Tax-subsidized stadiums vs. early childhood education? An expert's view

During the 10/10/07 hearing, Professional Sport Stadiums: Do They Divert Public Funds From Critical Public Infrastructure?, held by the Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform, Arthur Rolnick, Senior Vice President and Research Director, Federal Reserve Bank of Minneapolis (but speaking for himself only), explained why early childhood education is a much better public investment than sports stadiums.

Ranking minority member Rep. Darrell Issa (R-CA) was a bit skeptical.

Issa: Did you also look at physical fitness, health and welfare, aspirations of young people, everything else that goes when they go to one professional baseball game and they say, "I want to be like that. I'm going to join my Pop Warner and I'm going to do this." Did you look at any of the other -- did you apply those same metrics to that?

Rolnick’s response didn’t mention, uh, steroids, but he still knocked it out of the park.

Rolnick (below): Yes, we did. Actually, we did. And we do know that baseball is going to exist in this country whether we subsidize it or not. It was interesting when the Minnesota hockey team left Minneapolis for Dallas a number of years ago.

So what happened with those kids who loved hockey? They started to go to the high school games, they started to go to the college games. It isn't that entertainment, sports entertainment disappears. They started to go to some of the minor league games.

So recognize this entertainment is going to exist, but if you don't educate those kids starting at prenatal to five, and they start school behind, the market doesn't fix that. Those are the kids that end up behind. Those are the kids that cost society a huge amount of money.

Entertainment will be there. I will guarantee you, if we end the bidding war between cities and states, you will still see virtually every one of these teams in the major cities, as they are today, and your kids will be able to root for them.


Seriously, is the absence of professional basketball keeping young Brooklynites from playing hoops?

Former FCR executive Stuckey aims to cash in on insider info

Develop Don't Destroy Brooklyn points us to a web page for former Forest City Ratner executive Jim Stuckey's latest venture, Verdnat Properties, and questions his commitment to "sustainable, harmonious development."

The more important asset Verdant brings, however, may be the inside track. To quote the company's web site:
With over three decades of proven experience, and relationships with property owners and tenants; brokers and appraisers; architects and attorneys; title companies and accountants; and, lenders and investors – the principals of VERDANT PROPERTIES, LLC™ frequently learn of opportunities to acquire properties long before their competitors, and often times, these assets are never publicly marketed.
(Emphasis added)

Remember, Forest City Ratner was anointed developer of the Metropolitan Transportation Authority's Vanderbilt Yard 18 months before an RFP was issued.

So, would Brooklyn be 2010 or 2011?

A New York Times sports section article on Saturday, headlined By Adding Yi, Nets Hope to Expand Their Market, offered that not-so-credible 2010 date for the Nets' assumed Brooklyn move:
With sizeable Chinese communities in North Jersey and Brooklyn, where the Nets are scheduled to begin playing in 2010, Yi could be the Nets’ marketing answer to the Houston Rockets’ Yao Ming.

Yesterday, a Boston Globe article headlned His next stop, Brooklyn? gave a more realistic date:
While the struggling Knicks are New York City's longtime franchise, the Nets will get a piece of the Big Apple by moving to Brooklyn, probably in 2011. But in two years, don't be surprised if Jay-Z helps bring his buddy James to a franchise that will be attractive to play for by then.

I think 2011 is a more likely best-case scenario. Remember, the Nets are promising only "calendar year 2010," which might just be New Year's Eve.

Sunday, June 29, 2008

AY photobloggers Collins, Kinloch get their due

Check out the Brooklyn Review's A Walk Around the Blog to see Adrian Kinloch of Brit in Brooklyn and Tracy Collins of Not Another F*cking Blog talk about their work photographing the Atlantic Yards footprint and responding to Forest City Ratner's surveillance cameras with some counter-surveillance of their own.

Without "citizen journalism" of such high quality, the AY story wouldn't be told.

Saturday, June 28, 2008

The Post's Brooklyn Tomorrow advertorial is back

As I wrote last June, Brooklyn Tomorrow, the promotional magazine inserted in the New York Post and the Post-owned Courier-Life chain, is not labeled advertorial though it certainly reads as such. But the latest edition of the annual publication, featuring enthusiastic articles from bylined Courier-Life staffers, certainly helps explain why, despite considerable reason for skepticism, the Post editorial page last week twisted its way to an Atlantic Yards hooray.

The issue includes three pages of advertising from Forest City Ratner, one page for the New Jersey Nets, and a two-page article that is essentially advertorial, mimicking the developer's talking points: While some local critics complain they were not included [in the Community Benefits Agreement], few, if any, were not invted to sit at the table initially in this effort.

Oh, and what about this critique from Bettina Damiani of Good Jobs New York?

Last year's issue

Last year's issue (right) had Atlantic Yards on the cover, with Forest City Ratner or Barclays buying the back cover and the inside front and back covers.

What about the outdoor ads?

Interestingly, on neither of the covers, nor in the centerspread article in the current issue, does the Urban Room at the prow of the flagship tower show any advertising, even though we know that 150-foot tall signage is possible.

Forest City Ratner, in its two-page advertisement in this issue, at least hints at some of the advertising. Note the blue Barclays signs at the bottom of the rendering (below).

However, the perspective of the rendering, from above, obscures the fact that the signage would be quite imposing from a ground-level view.

What else is missing?

It would be unfair to single out the Post's gentle treatment of Forest City Ratner, because other developers get the same care. For example, the publication cheers the Toren, "a new angle on modern living," the 38-story tower at Flatbush and Myrtle Avenues, without mentioning any concerns raised about the 421-a subsidy that produced it or, as the Village Voice just reported, the use of non-union labor.

"Brutally weird" block party quietly canceled, as FCR apparently has second thoughts

The "brutally weird" block party scheduled for yesterday--on a to-be-demapped AY footprint block--by Community Benefits Agreement (CBA) signatories was canceled without public explanation yesterday. Apparently Forest City Ratner and its surrogates recognized that 1) it was bad form and 2) block parties usually involve residents celebrating their block, and there weren't any of them. (Image from DDDB.)

Well, there was some largesse distributed. As told to DDDB and to me by an eyewitness, CBA signatory BUILD (Brooklyn United for Innovative Local Development) and Forest City Ratner representatives "were out in front of the [homeless] shelter at 603 Dean handing out pizza, drinks and Nets tote bags to shelter residents." The shelter is on the block just below the block where the party was to be held.

Another eyewitness says the FCR rep acknowledged that the party idea was inappropriate. However, since party planners had put flyers up in the shelter promising food at the party, aiming to entice shelter residents, they had to come through in some way. Interestingly enough, flyers had not been put up elsewhere in the neighborhood, though they were circulated Monday by email.

A lie from Ratner's surrogate

According to the Real Deal, it was all about sensitivity:
Delia Hunley-Adossa, chairwoman of the Atlantic Yards Community Benefit Agreement, said the block party had been planned for months, but was canceled after the U.S. Supreme's Court decision Monday not to hear an eminent domain petition presented by property owners and tenants challenging the government's ability to seize their homes. The ruling followed a string of legal losses for the project's opponents.

"We wanted to be sensitive to the community that the decision came down Monday," said Hunley-Adossa, who works with both the developer and the community.

Daniel Goldstein of community group Develop Don't Destroy Brooklyn, a plaintiff in several lawsuits against the project, said that flyers were first emailed out Monday afternoon, soon after the Supreme Court's decision.

"The flyer was emailed out at 4:30 p.m. on Monday," Goldstein said. "The decision came out after 10 a.m. I believe that it was scheduled because of that decision and I believe it was canceled because somebody realized it was a really bad, offensive idea."


I guess we'll have to add this one to DDDB's list of lies, most of which look inarguable to me.

Friday, June 27, 2008

No-property-tax status was supposed to raise the price of the Vanderbilt Yard

There's another obscured benefit for Forest City Ratner in the bid for the Metropolitan Transportation Authority's Vanderbilt Yard. In its September 2005 report on Atlantic Yards, the city's Independent Budget Office (IBO) stated:
IBO’s estimate of new property tax revenue lost to the arena PILOT does not include a loss of property taxes for the MTA land that would be part of the arena building foot print. The city currently receives no tax payment from the MTA for the rail yard because the MTA, like other state entities, is exempt from local property tax. Under the MTA’s Request for Proposals, any developer acquiring the development rights to the site would probably enter into a long-term lease, leaving the MTA in place as the owner. Therefore, the property would likely remain off the city’s tax roll, resulting in no impact on the city budget. Indeed, the MTA has an incentive to make a deal that maintains the tax exemption in order to maximize the price it receives for the development rights.

(Emphasis added)

That hardly happened. Forest City Ratner paid $100 million in cash for property appraised at $214.5 million, and values its total bid at $379.4 million, though that's questionable. Meanwhile, the developer expects tax breaks worth [corrected] $165 million, as $800 million in tax-exempt bonds are repaid by PILOTs (payments in lieu of taxes).

It doesn't sound like the MTA maximized much.

City says Yankees' PILOTs wouldn't exceed property taxes, but where's the backing data?

Wasn't there a chance the PILOTs (payments in lieu of taxes) used to pay off tax-exempt bonds for the Yankees and Mets stadiums would exceed the foregone real estate taxes and thus run afoul of federal rules? The city's Independent Budget Office certainly thought the annual Yankees PILOT might exceed those taxes.

And I thought that the same cap might pose a problem even if the city and state officials manage to get the feds to allow tax-exempt bonds for the planned Atlantic Yards arena under the lenient "loophole" provided to the Mets and Yankees.

Then again, you have to think that city and state officials would make sure the numbers work out. In fact, as a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department from the New York City Industrial Development Authority (NYC IDA) and the Empire State Development Corporation shows, the estimated tax for the Yankees would be $62.5 million, while the PILOTs would be only $56.7 million. That's room to spare.

I speculated there would be much less room to spare regarding Atlantic Yards, but we can assume that numbers can be massaged.

Source of estimates

Then again, where exactly did the numbers for the Yankees and Mets come from? As the footnote says, Moody's Investors Service, a company that offers credit rating and risk analysis. The numbers are projections, rather than reports from the city tax assessor. I asked NYC IDA for more information and a look at the relevant report pages, but I didn't hear back.

The calculations behind those projections deserve a closer look. Neither the federal agencies, nor Assemblyman Richard Brodsky's Committee on Corporations, Authorities & Commissions, which will hold a hearing on tax-exempt bonds, should let the numbers stand without some backing data.

Gargano flashback: "no taxpayer money will go to build a sports arena"

Develop Don't Destroy Brooklyn points to a 8/23/04 interview with Charles Gargano, then chairman of the Empire State Development Corporation, who seemed definitive that there would be no help for Forest City Ratner's Atlantic Yards arena:
The governor and I have made it clear for nine-plus years that no taxpayer money will go to build a sports arena. We will consider helping with infrastructure improvements, like a platform over the rail yards on the West Side or new subway stations, which helps the public at large.

Direct subsidies to arena

DDDB points to the wide universe of support for the arena, such as support for tax-exempt bonds, and cites much evidence that the arena is a priority, despite Gargano's claim that "we don't care about the arena."

Even looking narrowly at only direct subsidies, Gargano should have known that the city and state committed in the project Memorandum of Understanding to more than infrastructure. According to a 3/4/05 ESDC press release:
Under the MOU, the State and the City will each contribute $100 million in capital contributions to fund site preparation and public infrastructure improvements on and around the arena site, including streets, sidewalks, utility relocations, environmental remediation, open space and public parking.

Actually, the MOU allowed some wiggle room, stating:
The City’s capital contribution shall be used for the same purposes as the ESDC’s capital contribution [site preparation and public infrastructure improvements], except that the City's capital contribution may also be used to fund a portion of the costs of acquisition of the Arena Site (other than the MTA Properties).

(Emphasis added)

That suggests that city taxpayer money would be used for both infrastructure and property acquisition. The word “except” did allow the city to use its capital contribution for property acquisition, but the phrase "may also" suggested that the city's $100 million would not be used exclusively to buy property.

Instead, that $100 million in fact was used to buy property rather than pay for infrastructure, and the city has since added another $105 million.

Congressman offers unskeptical endorsement of Zimbalist's dubious AY study

In Congress last year, Andrew Zimbalist's dubious study of Atlantic Yards for Forest City Ratner got a mindless endorsement from the ranking minority member of the Subcommittee on Domestic Policy of the Committee on Oversight and Government Reform of the House of Representatives, even though an expert witness warned that accepting studies that were not peer-reviewed was akin to federal drug regulators embracing reports created by the drug companies themselves.

It was during the 3/29/07 hearing called "Build It and They Will Come: Do Tax Payer-Financed Sports Stadiums, Convention Centers and Hotels Deliver as Promised for America's Cities?"

Subcommittee Chair Rep. Dennis Kucinich (D-OH) had elicited critical testimony from several observers. At one point, asked by Rep. Danny Davis (D-IL) whether there was room for public-private partnerships in sports facility construction, Frank Rashid of the Tiger Stadium Fan Club responded (see p. 61 of this transcript):
I think each project has to be looked at very carefully and really independently analyzed, and that is the problem. Right now, there is no independent analysis. I think if there were, we would see considerably fewer publicly funded stadiums and a lot more money from the private sector in those projects.

There is a whole set of powerful interests that can control the debate. What really needs to happen and where I think federal enforcement would be valuable is in establishing requirements that there be real solid and verifiable analysis for each project, and that is not done.


The value of peer review

During that same hearing (p. 68), Brad Humphreys, an economist and professor at the University of Illinois at Urbana-Champaign pointed out how the public can be hoodwinked:
I also want to point out for people who are trying to decide on these subsidies, that there are two types of evidence that we have about what the economic impact of professional sports facilities are. One are these promotional studies or economic impact studies that are generated by proponents of these subsidies, and they typically find huge economic benefits. This other type of evidence that we have is scholarly, peer-reviewed academic research, the kind that I do.

Often in the court of public opinion, these two types of evidence are treated equally, and I would argue that is a very bad public policy... One of the previous panelists said that we need to have independent oversight... That is what peer-reviewed academic research is....

We don't make policy about drugs and things like that just based on what pharmaceutical companies say. We have research that is peer-reviewed, that tells us about those things. We should have the same sort of standards when we are considering whether or not there is economic benefit to be gained from professional sports.


Fluffing Zimbalist

Still, later in the hearing, some non-peer-reviewed research, albeit with an academic gloss, was promoted by Rep. Darrell Issa (R-CA), the ranking minority member. He declared (see p. 123):
Mr. Chairman, I would also like to put into the record an economist's study from the Robert A. Woods professor of economics at Smith College in Massachusetts. It is from May 1, 2004, and it specifically deals with Atlantic Yards, estimating that the total of $2.93 billion over 30 years or a net present value of $1.08 billion would be the advantage for that operation. Although it may not be the one that is going to carry the day, it certainly seems that independent bodies such as university economist very much believe that there can be a net economic benefit, and I ask that be placed in the record.

Except that Zimbalist was a consultant "retained" by the developer, not an "independent body," his study was deeply flawed, and it was never peer-reviewed (nor the subject of journalistic scrutiny).

With Jefferson gone from the Nets, the AY permanent campaign adjusts

Now that Nets forward Richard Jefferson has been traded to Milwaukee for Yi Jianlian and Bobby Simmons, the Nets page on the Atlantic Yards web site has been updated--likely temporarily--to feature one player (Vince Carter) and two owners (Bruce Ratner and Jay-Z). Click to enlarge.

In the previous iteration of the page (below), Jefferson occupied the slot currently held by Jay-Z. Of course, before team leader Jason Kidd was traded to Dallas for Devin Herris, the page featured a Carter/Kidd/Jefferson/Nenad Krstic panorama, plus a shot of Kidd alone.

A new Chinese fan base?

So what does the trade mean? Here's one comment on NetsDaily: This looks like more of a business move than anything else. We’ll make more money as an franchise now because of the chinese fanbase, but we lose a team leader. I’ll agree that RJ wasn’t a great fit with VC, and Yi has some serious potential, but it hurts to see RJ go out like this.

Well, the Nets are offering free Yi jerseys to anyone who buys a season ticket. And there is money to be made in China thanks to an association with a Chinese star.

Clearing cap and rebuilding

Here's Peter Vecsey in a New York Post column headlined EYES ON BROOKLYN today:
Clearing cap room two years ahead of time on the belief James' outwardly magnetic bond with Nets' minority owner Jay-Z (it's not as if he rhymes as tight as Biggie Smalls) will influence him to forsake his home state of Ohio is like building an elaborate spec house just across the Brooklyn Bridge in today's saggy, baggy real estate market.

Yet here we have intrepid Nets' owner Bruce Ratner (from Cleveland), no less doing both!

At the same time, Ratner and henchmen, Rod Thorn and Kiki Vandeweghe, are radically "rebuilding" the team by tearing down its foundation.


From NetsDaily:
Tonight was about divorcing the Nets from New Jersey and its recent (ugly) past and preparing the franchise for Brooklyn, getting younger, saving cap space, waiting for Lebron [James].


The permanent campaign adjusts

What's clear is that the Nets, with five new players and a young guard in Harris, are rebuilding, and two of the three stars paraded to help sell the Nets to Brooklyn, Kidd and Jefferson, will be long gone before an arena opens. But they served their purpose in the Atlantic Yards permanent campaign.

Last night, the Nets held a draft night event for fans at the Brooklyn Brewery in Williamsburg, which drew an enthusiastic crowd enjoying free food and drink and a chance to hobnob with the ubiquitous Nets vet Albert King. The two jerseys on display were those of Carter and Harris. Let's expect one for Yi pretty soon, as well.

Thursday, June 26, 2008

For Ground Zero, Paterson promises timeline candor; for AY, it's the party line

Regarding Ground Zero reconstruction, Gov. David Paterson has expressed skepticism about the professed timetable, and asked for clarifications. Despite reasons to doubt the professed timetable for Atlantic Yards, he has not merely failed to express skepticism, his administration has endorsed the chimerical timetable asserted by developer Forest City Ratner.

Two weeks ago, Paterson wrote to new Port Authority head Christopher Ward:
To this end, I am asking you – in your role as the new Executive Director of the Port Authority – to complete a comprehensive assessment to determine if the current schedules and cost estimates for reconstruction are reliable and achievable. If they are not, I would like an evaluation of what viable alternatives exist to get the project back on track or whether we need to alter our targets to meet the reality on the ground.


Last night, speaking at an event honoring the "Observer 100" in real estate, Paterson reiterated his concern. "We need to find workable and sensible and achievable goals, as opposed to what we have to lived with in the most recent past," he said. "This is why I've asked the Port Authority to come out with a report that will be available next week, on the real numbers about Ground Zero, the real deadlines, and the real timetables of that project."
(Emphasis as delivered)

The audience applauded.

"I don't know if you're going to like what you're going to hear, but it will be honest," Paterson continued. "The same type of scrutiny must go to the idea of expanding Moynihan Station..."

What about AY?

Paterson didn't mention Atlantic Yards, but some of the same concerns apply. After all, even an Atlantic Yards supporter like Comptroller Bill Thompson has said, “I’m not sure what that project is any longer."

However, in a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department, the New York City Industrial Development Authority and the Empire State Development Corporation (ESDC) cite the chimerical timetable in arguing that the PILOTs (payments in lieu of taxes) plan for arena financing should stand, even though the feds want to change the rules for tax-exempt bonds. (Here's the letter in full.)

Part of the argument is that Atlantic Yards has already proceeded significantly. But a realistic timetable would acknowledge the project is much farther away from its completion date.

Arena 2010, project finished in a decade?

The letter states (click to enlarge):
In order to illustrate the substantial progress that has been made with the Project prior to the issuance of the Proposed Regulations, we have provided the chronology of events set forth below. The Project commenced in 2003; the Arena is anticipated to be completed in 2010, and the balance of the Project is expected to be built over the next decade.

The claim that the arena would be completed in 2010 is doubtful, and the developer's shifting rhetoric offers little confidence. (Fun flashback: in a 10/30/04 Brooklyn Paper article, uberflack Joe DePlasco claimed, "There’s no reason to think the team is not moving to Brooklyn for the 2007 season.")

The claim that "the balance of the project" would be "built over the next decade," which is extremely unlikely, given the loose deadlines for the arena and Phase 1--and the lack of any deadline for Phase 2--in the State Funding Agreement, not to mention the other snags in Bruce Ratner's projections.

A lawyer for the ESDC, in court on Monday, asserted that the developer must make “commercially reasonable efforts” to move forward. "It means you have to try your hardest,” he said, but acknowledged that “external circumstances”--presumably the credit market, among other things--"should be taken into account."

So the IRS and the Treasury Department should take the ESDC's claims with a big grain of salt. And Governor Paterson should explain why he approaches Ground Zero with much more skepticism than he analyzes Atlantic Yards.

Who spent $219 million on AY? The city and state obscure the issue

In a 5/8/08 letter to the Internal Revenue Service and U.S. Treasury Department, the New York City Industrial Development Authority and the Empire State Development Corporation (ESDC) argue that the PILOTs (payments in lieu of taxes) plan for arena financing should stand, even though the feds want to change the rules for tax-exempt bonds. (Here's the letter in full.)

Part of the argument is that Atlantic Yards has already proceeded significantly. But on more than one issue, the city and state obfuscate rather than explain. For example, consider this passage about Atlantic Yards spending (click to enlarge):
In order to illustrate the substantial progress that has been made with the Project prior to the issuance of the Proposed Regulations, we have provided the chronology of events set forth below.... Substantial amounts have been spent on the Project: approximately $99 million prior to 2006 (of which $15 million related to the Arena) and approximately $219 million prior to 2007 (of which $47 million related to the Arena).
(Emphasis added)

Note that $47 million is a little less than 5% of the cost of the $950 million arena.

Who spent the money?

More importantly, note that the passive sentence construction fails to identify who has spent such substantial amounts. The ESDC confirms that the spender is not the city or state but developer Forest City Ratner.

[Update 7/19/08: I should've pointed out that the city and state have already passed along $55 million in public funds.]

Should tax-exempt bonds not be issued and if, for some reason, Atlantic Yards goes down the tubes, the expenditure of $219 million need not represent a loss for Forest City Ratner. Yes, some expenditures, such as for legal and architectural services, may not be recompensed, but surely the value of the land has risen.

Bloomberg's desire to control board members is part of why public authorities reform bill died

Yes, the bill to reform public authorities in the state was derailed by last-minute objections raised by Mayor Mike Bloomberg, drawing a furious reaction from Assemblyman Richard Brodsky, the sponsor.

In a letter to Bloomberg Monday, Brodsky wrote:
We have been working on ways to reform public authorities for five years. The investigations we’ve conducted, often with other Committees of jurisdiction, include the activities of the MTA, the Power Authority, the Javits Operating and Construction Corporations, ESDC, the Long Island Power Authority, the Thruway Authority, the Capital Resources Corporation, The New York City IDA, the Port Authority, and many, many others. What we’ve concluded is that public authorities are making critical decisions about the daily lives of New Yorkers, and are often wildly out of control, sources of unrestrained debt, hosts to repeated incidents of malfeasance and corruption, secretive and unaccountable, and in the end as close to Soviet-style bureaucracies as anything we have in government.

We can recite the painful specifics at enormous length. At the MTA, we’ve seen the criminality of the 2 Broadway deal, the secret cash assets, the controversies about EZ-Pass and real estate deals, and others. We’ve seen massive subsidies provided for sports facilities, favoritism at the Erie Canal, intervention by powerful former public officials at the Port Authority and MTA, repeated failures to consummate development deals on the West Side of Manhattan, hundreds of millions wasted at the Javits Convention Center, the list goes on and on.

Our work has been assisted by the private sector, most notably by the Millstein Commission, and we have produced a sweeping reform bill that will fundamentally change these authorities, and return them to the control of democratic institutions. Last year the Governor and Assembly agreed on legislation which we passed, while the Senate passed a very similar bill. All this was known to the City. Now, at the last minute the City has produced a list of demands which would destroy the progress we’ve made on reaching a consensus, make the system worse than it is today, and leave the problems we’ve identified completely unchanged.
(Emphasis added)

Previous reports

Here are links to previous reports on public authorities reform: Public Authority Rreform: Reining in New York's Secret Government (2/04), by the New York State Comptroller; PUBLIC AUTHORITIES IN NEW YORK STATE: Accelerating Momentum to Achieve Reform (2/05), by the New York State Comptroller; Public Authority Governance in New York State: Members of Boards of Directors (8/04), by the New York State Comptroller; and Public Authorities in New York State (4/06), by the Citizens Budget Commission.

Fiduciary duty

As I wrote last week, notably, the bill would require a fiduciary duty of authority board members--a duty of care arguably lacking in the Empire State Development Corporation's (ESDC) treatment of the Atlantic Yards project.

Bloomberg opposed such a rule; while he doesn't have appointments to the ESDC, he does appoint members of the Metropolitan Transportation Authority and other boards.

Brodsky wrote:
First, you seek law that undercuts the fiduciary duty to the authority that permits a board member to “act in a manner consistent with the policies of the elected or appointed official” who appointed them. The laws creating public authorities sets forth a statutory mission, transportation for the MTA, economic development for ESDC, etc... . There is no basis for leaving control of those missions in the hands of local or state officials who have conflicting, if important, other goals and concerns. This would leave organizations like the MTA as mayoral or gubernatorial agencies without even the protection of legislative control of their budgets.

City Council Members propose bill that would require EIS-like reports for subsidized projects

A group of City Council members and advocacy groups yesterday announced the introduction of legislation designed to ensure that projects eased by tax breaks and bond financing are accompanied by economic impact reports. Whether such reports, which would resemble mini environmental impact statements (EIS’s), could make a major difference is an inevitable question, but proponents said it’s a start.

Such data would include housing cost impacts; anticipated resident and business displacement; number of jobs to be generated; types of jobs to be generated; wage and salary data; number of employees with health benefits; impact on community infrastructure including the provision of police, fire and emergency medical services, sanitation, water supply, waste water treatment, services provided by the Department of Health and Mental Hygiene, the Health and Hospitals Corporation Corp and privately owned hospitals, public schools and public transportation services.

Yes, it sounds a lot like the EIS’s required of certain large projects; indeed, City Council Member Charles Barron, one of the sponsors, explicitly made reference to them, saying that “this can stop things like gentrification.” He spoke at a press conference on City Hall steps that was attended, as far as I can tell, by just one reporter.

Enforcement questions

Easier said than done, given that EIS’s don’t necessarily do that (see: Atlantic Yards, which Barron has condemned). Still, it represents an effort by communities to get ahead of top-down development. “This represents grassroots planning,” said City Council Member Letitia James. “A first step toward performance-based subsidies,” added Brad Lander of the Pratt Center for Community Development (and a City Council hopeful himself).

What if the numbers are fuzzy? “We can’t prevent people from lying,” acknowledged City Council Member Al Vann, the lead sponsor, “but there has to be some truth.”

What if the expected impacts don’t come true—could there be penalties? Such provisions, Vann allowed, could be discussed at a public hearing. For now, it seemed, getting on the agenda in the first place is their goal.

On the DMI Blog, Mark Winston Griffith raised some of the same concerns:
The greatest danger in this legislation is, instead of making it more difficult for developers to usher in toxic projects, it would simply facilitate a public relations opportunity for the developers to make rosy projections and claims that they have no intention of honoring.


Still, he said it could be a positive step. One example of a state that’s gone father is Minnesota, where, as State Sen. John Hottinger described it in September 2006, subsidies in excess of $100,000 must to be subject to public hearings and a “clawback” clause requires businesses that fail to reach stated job creation goals to repay a portion of the subsidy.

Besides the Pratt Center, other organizations backing the bill include the National Employment Law Project, and New York Jobs with Justice.

Quietly, state board approves NYU's absorption of Polytechnic

Yes, the State Board of Regents, as expected, approved New York University's no-money-down absorption of Brooklyn's Polytechnic University. Yes, the dailies missed the story. Polytech brass are enthused, calling it a "partnership," a term also used by the NYU provost.

Polytech alumni say a group of alumni, former and current trustees and faculty members, independent of the Alumni Association, filed a Petition to stay the vote and remove the Polytechnic Board of Trustees under Education Law 226(4).

Wednesday, June 25, 2008

Brutally weird: a CBA block party on Pacific Street in the AY footprint

Permits for block parties in the city must be acquired 60 days ahead of time, so let's assume that the Atlantic Yards Community Benefits Agreement BLOCK PARTY! was scheduled well before the Supreme Court decision Monday not to accept the AY eminent domain appeal. Still, the event was not announced until late Monday afternoon.

That's curious. Stranger still, and brutally weird, is the location of the party: Pacific Street between Carlton and Vanderbilt avenues in the AY footprint, opposite the under-demolition Ward Bakery, where a stop-work order exists and where the handful of residents left are, as far as I know, plaintiffs in the eminent domain case or their relatives. As Develop Don't Destroy Brooklyn comments, "Call us crazy but we thought block parties were thrown by PEOPLE LIVING ON THE BLOCK."

In other words, the "community" celebration is on a block scheduled for Phase 2 of the project, without start date or deadline, threatened by "condemnation blight." (And, as I've been reminded, the block will be demapped for the project, so it won't exist.) An email informs us that the organizer is Delia Hunley-Adossa, who also MC'd the strained "Brooklyn Day" rally.

A Stadium Story: eerie echoes, curious contrasts, and cautionary lessons for AY

Remember the battle over the West Side Stadium, that 15-month donnybrook, from March 2004 through June 2005, that dominated the city’s discourse over sports facilities, leaving scant attention for the Atlantic Yards and baseball stadium controversies?

The documentary A Stadium Story, screened in 2006 but not yet in wide release, offers some eerie echoes, curious contrasts, and cautionary lessons for Atlantic Yards watchers. (The film is well worth watching; for now, it’s available for $25 from the official web site, but it should be distributed soon, according to the filmmakers.)

Summary of the battle

The stadium, to be built on Metropolitan Transportation Authority railyards west of Penn Station--the Hudson Yards site--was to serve not only as the home of the New York Jets, to be relocated from the Meadowlands (accessible pretty much only by car), but would be the centerpiece of the city’s bid to host the 2012 Olympics and also, with a retractable roof, be home to trade shows and other events.

The battle, at least as portrayed by filmmakers Benjamin Rosen and Jevon Roush, was at essence much simpler than that over Atlantic Yards. The stadium plan was backed by the city and state and many in the business community, with the most significant public support coming from unions seeking jobs. The opposition consisted of a community coalition wanting to preserve the neighborhood--but the film could explain more about their connections to local politicians and doesn't show their critics who saw them as sellouts.

Some rhetoric from backers and opponents sounds remarkably similar to AY watchers. However, in Brooklyn, Forest City Ratner wisely recruited community support via the “50/50” affordable housing plan and the Community Benefits Agreement (an effort praised by an unskeptical press), thus turning "community" into battle tinged by race and class, and also lined up support from many local elected officials. Thus some of the officials who looked carefully at the West Side Stadium and wound up as critics, such as Council Member (now Speaker) Christine Quinn, failed to apply such scrutiny to the fuzzy numbers of the Atlantic Yards plan.

Then again, stadium opponents had a wealthy patron, Cablevision (owners of Madison Square Garden), to amplify their criticisms. Thus what on one level seemed liked a David-and-Goliath story was, at least from the perspective of lobbying expenditures, much more of a fair fight.

If Atlantic Yards opponents had had such a megaphone, the public debate, if not the result, would have been different. Even so, the protracted Atlantic Yards battle--already three times longer than the West Side Stadium fight--suggests that the issues raised and the opponents' effort deserve to be taken seriously.

Notable lessons

The West Side Stadium story offers some notable lessons for the city and for AY.

  • First, though the "community" fought off the stadium, it hardly beat back very big development, given the re-emergence of the Hudson Yards plan.
  • Second, though union leaders suggested that the battle was between "jobs" and "no jobs," the eventual development will in fact create many jobs.
  • Third, though city officials and the Jets went to bat for a low-ball value for the railyard at issue, a test in the market--then and this year--showed that others considered the property quite valuable.
  • Fourth, as the Jets' Jay Cross observes wisely in the film, “This is my third sports facility. I learned early on that sports facilities in the context of urban environments are not about sports. They’re about metro politics.”
Opening echoes

Upon the announcement of the project in March 2004, the rhetoric offered echoes of the Atlantic Yards debate. We see construction workers chanting “Build It Now.” Mayor Mike Bloomberg declares, “This is the right building at the right place at the right time, and we’ve got the right people to build it,”sounding very much like Borough President Marty Markowitz, who has said (in multiple variants) “Atlantic Yards remains the right project, in the right place, at the right time for Brooklyn.”

Then we meet John Raskin, the (paid) organizer for the opposition (right), introduced as an affordable housing advocate. He’s a recent graduate of Harvard, reflecting on the contrast between his path and those taken by classmates who went into Wall Street or consulting jobs.

At a rally, we hear some opposition rhetoric. “I object to this mayor and deputy mayor stopping light and air of being part of the Far West Side,” says one volunteer. “It’s morally wrong.” Adds Raskin, “There is legitimacy in having a community on the Far West Side.”

While the film doesn’t circle back to this explicitly, the opposition later embraces a plan that would stop a lot of light and air--and the ultimate result expected on the site would do so as well.
Meeting Deputy Doctoroff

We get a sense of how much Bloomberg admires Deputy Mayor for Economic Development and Rebuilding Dan Doctoroff: “There is nothing that I could say laudatory enough about this next speaker and his impact on the future of eight million people, of the city, of the state, and really of this country.”

Then the film cuts to Doctoroff, at a dais and in an interview: “Literally the first day that I walked in the door as deputy mayor I was in a position to think about a much broader vision for the West Side... What we are announcing today is the centerpiece of a plan to take that area, one of the least productive, the least occupied places in New York City and turn it into one of New York’s great places.”

The plan, he reveals, was spawned a decade before, after seeing a World Cup match. There would be hundreds of millions of dollars a year of tax revenues, he asserts, and “thousands and thousands of jobs... what it does is fills this area with people, fills it with activity...it will accelerate the transformation of Hudson Yards to a place.”

More combatants

By constrast, Raskin’s employer, Joe Restuccia, a small-scale affordable housing developer suggests, “We’re not in a place where the city itself, like Cleveland, has died, and you’re desperate for some anchor to put something in,” he says. “We are New York City, we are Manhattan, on the West Side, it’s not the prairie."

Then we meet local Jim Mahoney, the salt-of-the-earth business agent for Local 580 of the Ornamental and Architectural Iron Workers. “I believe working people should have a voice,” he says. There’s a sympathetic scene in which he counsels an anxious member who’s been out of work too long.

"There’s not a lot going on, but we’re not gonna get busy,” he says, sounding a little like Frank Sobotka, the embattled union boss in the HBO drama The Wire.

Raskin acknowledges some ironies. “One of the things that makes neighborhood people really uncomfortable about these hearings is that we have to fight construction workers,” he says, pointing out that residents in nearby housing developments have a history in the labor movement.

“We’re both Democrats,” says one artsy-looking protestor after tangling with Mahoney.

“I’m borderline socialist,” admits the union boss.

Raskin offers some perspective: “I think it’s kind of disorienting for a lot of people who are politically active, because there’s no clear ideological distinction. The stadium is not a liberal idea. It’s not a conservative idea. It’s a good idea or a bad idea.... It makes for strange bedfellows, but it also makes for strange sparring partners.”

Similarly, with Atlantic Yards, many traditional liberals support the power of the state to exercise eminent domain for redevelopment, but the closer they get to Atlantic Yards, the more they're willing to challenge it and ally with libertarians like the Institute for Justice.

Public hearings

Hours of public hearings are boiled down to some sound bites, so, while I can’t say how representative the clips are, there are some echoes of the AY fight. One hearing opens with an Empire State Development Corporation representative blandly reading the description of the project--as at the AY public hearing, such boilerplate prompted cheers and boos.

What’s notable is the anti-stadium posturing by elected officials. A finger-pointing Rep. Anthony Weiner (below), who wasn’t exactly representing the area but was running for mayor, declares, “They’re taking perhaps the most lucrative piece of real estate in the entire country, if not the world, and they’re giving it away for a bargain basement price.”

Assemblyman (and later Manhattan Borough President) Scott Stringer says scornfully, “Nobody, nobody has ever come up to me and said, ‘Scott, we need a stadium on Manhattan’s West Side.’” (The MTA’s Vanderbilt Yard had been identified in 1974 as a possible site for a Brooklyn arena.)

Doctoroff acknowledges that “the Olympics are a catalyst to getting things done. They impose a firm deadline.” We hear a debate about what benefit exactly the Olympics might bring, given mixed results in other cities.

Some outside reflection

The filmmakers gather a couple of journalists to comment on the process. “In a sense, this is the last frontier,” observes Charles Bagli, real estate and development reporter for the New York Times. “There is no other neighborhood where you have a chance to do large scale construction.”
Bagli calls Doctoroff “a very bright guy... a master of the PowerPoint presentation. When he makes a presentation, you think he’s thought of everything. But I think that he also has a very transactional view, coming from Wall Street, so that everything’s a deal, and he forgot he had to build a political coalition.”

Bagli has been saying recently that the era of the grand PowerPoint is over; apparently, he’s talking about Doctoroff.

Sweetheart deal?

“If the return is so great,” asks City Council President Gifford Miller, “why wasn’t it opened up for people to make a seriously competitive bid?” The same question could have been asked about Atlantic Yards; the MTA’s Vanderbilt Yard was put up for bid 18 months after the city and state backed Forest City Ratner’s plan.

Then there’s glaring evidence of a sweetheart deal. “There’s a very public document we executed last March,” declares Jets president Cross. “[We] pledged to pay fair market value to the MTA for use of the site.”

“So what do you think fair market price is?” asks Quinn.

Doctoroff demurs: “I’m not an appraiser and this is really going to be an issue for the appraiser.”
“I wouldn’t speculate,” Cross continues.

“You did, you said it was worth $35 million,” Quinn responds.

“Exactly,” Cross confirms. “I wouldn’t say speculation. That was an appraisal.”

$35 million! His cool demeanor masks what is obviously a huge benefit to the Jets and a reminder that appraisals can be gamed. (See the lingering questions over "Arena land.") Indeed, in a 2/4/05 New York Daily News interview, Cross acknowledged that the Jets told their appraiser they’d offer $100 million, “which, last time I checked, is not chump change.”

Well, six weeks later, as the Times reported, Cablevision had bid $600 million and Transgas $700 million, “although those two bids contain conditions that make it difficult to compare directly to the Jets' bid.”

It’s a reminder how the MTA’s own appraiser valued the Vanderbilt Yard at $214.5 million, Forest City Ratner bid $50 million and rival Extell bid $150 million--which led the MTA board to negotiate exclusively with FCR, which upped the cash component of the bid to $100 million. (FCR values its total bid at $379.4 million.)

Exactly what the city and state were contributing, and whether the Jets were “making a private commitment totaling $800 million” (to quote Bloomberg) remained very murky. “The taxpayers are going to be stuck with this well over a billion dollar tab,” declares Assemblyman Richard Gottfried.

Stadium backers of course say the opposite. The film captures Jets owner Woody Johnson sounding ever so much like a public-spirited elected official. “We’re going to make a very handsome financial return, the city and state and country, if we get the Olympics,” says Johnson.

“And the Jets,” chimes in Bloomberg, reminding us that this would be a private business deal.

“The funny thing about these numbers is that, it didn't matter which you used, because they were all right,” Bagli says at one point. I’m hoping he meant that each number had some backup, not that more accuracy was impossible.

Enter Cablevision

City budget director Mark Paige observes that “fair market value means a value that you can obtain in the market.” Quinn notes that “the market is bigger than the Jets.” Thus came Cablevision’s bid and, as Bagli says, “the world changed.”

We see Cablevision owner James Dolan, now even more the heavy after the debacle with the Knicks, go on sports talk radio to defend the company’s image. But the smart thing to do, as the film shows, was to ensure Restuccia and Raskin would remain the more public face of the opposition.

Restuccia tells the filmmakers he did 65 takes for a Cablevision-funded commercial which reminds viewers that there is “no public vote,” there will be “massive traffic jams,” and “it’s just wrong. Say No to a West Side Stadium.”

The ad is paid for by MSG LP-NY Association for Better Choices. (Fun fact: Forest City Ratner spokesman Loren Riegelhaupt worked on this campaign.)

“It’s weird but it is the right thing to do,” Restuccia admits. An odd coincidence is the name of the Madison Square Garden VP who introduces the company’s “Hudson Gardens” plan: Hank Ratner. (Apparently, if the name “Yards” is taken, “Gardens” is always a good fallback.”)

Note that Community Board 4, which does not appear (at least by name) in the film, supported MSG’s plan.

Exactly how big

Bloomberg denounces Cablevision’s plan as “a joke... a p.r. stunt that would slow thing down.” Joke or not, with nearly 6000 units of housing, it’s clearly very big.

The Times’s Bagli is incredulous: “You had some of the community leaders supporting Cablevision’s plan to put the most densely populated apartment complex on the railyards..... You would never support this if somebody came along and just suggested this is what should happen here.”

It’s a reminder that the first iteration of the Atlantic Yards opposition would never have supported Extell’s highly dense bid, which followed only in part some of the principles developed in the Unity Plan.

Restuccia says that at least Cablevision’s plan “begins to act like there is a community here.” He adds, “If protecting this neighborhood means that you’re going to compromise, fine.”

Cablevision becomes the bogeyman. “We are not going to let any company’s selfish interest take away our future,” says Bloomberg, sounding not unlike Borough President Markowitz.

An unidentified union guy bellows: We are not about to let some greedy, deep corporate son-of-a-bitch tell us our future is for sale.”

(I guess it depends on which “greedy, deep corporate son-of-a-bitch” you choose.)

Olympic fever

“If we were to not get the stadium going very soon, we’d have to drop out,” says Bloomberg in anticipation of a 2/21/05 visit by the International Olympic Committee. The charming Meryl Streep introduces guests to a little sampling of some of the thousands of movies shot in the city. (She’s got more star power than the “Magic Lady,” AY supporter Roberta Flack.)

The committee, oddly enough makes a visit to MSG, another important Olympics venue. Doctoroff and Olympics chair Jay Kriegel note that, other than the little matter of the railyards dispute, they have a good working relationship with MSG.

The union debate

Public officials, more so than in the Atlantic Yards battle, have been willing to criticize unions. Gottfried, at a public meeting, declares: “Unions in this town, over the years, have gotten in the habit that, when a mayor or a governor dangles a construction project in front of them, no matter how sensible or unsensible it is, or whether there are better alternatives, they will go bananas and advocate for it.”

Union workers, given some time on camera, make the case that they are losing work to nonunion contractors who save on labor with workers willing to live and work in substandard conditions. That issue remains legitimate in Brooklyn; there's a lot of construction, but a lot is non-union.

The MTA meetings

Gearing up for a meeting of the MTA board, Raskin points out that the mayor and governor run the agency, and that he has to be there extra early to make sure that neighborhood residents aren’t blocked out by construction workers. As with the Atlantic Yards hearings, the MTA wisely chooses to let representatives from each side speak in alternating order.

Raskin tells MTA that “there’s no way that this organization should be taking anything less than your appraised value for the railyards.

City Council Member Larry Seabrook of the Bronx, brings up the race issue, reminiscent of BUILD’s James Caldwell in the AY debate. “Fifty-one percent of African American males in the city of New York are unemployed,” Seabrook says. “This is going to be one of the most inclusive, comprehensive jobs program in the history of this city.” Unmentioned is that Seabrook isn't the best messenger; his questionable ethical history is well-detailed in this recent Village Voice article.

Restuccia gets an oration: “It’s is amazing that the public debate in this city has been stifled. Not stifled, because New Yorkers are speaking. When it comes to the Public Authorities, it’s a setup and it’s a sham. Completely shame on you. It’s a shame that everyone’s been divided and conquered on this.”

In another scene, on the steps of City Hall, Restuccia is met by two women, not identified, the sisters Patti Hagan and Schellie Hagan of the Prospect Heights Action Coalition, which launched the AY opposition.

“How do we get such terrible government?” Patti Hagan (center) asks.

“We’ve always had terrible government, it’s just the degree of it,” Restuccia responds.

“It’s so transparently corrupt,” Patti Hagan continues. (She has since been bounced from Develop Don’t Destroy Brooklyn and criticized the group in turn. I’ll write more about this when and if I can add beyond what's been published.)

Enter Silver

All the money and posturing may have been irrelevant, since the fate of the stadium was up to the three-member Public Authorities Control Board (PACB), controlled by the Governor, Senate Majority Leader, and Assembly Speaker, and the latter, Sheldon Silver, who thought that the accompanying plans for office space on the West Side threatened rebuilding in his Lower Manhattan district

“I don’t see a great need,” the dour and phlegmatic Silver tells a TV interviewer. “I could theoretically support a stadium, with or without an Olympics, theoretically.”

The antagonists ramp up their efforts. Raskin says opponents will bring 25,000 letters to Albany.

Union leader Ed Molloy offers an observation that echoes the Robert Moses revisionists: “Everybody could think of some reason why we should not do something... cities are not built by detractors or obstructionists, they’re built by people with vision.”

Bloomberg makes the legitimate point that he cares about Lower Manhattan “but I also have a responsibility to the other parts of the city.”

The battle ramps up

The New York Post’s Fred Dicker suggests, “There’s a culture of corruption now in Albany... there is a sense that... you can buy your way into legislation.” The screen shows campaign contributions by Cablevision. (Unmentioned is Common Cause's report showing enormous spending by proponents and opponents, though Cablevision spent the most.)

Mahoney declares, “No matter what the politics are, all we want is jobs.” (That’s part of the problem--how to decide among competing interests?) Were union workers in Albany paid by their local? Raskin says yes, but a union rep says no.

Silver’s call

Silver at a press conference, with Gottfried smiling behind him, delivers the bad news, cloaked in an expression of public concern: “A short time from now, the PACB will convene and will decide whether the taxpayers of this state, at a time when New Yorkers should be working together, in the spirit of patriotic duty, to rebuild Ground Zero and revitalize a devastated lower Manhattan, arguments are being made that pit New Yorkers one against another in a highly confusing battle over which part of Manhattan should take precedence when it comes to development and building incentives.”

Cut to Kriegel, who says “the mayor’s made incredible offers” to Silver.

Silver continues: “The 2012 summer Olympic games are being used as a shield to hide another goal, to shift the financial and business capital of the world out of lower Manhattan and over to the West Side... I cannot in good conscience cast my vote in support of the proposal before us today.”

We see union guys chanting: “Whose future? Our future. What do we want? Jobs,” then we see Raskin and supporters cheering.

The battle revisited

Raskin comes off as strong-willed but genial. His counterpart in the AY fight, the goateed 30something Dan Goldstein of DDDB, comes off as more combative. Then again, Raskin was 23 and paid for his work, while Goldstein, an AY footprint resident, is a volunteer living through a battle that’s already lasted more than three times as long.

We see Restuccia summing up with a public thank you to Raskin, who could “engage such a broad range of people [that] at one point, people from Cablevision called me and asked if they could hire him.” (He’s now working for the organization ACT NOW.)

Recriminations

Mahoney says he thinks the “opposition was bought and paid for by MSG.” He adds, with a smile, “They had their billionaires--we needed ours. I guess their billionaires did a better job at getting things done than our billionaires did.” (Though it’s not directly comparable, it sounds like the rhetoric of ACORN New York Executive Director Bertha Lewis, who, in the documentary Brooklyn Matters, declares, “They had their bean counters and we had our bean counters.”)

Kriegel sounds like a Moses fan: “The amount of energy, the amount of effort, that it takes to get any project done in this system, given the bureaucracy, the checks and balances, the litigation, the public communal questioning. interrogation, means you’ve got to make disproportionate dedication of resources and efforts of very talented people who have many demands on their time.”

The money quote goes to the Jets’ Cross: “This is my third sports facility. I learned early on that sports facilities in the context of urban environments are not about sports. They’re about metro politics.”

Going forward

The movie ends with words from stadium supporters and opponents, with Mahoney and union members picketing at a non-union site. We see shots of a street fair in Hell’s Kitchen and hear Tom Waits’s melancholy song, “In the Neighborhood.” (Lyrics here.)

The movie is dedicated to the residents, the unions, New York's dreamers, “may they find common cause together in the neighborhood.”

But that’s not quite all. As the film fades, we see a montage of clips about other planned sports facilities, including a fleeting glimpse of Frank Gehry’s 2005 Atlantic Yards designs, as a television anchor intones, “The next step to bringing a new Nets arena to Brooklyn takes place today... the team cites more jobs and the likely revitalization of the area.”

Going forward?

The most notable closing line, however, comes from Raskin at a community meeting: “I wanted to ask everybody not to drift away and to remember that it’s not done until the neighborhood looks exactly like we want it to.”

What exactly that means is another question. The Hell's Kitchen Hudson Yards Alliance, for which Raskin and Restuccia worked, supported a plan “designed to accommodate 28 million square feet of office space and at least 12.6 million square feet of residential space”--an enormous amount, and a precursor to the current Hudson Yards plan.

And some of the protestors in the film concerned about light and air probably don’t think the neighborhood will look “exactly like we want to.” More on some of the West Side infighting from critics at HellsKitchen.net.

But the new plan is not so much a sweetheart deal, since it's worth more than $1 billion to the MTA--a far cry from $35 million. (Cross and Kriegel have joined winning bidder Related.)

Some post-mortems

Critics mostly liked the film. In the Huffington Post, S.T. VanAirsdale described how the filmmakers themselves differed on the stadium. Union leader Mahoney called the film “not accurate" but admitted “from an outsider's point of view, it was pretty close.” Then again, his fear that the property would be a dead zone was quickly proven wrong by a new bidding process.

In Variety, John Anderson noted that the filmmakers “leave a few grimy stones unturned in their effort to be objective -- Bloomberg's well-known friendship with Jets president Jay Cross, for instance, or the home addresses of most of those protesting construction workers, few of whom were likely to be neighbors of the protesting Westsiders.” But he thought the film a good explanation “for why it's so hard to build a consensus, or a building, in today's political climate.”

The Times, in its 6/8/05 postmortem on the stadium, concluded that the project was doomed because Doctoroff didn't think that lawmakers in the city and state needed to be cultivated.

And what about AY?

As noted, there are some significant contrasts with Atlantic Yards. Bloomberg, Doctoroff, and Ratner did their homework, lining up political support and creating community support beyond simply union members wanting jobs. On the other hand, there is a savvy and resourceful opposition.

The day after its West Side post-mortem, the Times, ran a seriously underinformed 6/9/05 article headlined Unlike Stadium on West Side, an Arena in Brooklyn Is Still a Go:
While the Brooklyn plan still has hurdles, its progress so far is providing an object lesson in how to navigate big projects through the often treacherous and choppy waters of New York state and city politics. In the Brooklyn project, backers have aggressively courted the local community since the project's inception, trying to placate those who could be its most aggressive foes. Perhaps most important, they have reached out to Mr. Silver.

The article quoted Dan Cantor, executive director of the Working Families Party, as saying that the 50/50 housing deal gained community support--but didn’t mention that ACORN, signatory of the housing deal, is a founder of the WFP.

The Times also reported:
Others noted important differences between the West Side stadium and the Brooklyn arena. For example, the Brooklyn arena would require a $200 million public investment as opposed to the $600 million investment the West Side plan was calling for.

That’s up to $305 million in direct investment and far, far more in public support.

The article also included this dubious generalization:
Manhattan also has an especially practiced antidevelopment movement on its West Side and is already home to Madison Square Garden and countless world-renown cultural institutions. Brooklyn, still smarting from the loss of the Dodgers nearly 50 years ago, is generally more welcoming to projects that could help put it on the national map.

Brooklyn is “still smarting”? If Brooklyn is a proxy for Borough President Marty Markowitz, maybe. (More critique of the article from Scott Turner of Fans for Fair Play.)

Finally, the article got to a home truth:
But opponents say all of this ignores this crucial advantage that Forest City Ratner had over the Jets: It did not have to face an opponent such as Cablevision, the owner of Madison Square Garden, which has money to wage such a battle.

The arena may still be “a go,” pending dismissal of other litigation and the availability of tax-exempt bonds, but it has been four and a half years--54 months--since Atlantic Yards has been announced. Even with the announcement Monday that the Supreme Court wouldn't review the case, the AY “done deal” remains in some question.

Were Atlantic Yards to fail, the possibility of jobs would not vanish. Rather, there would be some serious fighting over the future of what Chuck Ratner of parent Forest City Enterprises calls “a great piece of real estate."

Tuesday, June 24, 2008

City approval for Atlantic Yards? The Daily News rewrites history

From a Daily News editorial today, headlined Yes, in their backyards:
No, these were all about snarling an extraordinarily beneficial project, approved up and down by the city and state....

Approval by the unelected Empire State Development Corporation and the "three-men-in-a-room" Public Authorities Control Board, with no official role for the city at all, is hardly "up and down."

Also, the editorial refers to "22 down-at-the-heels acres in the heart of Brooklyn," as if Forest City Ratner were doing some kind of favor to the public. Rather, developer Chuck Ratner calls it "a great piece of real estate."

In state court case, questions of “condemnation blight” and "reasonable" efforts to proceed

On Monday morning, when most Atlantic Yards watchers were waiting to learn whether the Supreme Court would hear the AY eminent domain appeal (it said no), another legal drama was playing out in State Supreme Court in Manhattan, before State Supreme Court Justice Jane Solomon. Tenants, nearly all with rent-stabilized leases, in two buildings, are charging (lawsuit, follow-up) that the Empire State Development Corporation (ESDC) is violating a provision of the Eminent Domain Procedure Law (EDPL) that requires disposition of properties within a decade.

Solomon seemed skeptical of the main thrust of the argument made by attorney George Locker, who has filed two previous cases on behalf of the 13 tenants, who live in two Forest City Ratner-owned buildings within the footprint of the planned arena block.

Then again, she did seem somewhat sympathetic to Locker’s effort to paint the footprint as suffering from “condemnation blight,” a state of suspended neglect, and that the project has changed enough to require a public hearing.

The petitioners seek to annul the State Funding Agreement and also to order the court to require another public hearing, based on the law establishing the ESDC.

AY “does not exist”

Locker noted that documents approved in December 2006, including a Modified General Project Plan (GPP), serve as “planning documents” rather than contracts. The first contract is the 9/12/07 State Funding Agreement, which wasn’t revealed until 3/21/08.

The GPP and other documents all state a ten-year timeline to build the project, he said, and everything that required analysis under the law was based on that time frame. “If the funding agreement followed the General Project Plan,” he said, “we wouldn’t be here.”

However, Locker noted that there’s no start date for Phase 1, and that the developer has 12 years from the delivery of property to complete that phase without penalty. As for Phase 2, which would contain 70% of the affordable housing, 70% (alleged) of the jobs, and all the open space, there’s no timetable.

“The bulk of the Atlantic Yards project, as far as the operative contracts are concerned, does not exist,” he said.

While the ESDC has filed a motion to dismiss the case for failure to state a cause of action, “it’s a rather high standard,” Locker said.

“Condemnation blight”


Locker, whose main case relies on an untested area of state law, hearkened back to the 1974 Report of the State Commission on Eminent Domain. “The legislature was very concerned with the passage of time, what they called ‘condemnation blight,’” he said, pointing to a requirement that the condemnor begin proceeding to acquire property within three years. The commission had noted that “the current lack of such a requirement results in tenants vacating the property and destroys an owner’s incentive to maintain such property.”

If property is not acquired in three years, the project would be deemed abandoned. Also, the state must complete the taking of properties in a decade.

Solomon asked what had happened to Locker’s clients. He said the onus remained on the ESDC to acquire title to the buildings they live in. (The use of eminent domain would be a “friendly condemnation” of an FCR-owned building, aimed to extinguish rent-stabilized leases faster than would occur through a typical procedure before the state Division of Housing and Community Renewal.)

“There has been none [acquisition of title] with all of this publicity [about the project]?” Solomon asked a bit quizzically.

“Yes,” Locker responded.

Whose ten years?


He stressed that there was a ten-year limit before a project could be abandoned. “Empire State Development cannot take property by eminent domain, and give itself, or the Ratner organization, the right to abandon it after more than ten years.”

Philip Karmel, representing the ESDC, said the funding agreement has a “limited purpose,” to allow the ESDC to provide $100 million for “certain project-related infrastructure in advance of project documentation.” Such documentation “is still in active negotiation,” he said, with an outer deadline of December 2009.

Karmel said the three-year period to acquire property began only a few months ago at the conclusion of previous litigation Locker had brought. However, he said, “the ten-year period has absolutely no application to this case at all.”

He said it applied only to projects in which the condemnor announced plans to acquire property in multiple stages. Regarding Atlantic Yards, ESDC “intends to acquire all property at once,” he said.

He said another mention of a ten-year period is only relevant if the property remains unimproved--which is not the same as not finishing Phase 1.

Condemnees and fee owners


Do the petitioners have standing? Locker pointed to a previous case in which the ESDC said--and judges affirmed--the tenants did in fact have ownership rights via their leases and could be treated as condemnees. However, Karmel pointed out that the law says the condemnor must sell it back to “the original fee owner”--and the petitioners, despite having ownership rights, never owned their buildings.

Solomon seemed convinced. “You’re not an original fee owner,” the judge said of Locker.

Karmel noted that the previous case had established Locker’s clients as condemnees.

“That’s different,“ said the judge. Karmel concurred, saying that the previous case was based on a different section of the EDPL.

Project murkiness


Locker returned to the timetable issue, which buttresses his argument that the project has changed and requires a new public hearing. The funding agreement, he said, “says the Ratner organization has an unlimited time to build 70 percent of the project.” About eight months after the December 2006 determination and findings, “the project essentially disappears.”

Locker added that City Comptroller William Thompson had said publicly, most recently in press coverage last week, that he didn’t know what Atlantic Yards is.

“Reasonable” efforts to proceed

Karmel attempted to rebut those concerns. “The foundation stone is the funding agreement,” he said, adding that the claim that there is no deadline “is a complete and total mischaracterization.” Rather, the developer is required to use “commercially reasonable efforts” to move forward.

What does that mean?

“It means you have to try your hardest,” he said.

Solomon was skeptical, asking if such efforts could have anything to do with “external circumstances” (presumably the credit market, among other things).

“They should be taken into account,” Karmel acknowledged. (He did not use the word “draconian”--a term used in legal papers--to describe the penalties the ESDC would levy.)

Co-counsel Charles Webb said that condemnations would begin “in October or November of ’08,” a date that apparently disregards the likelihood that other pending cases may slow the process.

And the time period, Solomon asked, to complete the condemnations is “07 to 10”?

Webb concurred.

“All the while we have condemnation blight,” Solomon mused, “but Mr. Karmel would say they’re working on the infrastructure.”

The judge said she wasn’t sure she’d have a decision before the end of the summer.

NY Post editorial twists its way to an AY hooray

The New York Post editorial board goes through some interesting gyrations in its editorial today, headlined A WIN FOR ATLANTIC YARDS. The newspaper opines:
Atlantic Yards, to be sure, has never been a perfect project. For starters, Ratner has relied heavily on special subsidies and tax breaks.

The Post itself has estimated the tab at $2 billion. Doesn't that imply some effort at a cost-benefit analysis?

Zoning questions

The Post continues:
And, of course, the state is threatening to use its eminent-domain authority (a power we've argued should never be used lightly) to acquire some of the land - sparking the court case in question.

Still, at the end of the day, the city can't afford to leave neglected, run-down or under-built areas languishing.


And that's an argument for 1) a rezoning or 2) a state override of zoning, as with AY?

Those PILOTs

The Post opines:
Again, the city needs this development - not just for the housing, the jobs and the civic pride that comes with a brand new New York sports team, but also for new taxable property that the project would provide.


And that's why the arena would be built on tax-exempt land, with arena construction bonds repaid through PILOTs (payments in lieu of taxes)? If taxable property were the issue, the team constructing an arena would have to pay both property taxes and arena bonds.

Ratner's "20 court decisions" claim requires proof

Yesterday, Forest City Ratner CEO Bruce Ratner, upon the U.S. Supreme Court's announcement it would take the Atlantic Yards eminent domain appeal, said, "The opponents have now lost 20 court decisions relating to Atlantic Yards...." That was repeated without skepticism in the press, such as in the New York Times's CityRoom blog.

Is that true? Well, maybe they've lost 20 decisions if we count decisions on specific motions. But then we'd have to count motions that opponents have won. And we'd have to count the cases opponents have won. NoLandGrab's scorecard, while probably flawed, strikes me as more accurate than Ratner's claim, especially since Ratner has provided no list.

Until the developer provides a list of the 20 decisions won, the press shouldn't be quoting the claim without rebuttal. The facts are verifiable.

(NLG's list probably flawed? I mean that it might include a list of motions--and, at least, the Williams case mentioned was of a different order than the others.)

A correction, or a post-modern fact?

In other words, it's easier to check Ratner's statement than some reporting for the New York Times Magazine that prompted then-Public Editor Daniel Okrent, in a 2/29/04 column headlined What Do You Know, and How Do You Know It?, to write:
At magazines, fact-checking can help you get details right, but can't pin down the un-pindownable: sometimes, a source will make an assertion -- for instance, that he saw women walking through Cottonwood Canyon, Calif., in high heels.... Virtually all the fact-checker can do is call the source and ask, ''Did you see women walking through Cottonwood Canyon in high heels?'' The firmest ''yes'' doesn't even approach proof. It's often not the fact that gets checked, but the fact that someone said it was a fact.

Unfortunately, I fear the Times will not correct Ratner's error but consider it not worthy of a correction because "the fact that [he] said it was a fact." How very post-modern.

Big-time spin: Ratner claims Supreme Court pass ushers in arena construction



Arena construction won't begin until other lawsuits are cleared, property is transferred by eminent domain, and tax-exempt bonds issued. While it's possible that construction could begin this year, I'd bet against it.

Adventures in obscurity, via the New York Times

A New York Times article yesterday on holding protests and press conferences at City Hall, headlined To Make a Stir at City Hall, Make an Appointment, contained, in the print edition, a photo with a very curious caption.


Um, that "Brooklyn real estate project" would be Atlantic Yards, and that was a press conference regarding the Atlantic Yards Development Trust--an event not reported on in the newspaper.

Monday, June 23, 2008

Supreme Court denies AY eminent domain appeal; state case would be more of a long shot

The Supreme Court's decision, announced today, to reject the Atlantic Yards eminent domain case, Goldstein v. Pataki, is certainly a setback for project opponents, though the case was always a long shot.

Remember that the decision does not mean that the cases below were decided correctly, just that the appeal didnt present enough issues of law--conflicts in the interpretation of the 6/23/05 Kelo v. New London decision--to merit review.

Develop Don't Destroy Brooklyn indicates that it will organize a case to be filed in state court. That is surely more of a long shot than the federal case, but even that case might delay key elements of project--the acquisition of property via emiment domain and the opportunity to issue bonds for construction--by several months. Then again, some of the 11 plaintiffs in the federal case may feel increasing pressure to settle.

From the DDDB press release:
Our claims remain sound. New York State law, and the state constitution, prohibit the government from taking private homes and businesses simply because a powerful developer demands it. Yet, that is what has happened. Recent events have revealed that the public, and the Public Authorities Control Board were sold a bill of goods by Ratner and the Empire State Development Corporation. We now know that Ratner’s project will cost the public much more than it will ever receive," said lead attorney Matthew Brinckerhoff of Emery Celli Brinckerhoff & Abady LLP. "Now we will turn to the state courts to vindicate our rights."

Forest City Ratner statement

“We believe, and the courts have repeatedly agreed, that Atlantic Yards provides significant public benefits, including thousands of affordable homes and much needed jobs for Brooklyn," said Bruce Ratner of Forest City Ratner in a statement. "We are gratified that the Supreme Court has decided to put an end to this lawsuit. The opponents have now lost 20 court decisions relating to Atlantic Yards, and we are now one step closer to making these benefits a reality for the borough and the city.”

(NoLandGrab's scorecard is a little different. Note that the Supreme Court did not agree that AY "provides significant public benefits," as Forest City Ratner and Brooklyn Borough President Marty Markowitz assert.)

Some commentary from the Times

From the Times's CityRoom blog:
Lawyers for the mayor and other governmental defendants in the case argued that the project “serves multiple undisputed purposes,” including the transformation of blighted neighborhoods in Brooklyn. But in fact the area has already been rapidly gentrifying. Moreover, the faltering economy could slow down the construction of the project, doing what opponents of the project have so far failed to achieve in court.
(Emphasis added)

In other words, Atlantic Yards is a little different from some other blight cases, where "the fabric of a community is shot to hell," in the words of Penn planning professor Lynne Sagalyn.

More pressures

Beyond the efforts by plaintiffs, an appeal in the state case challenging the environmental review is pending for oral argument in September. Another state case filed on behalf of footprint tenants by attorney George Locker was heard this morning. So it's hardly certain that arena construction, as promised by developer Bruce Ratner, would begin later this year.

Additionally, in the past weeks, another potential stumbling block has emerged: the availability of tax-exempt bonds for the arena. Should the Internal Revenue Service not grandfather in the Atlantic Yards arena under regulations its own chief counsel admits are a loophole, that would raise the cost of borrowing.

Reading the tea leaves

Note that Supreme Court Justice Samuel Alito, one of the most conservative of justices, would have granted the petition, which is an unusual public statement--but none of the other three conservative justices joined him. Does that mean that he alone thinks the case was wrongly decided? No. Does that mean that he alone thinks the conflict with other cases was significant? More likely.

Then again, it could mean that Alito--who replaced Justice Sandra Day O'Connor, who wrote the Kelo dissent--wanted his shot at an eminent domain decision. On the SCOTUS blog, Lyle Denniston suggested that Alito is a new ally for those who seek to protect property rights. True, but he had replaced an ally, so that's probably a wash.

Atlantic Yards: This Generation's Penn Station?

I have an overview article on Atlantic Yards in Places: Forum of Design for the Public Realm, a journal published three times a year by the Design History Foundation, with the goal that "designers, public officials, scholars and citizens can discuss issues vital to environmental design, with particular emphasis on public spaces in the service of shared ideals of society."

The "Dispatch," headlined Atlantic Yards: This Generation’s Penn Station?, was assigned months ago. Fortunately, the final production deadline was stretched long enough into May to incorporate mention of the new designs and professed timetable announced in March.

(Photo by Tracy Collins)

Leading off

The piece leads off:
To proponents, the $4 billion Atlantic Yards project in Brooklyn, New York, is a model of urban redevelopment. Designed by the architect Frank Gehry and consisting of sixteen towers and a basketball arena on 22 acres, it would extend and revitalize Brooklyn’s downtown, add residential density near a transit hub, and include subsidized housing. It also would return professional sports to the borough, which hasn’t been “major league” since the baseball Dodgers left for Los Angeles in 1958.

[Yes, they last played in Brooklyn in 1957, and began playing in L.A. in 1958. I should have caught that editor's change, though.]

To detractors, however, Atlantic Yards represents “extreme density” and the corruption of public processes. Including nearly three hundred apartments per acre, it would encroach on surrounding historic lowrise neighborhoods, burden local infrastructure, and create a deadening pattern of superblocks. Critics also claim its present form depends on hundreds of millions of dollars in public subsidies, tax breaks, and increased development rights, plus the use of eminent domain to benefit politically powerful special interests.

Kent Barwick, president of New York’s venerable Municipal Art Society (MAS), sponsor of a recent exhibition on the work of Jane Jacobs, has suggested that Atlantic Yards might be “this generation’s Penn Station” because of the “absurdity” of the public processes involved. Just as the demolition of that landmark structure in 1963 for an arena and office complex accelerated the preservation movement, the battle over Atlantic Yards has prompted new outrage in the city about single-source deals and inadequate community consultation.


There are 11 footnotes and there probably should be more, but there's a limit to the space on print pages.

Final verdict won't be today

Whether or not the Supreme Court decides today to hear the Atlantic Yards eminent domain case, questions about the public process will persist.

Will AY be seen as "this generation's Penn Station"? It's too soon to tell exactly what kind of change it may galvanize. It is clear, however, that the city and state, even as they pursue projects that inevitably stir controversy, are doing more to ensure a fair bidding process and to consult with communities.

As vote for NYU to absorb Polytechnic approaches, some strange silences

Today the Higher Education Committee of the New York State Board of Regents will discuss a proposal "to amend the charter of Polytechnic University, as requested, to effect an affiliation with New York University," and a vote on the proposal will be held Tuesday. As I've explained, the proposed "consolidation" or "merger" is more like an absorption by the larger NYU of the MetroTech-based Poly.

While there are clear potential benefits for both institutions, there are also reasons to be wary, reasons that, unaccountably, neither the major media nor the Board of Regents seem to have noticed. (The Brooklyn Paper did follow up and the Daily Eagle published a commentary from an outraged alumnus. Here's an alumni site.)

Report and response

A report issued May 20 by State Sen. Kenneth LaValle, the chairman of the State Senate Committee on Higher Education, raised some serious questions about the deal, stating that in three instances the board did not act with the duty of care and/or loyalty required by a fiduciary, notably negotiations conducted in secret, the exclusion of dissident board members from working committees, and the failure to update a three-year-old appraisal of the university's valuable Downtown Brooklyn property.

On June 8, Polytechnic posted a two-page commentary in response to those three conclusions, noting that it was "not a detailed rebuttal of the Senator’s Report." For example, the response noted that Poly would remain the owner of its real estate after the "Affiliation," that the board "had access to detailed, expert analysis of the substantial cost of renovation of Polytechnic’s buildings and was aware that the Brooklyn real estate market was softening," and the board "was fully aware that Polytechnic’s short-term and long-term financial distress went much deeper than the value of its real estate."

Curious silence

No mention of LaValle's report, or the response, appears in the summary material posted on the Board of Regents web site.

And no article about that report has been published in major newspapers. That's strange, because the New York Times, on 3/7/08, published an article headlined Trustees of Polytechnic University in Brooklyn Approve Merger With N.Y.U., quoting LaValle as saying he thought it “presumptive of them to move ahead without waiting for the report to be finished.”

So you'd think that the Times, at least, would have followed up on the report. Times higher education reporter Karen Arenson, who wrote that story, left her job May 1, taking a buyout package. The newspaper seems to have dropped the ball.

Also, LaValle's posture has been curious; he released the report without an accompanying press release or quote, and has been unavailable for comment--at least when comment was requested by me.

The result: no discussion.

Bill to reform Public Authorities stumbling in Albany

The New York Times reports today that Assemblyman Richard Brodsky's effort to reform the governance of public authorities may be running aground, given Mayor Mike Bloomberg's effort "to have more power over his own appointees to authority boards — ostensibly independent."

Today's the last day of the legislative session.

Sunday, June 22, 2008

On Dean Street, block party, block not-party, and some new brew

The Dean Street Block Association held a block party yesterday afternoon between Sixth and Carlton avenues, though the activities (food, stoop-less sale, face painting, more) were held east of the first five houses, which would be part of the Atlantic Yards footprint.



Turning the camera around

The view west of Sixth Avenue on Dean Street, however, looks like less of a party. The construction equipment was quiet, but, as the Footprint Gazette can tell you, that was just a respite.



A new brew

Atlantic Yards has spawned much creativity in terms of music, writing, photography, art, and filmmaking. Add to that list Dean Street resident Nick Friend's Shadow of the Yard beer, a vanilla-flavored brown ale that was spotted at the block party. The palatable brew is produced in limited quantities unsuitable for a sports facility.

When architects meet autocratic clients, when's time to walk?

A New York Times architecture column today, headlined I’m the Designer. My Client’s the Autocrat., takes on the question--raised by Daniel Libeskind--about working for repressive regimes:
Some architects argue that it is unrealistic and self-serving for them to presume that they can transform a society or distance themselves from a patron’s conduct.
“Sometimes architects like to think they’re above the political fray,” said Frederic M. Bell, the executive director of the New York chapter of the American Institute of Architects. “I think that’s a little bit disingenuous. Sometimes it’s very difficult to take commissions from countries with positions with which one disagrees.”


While Forest City Ratner is not Communist China, that still reminds me of a couple of AY-related quotes. Frank Gehry in January 2006 said, "If I think it got out of whack with my own principles, I’d walk away."

Asked if any of his previous projects involved the use of eminent domain or eminent domain abuse, and whether that be enough to make him walk away from Atlantic Yards, he responded, "No comment."

When to walk

This past March, New York Times architecture critic Nicolai Ouroussoff, responding to reports of a truncated arena-only project for the foreseeable future--one that Forest City Ratner in May asserted was incorrect--suggested that "Mr. Gehry, on the other hand, could walk away."

As I observed, Maybe Forest City Ratner should release the gag on Gehry and let him talk to Brooklynites about how the project fits with his principles.

He did walk once, from the Playa Vista project in California, even though Ouroussoff, then writing for the Los Angeles Times, had said it was too late. Still, the critic acknowledged the role of the architect: "Gehry's reputation lends the entire project an air of respectability. In effect, he gives Playa Vista the imprimatur of the architectural and artistic establishments--communities one traditionally associates with high ideals."

Saturday, June 21, 2008

From the Carpenters Union, a video of the "Brooklyn Day" rally

The Brooklyn Carpenters Union, Local 926, has produced a video with excerpts from the "Brooklyn Day" rally on June 5. I suggested the rally showed speakers embattled and a not-too-enthusiastic audience, but you can check it out yourself. Among the speakers: Sal Zarzana, president Local 926, Brooklyn Borough President Marty Markowitz, and radio host Curtis Sliwa. Note the criticism of local elected officials who've criticized the project.

Let me point out that 15,000 construction jobs is actually 1500 jobs over ten years, or 15,000 job-years. (More likely the project would stretch over decades, thus employing fewer people at one time.) Also note that there's mention of how "Brooklyn" needs the project, but no mention of developer Forest City Ratner.

Union interests

There's nothing wrong with the unions pursuing their interests, and Forest City Ratner, whether for reasons political and/or to ensure quality construction, has committed to union labor (though not for demolition).

One difference to remember, though, is that labor unions have been a part of Community Benefits Agreements (CBAs) in Los Angeles, while in Brooklyn, the CBA was "negotiated" with hand-picked groups rather than a full spectrum of the community affected. Thus labor, not part of the AY CBA, did not have to balance its interests with the concerns, for example, of environmental groups.

The battle on video

Interestingly enough, the "related videos" appearing on YouTube all relate to criticism of and reform of the project. Perhaps, as the Atlantic Yards battle continues, we'll see a proliferation of videos.

A spokesman for the union confirmed that this was a union production, without the involvement of Forest City Ratner.

Friday, June 20, 2008

What we talk about when we talk about Atlantic Yards (& eminent domain)

It’s hard to talk about Atlantic Yards in public. Relatively few people know enough of the facts. Debates among opponents and proponents are rare, most recently non-existent. So a panel discussion at the New York Public Library Wednesday night, which contained its share of AY criticism, might be seen as one flip side of some of the public meetings managed well by project proponents.

It wasn’t only about Atlantic Yards, but when we talk about Atlantic Yards the topic extends to questions of gentrification, neighborhood change, and the proper parameters of public debate. And it led at least one audience member to wonder about the absence of a devil’s advocate. (Other accounts of the evening from Jeremiah's Vanishing New York and Lithuania-based curator Simon Rees.)

The program and the exhibit

First, some background. The blurb for the program, titled EMINENT DOMAIN: THE AMERICAN DREAM ON SALE, suggested an idea torn in different directions, about urban renewal and the power of social bonds:
The current exhibition at The New York Public Library, Eminent Domain: Contemporary Photography and the City, features the work of five contemporary New York–based photographers... whose works intersect and resonate with current concerns about the reorganization of urban space, and its public use, in New York City. Artist Glenn Ligon offers the literal narrative of his own housing in the city. In addition to proposed regulations that threaten First Amendment rights to photograph in public places thus becoming a form of privatization of public space, questions also arise with the current private/public arrangements that characterize much of modern urban development, particularly the legal power of eminent domain, or the taking of private property for public use.

Ok, so the exhibition is called “Eminent Domain” but isn’t really about it. But the panel was assigned to “discuss the use of eminent domain and how urban renewal is changing the cityscape of New York City” and “Atlantic Yards, a hotly contested developer driven project in Brooklyn, will serve as a focus through which the evening will begin.”

One intersection

Though the exhibition has almost nothing to do with eminent domain or Atlantic Yards, there was one intriguing intersection. Artist Ligon’s contribution is a series of text panels about the places he’s lived, including two stints in Fort Greene, the first discomfited by housing conditions, the second perceived as a gentrifier by longstanding black residents (even though he’s black himself.)

The text of the second to last panel in his series describes his stint at 535 Dean Street (aka Newswalk) in Brooklyn from 2002-07. The text:
A one bedroom in a converted factory building on the edge of the Long Island Rail Road train yard. The developers, gambling that soaring real estate prices in Park Slope will soon extend to Prospect Heights, created condos of what was the long-empty Daily News printing plant. It was the first time I had owned real estate, buying the apartment from plans before construction had begun and waiting nearly a year and a half for the building to be finished. The apartment was on the fifth floor facing west and had an incredible view over the train yards of Downtown Brooklyn and New Jersey. I realized that the view would soon disappear when real estate developer Bruce Ratner announced plans for a Frank Gehry-designed basketball stadium and dozens of office and residential towers. If approved, it will be one of the largest developments ever built in the city and will dramatically change the character of the neighborhood. Facing 10 years of construction and what was turning into a losing battle over eminent domain, overcrowding and a lack of low-income housing, I decided to sell and move on.


Let’s put aside the small errors--it’s an arena, not a stadium, the printing plant closed in 1996 and was converted fairly briskly by 2002, and the project has been approved, though construction hasn’t begun--and consider that last sentence. While any Newswalk resident has legitimate concerns about impending construction and eventual overcrowding, the expectation of construction implies a losing battle over eminent domain--so maybe that mention was shoehorned in.

As for the battle over “a lack of low-income housing,” that’s an important public policy issue, but not one to make a Newswalk resident pack up and leave. I don’t begrudge anyone good fortune on their housing investment, especially since the nomadic Ligon likely didn’t get a bargain on his next apartment, but the unmentioned part of Ligon’s narrative is that his five years in Newswalk surely reaped some major profit, a reminder that the semi-voluntary displacement may come not without benefits.

Roots shocked

The event began as if organizers had channeled the work of panelist Mindy Fullilove (right), Professor of Clinical Psychiatry and Public Health at Columbia University, whose book Root Shock: How Tearing Up City Neighborhoods Hurts America, and What We Can Do About It, focuses on urban renewal in African-American neighborhoods in the Hill District of Pittsburgh, the Central Ward in Newark, and the small Virginia city of Roanoke--not the more particular situation of Prospect Heights.

(Photographs by Adrian Kinloch/Brit in Brooklyn)

The Belgium-educated Paul Holdengräber, NYPL’s Director of Public Programs, began by citing “collective memory, what happens to citizens in a neighborhood when it’s destroyed.” Kimberly Irwin, the library’s Associate Manager, Public Programs, added, “I think I have a sense of what eminent domain is. What I don’t know is how it could really affect my life... how my city could really be changed by the government exercising its power of eminent domain.”

Irwin read quotes from two of the exhibition’s artists. Zoe Leonard, who offers photos of the Lower East Side: “I like the way my neighborhood grounded me in the world, the physical evidence of the past, of who and when and how. I begun to realize I would miss all this, so I started taking pictures... There is something more here than quaintness or nostalgia.”

The quote from Ligon: “My mother’s dream was that she would end her dreams in a little house in the country... I was born here in New York, and like many other New Yorkers, I lack imagination. The idea of living somewhere else has never occurred to me. Indeed, to live in New York is to have lived everywhere.”

Jumping off from a film

The panel began with a trailer from The Battle of Brooklyn, a documentary-in-progress co-directed by Michael Galinsky (right), the moderator of the panel. We see criticism of eminent domain and poor public process, praise for jobs, housing, hoops, and development. "The arena is a front for a massive land grab," declares Daniel Goldstein of Develop Don't Destroy Brooklyn. The trailer ends with a quick update, declaring the project stalled, but with demolition continuing unabated.

While some viewers’ appetite might have been whetted for some specific discussion of AY, Galinsky declared that it was but a jumping off point.

Panelist Tom Angotti, Professor of Urban Affairs & Planning at Hunter College, gave some history behind emiment domain, the power of government to take private property for a public purpose, stating that its use ramped up after the U.S. Housing Act passed in 1949 and spurred urban renewal until the 1970s. Since then, he said, we’ve absorbed the idea that “the private sector has to do it… it’s up the real estate industry, and government just has to follow.”

Such a philosophy, he said, leads to Atlantic Yards, where eminent domain has been eased by a bogus blight study. “What is blight? There’s is no definition of blight. it’s a hoax. Blight is in the eyes of the beholder.”

Fullilove described some of her findings, noting that “a neighborhood is so much bigger than a person... a neighborhood is the space in between all of us.”

Warning of backlash

Marshall Berman (right), Professor of Political Science, City College and the Graduate Center, was the closest thing to a defender of the government, citing “the very larger and strong libertarian opposition to eminent domain” and warning that the backlash to eminent domain might make it “impossible to create public facilities.”

Angotti (partially seen next to Berman) responded we should distinguish between providing clean water for the city—a case Berman cited—“and providing land for a developer to build luxury condos and a private basketball arena.” He cited the need for more dialogue and touted the “community alternative” of the UNITY plan. (Should Atlantic Yards be derailed, expect a lot more debate over the UNITY plan.)

The discussion went off-track a bit with another video interlude, a clip of an intriguing work-in-progress by Galinsky about the artist Arthur Wood, creator of the Broken Angel house in Clinton Hill, whose rickety additions attracted the ire of city officials.

Public good

How do we define public good and community, Galinsky asked. For photographer and writer Brian Berger (right), co-editor with Berman of the collection New York Calling: From Blackout to Bloomberg, “There’s no single answer. Things are dynamic in ten thousand different directions. We can talk about this greater decline of Brooklyn: the Dodgers left, the Navy Yard closed... many people moved out. Many people moved in. The Brooklyn of 2000... is so radically different from that of 1950.”

Berger offered a preemptive response to “a common lament” raised, at the least, in the photography exhibit: “The Lower East Side had a great 100-year run... if that is over... that’s unfortunate, but this thing happened, and there are 50 things happening elsewhere in New York City, and these same things can be extended to Brooklyn.”

Berger, a fierce critic of Atlantic Yards, declared that behind Atlantic Yards, and the Yankees and Mets stadiums is a set of “huge corruption stories, at every level.”

A cautionary word on change

Berman warned against “a certain kind of left discourse” fixed on the idea that “people who were displaced from neighborhoods were destroyed forever, I know many people felt like that, but it’s really wrong. Many people, both in New York and around the world, displaced from neighborhoods, go and form new neighborhoods and create new possibilities.” Citing Fiddler on the Roof, he suggested that “people expelled from places like Anatevka created the culture of the Lower East Side.” (Here’s more from his essay in New York Calling.)

Observing that most people in the room probably considered themselves liberals, he suggested, “there’s a whole kind of conservative discourse that, once you change anything, it’s the end. ... I don’t think you want to buy into that.”

Fullilove disagreed somewhat. “I’m a psychiatrist, so I look at this pragmatically. Some groups can manage, if the circumstances are right,” she said. Then again, she said, there are “terrible tragedies like New Orleans post-Katrina.”

In the Atlantic Yards context, that wouldn’t apply so much to condo owners bought out with handsome sums (by Forest City Ratner, using public money). Then again, some working class families and individuals remain threatened, and the community at Freddy’s Bar & Backroom might be hard to replicate.

Angotti offered another gloss on the discourse, suggesting that “the conservative argument is anyone who questions those in power who are proposing to displace neighborhoods is just a nostalgic.” I don’t think that’s a pure conservative argument so such as a Big Government Conservative argument, as opposed to the libertarian conservative argument. (Berger later suggested that “the principled left and the principled right both are in agreement here” on eminent domain opposition.)

Fullilove stuck to her guns: “Nostalgia, in my view as a psychiatrist, is something we need to understand and respect. We shouldn’t move on anybody’s without saying, ‘Would I like my house to be moved on?’”

There are mitigating factors, like just compensation and whether and when eminent domain is appropriate for land assembly and “when the fabric of a community is shot to hell.” But suffice it to say there's a good debate to be had contrasting eminent domain in Prospect Heights, the Hill District of Pittsburgh, and places like Times Square and Baltimore's Inner Harbor.

Q&A goes astray

When it came to the Q&A session, the evening devolved into anti-gentrification speechifying. Gwen Goodwin, E. Harlem activist and City Council candidate (though she didn’t announce it) decried eminent domain and gentrification in her neighborhood.

Then a (white) man (in a suit) got the microphone. “I feel like I should be representing the Republican Party or something,” he said. “Is anybody going to take a controversial stance? I agree with you, I don’t like eminent domain. I like property rights...Who’s going to take the side, just as devil’s advocate, for the government? Who’s going to admit that maybe Pataki’s not a jerk who’s in bed with this developer?”

“If you can offer any facts to the contrary, I’d be happy to hear them,” said Berger.

“So it’s proving a negative, you’ve just defamed somebody,” the questioner responded.

Pataki’s willingness to go to bat for his law school classmate Bruce Ratner is a tenet of the Atlantic Yards eminent domain challenge. The evidence is circumstantial. Then again, even if there were hard evidence of corruption, it wouldn't violate the public use clause, as long as there were public benefits, ESDC lawyer Preeta Bansal claimed during a court discussion of the AY emiment domain case.

“It’s a very good question,” moderator Galinsky responded. “It’s why I was trying to push discussion in how the city’s changing...It’s really not the point to beat up the developer... Let’s discuss how communities change.”

(NYPL’s Irwin told me yesterday, “We had invited additional participants to last night's event at the library to make it a more balanced discussion, but they were unable to attend. For us it was not a matter of defending or condemning particular development projects, but to discuss the many issues that arise from the use of eminent domain.” But the panel could've used a Robert Moses defender like Columbia University historian Kenneth Jackson or a business-oriented defender of eminent domain and the interests of the city as a whole like Kathryn Wylde of the Partnership for New York City.)

“Nobody’s willing to play devil’s advocate,” the man asked.

“Maybe somebody will,” interpolated NYPL’s Holdengräber in his continental accent. “I would love it.”

Angotti pointed out that New York State hadn’t had a discussion about eminent domain, since it was one of the few states that had failed to pass reforms.

The future of Harlem & beyond

Nellie Hester Bailey of the Harlem Tenants Council criticized gentrification in Harlem and pointed out that “it is the real estate industry in New York City that dominates the politics rather than constituents and voters themselves.”

What is the city’s future, she asked, when “people of color are being driven out?”

Berger responded, “I say very candidly, and with great anger... their future is bleak.” (It was an echo of New York Times reporter Charles Bagli’s warning that New York may become more like European cities, with a well-off center and poorer periphery.)

Again, Berman offered an additional perspective. “I’ve been teaching at City College uptown, in Harlem for about 40 years... it’s always been very multinational, and full of people who’ve come from all over the world and have been through any kind of trauma.... people who’ve been traumatized can be very creative. Sometimes this drops out of our discourse... rap was invented in these horrible neighborhoods. It doesn’t mean those afflictions were groovy.”

“The other thing about Harlem is it’s probably more beautiful than it’s been anytime since the 1920s... So much of Harlem has been like wrecked and bombed for so long, now it’s basically been built up and people are living in it. And a great many people who live there now and who live in housing projects and who aren’t rich and aren’t gentry are very grateful for that,” he said. “Maybe they have low consciousness but the idea that they can sit in outdoor restaurants is kind of nice.”

“They can’t afford it,” Bailey responded from the audience. (Some can--the question is how many, and how many face displacement.)

Berman acknowledged that it’s “probably true” that many people can’t afford certain things. “But the people I know, the secretaries who are going to eat in restaurants, who are very happy, that they don’t have to worry when it gets dark, which they did 10, 20, 30 years ago, are onto something.”

It was a reminder that there was, in recent memory, more of a balance among development, safety, and affordability.

Another questioner upped the ante, calling “gentrification… a form of genocide.” Berger suggested the term was a tad inappropriate.

On immigration and nostalgia

A woman in the audience took up the nostalgia theme from a new angle: “I think in a lot of New York’s thriving ethnic neighborhoods, we see nostalgia for other places,” the places left behind. Rather than hand the question immediately to the panel, Holdengräber turned it over to two of the artists.

Berlin-educated Bettina Johae observed that artists were moving further out to neighborhoods in Brooklyn, while in the 1970s, they could build a community in SoHo.

Fullilove suggested that central places in a city can have “powerful effects on anyone’s creativity.” Berman acknowledged the paradox that, “as soon as an arts scene is created, the market will move in.”

Berger took on what he called “a very sophisticated observation, about multiple layers of nostalgia. “The reason why so many Pakistanis or Haitians are here is that things are so radically fucked at home... They want to recreate the aspects of the culture here that they like, but have no illusion that they’re going to return in their lifetime... whereas the artists who come here and native New Yorkers, if you’ve been forced to move, there’s sort of a different relationship with the past... there’s no right or wrong.”

That interesting topic was the beginning of another discussion, because, if first-generation immigrants hold onto their identity the best they can, their children are irrevocably changed, and they are helping shape the New York of tomorrow--at least unless the weak dollar and "predatory equity" turn New York more and more into a city of the periphery.

And that raises questions of affordable housing, new transit investments and public planning, questions to which Atlantic Yards remains not an answer but a jumping-off point.

Given 50% arena cost increase, DDDB asks PACB to reconsider AY approval

Develop Don’t Destroy Brooklyn (DDDB) yesterday asked the three-member Public Authorities Control Board (PACB)—comprised of Governor David Paterson, Assembly Speaker Sheldon Silver and Senate Majority Leader Joseph Bruno—to revisit its approval of the Atlantic Yards project, given “the dramatic increase in cost of Forest City Ratner’s Atlantic Yards arena and the development project as a whole.” The effort relies on an untested area of state law.

The PACB, which in 2006 derailed the planned West Side Stadium, is not supposed to evaluate the overall merits of a project, just whether the state’s investment is a sound one. DDDB contends that the nearly 50% increase in the price tag for the arena over 15 months—$637.2 million as approved in December 2006, but $950 million in March 2008—means the PACB should take another look. (The state has pledged $100 million of the project’s cost, estimated at $4 billion at time of approval but certainly significantly higher at this point.)

Whether DDDB’s effort will gain any traction is another question. The Public Authorities Law §51(3) offers some general language:
The board may approve applications only upon its determination that, with relation to any proposed project, there are commitments of funds sufficient to finance the acquisition and construction of such project. In determining the sufficiency of commitments of funds, the board may consider commitments of funds, projections of fees or other revenues and security, which may, in the discretion of the board, include collateral security sufficient to retire a proposed indebtedness or protect or indemnify against potential liabilities proposed to be undertaken.

Long-shot effort

I asked DDDB attorney Jeffrey Baker if anyone has successfully made this challenge and, if so, what was the increase in the cost of the project at issue. “As far as I know there is no case law directly on point on this issue with PACB,” he responded.

Still, DDDB leaders expressed confidence. "We fully expect the PACB and Governor Paterson to agree that the change in Atlantic Yards financing needs a new approval decision, based on the need for sound and prudent fiscal policy," DDDB Legal Director Candace Carponter said in a statement. "However, if necessary we will take all legal steps available to assure that Brooklyn is not stuck with a half-completed, derelict project due to the shaky financial foundation of the Atlantic Yards proposal."

The U.S. Supreme Court should announce Monday whether the Atlantic Yards eminent domain appeal can proceed. Should that appeal fail, DDDB is likely to fund a separate eminent domain challenge in state court, where the odds would be very long.

Assumptions based on 12/06 cost

Baker’s letter noted that the 12/20/6 resolution adopted by the PACB and submitted by the Empire State Development Corporation identified the “Barclay’s” [sic] Arena as having financing of $637.2 million:
In considering the request from ESDC, the PACB relied in large part upon a December 2006 report from KPMG LLG Economic and Valuation Services, which evaluated the financial viability of the arena. Based upon the expectation that construction of the arena would cost approximately $637 Million, KPMG found that the projected return on investment would support the development and maintenance cost.

The 50% increase, however, is “far above what could be considered an expected factor and far in excess of the rate of inflation” and “presents significant questions as to the overall financial viability of the project," Baker wrote.

Baker noted that the “source of the nearly $320 Million of additional construction costs has not been identified, and it is utterly unclear how the arena PILOT can be paid towards the bond based on assessed property taxes.”

The latter is a reference to a rule that says PILOTs (payments in lieu of taxes) cannot exceed the maximum amount of foregone property taxes. In terms of Atlantic Yards, those taxes may be significantly dwarfed by the potential arena bond.

What if PILOTs curtailed?

Indeed, the PACB’s approval, as with the KPMG study that led to the ESDC’s approval, was predicated on the use of PILOTs to pay off the arena bonds. Should the Internal Revenue Service be successful in curtailing the use of such PILOTs, that would strain the financial model significantly. The cost increase adds another strain.

Is criticism of Atlantic Center mall just 20/20 hindsight? (Nope)

So, should we give some slack to Forest City Ratner's Atlantic Center mall, which opened in 1996, a different era in an ever-changing Brooklyn? Brooklyn Borough President Marty Markowitz, during a recent TV discussion, suggested we should: "Certainly the Atlantic [Center] mall, the first mall, you can’t say it’s an attractive mall. We all know it’s not. But when it was built, I and almost all the other elected officials were celebrating, my god, somebody is investing something in the area."

However, the mall still shows up on lists of the city's most reviled buildings, and yesterday appeared in an amNewYork article headlined 10 to lose: Ugly buildings NYC would be better without.

The expert quoted on the Atlantic Center was Rob Lane, Regional Design Programs, Regional Plan Association, who said, according to the article:
"Seems like the focus should be on buildings and structures that are not just ugly in someone's opinion, but things that detract from, if not destroy, the most essential part of urbanity--the pedestrian experience. One example is Atlantic Center in Brooklyn. Not only is it an eyesore, it completely detracts from the walkers experience through long empty sidewalks and hallways and absolutely no street life whatsoever."

Bruce blames himself

We know Bruce Ratner's explanation for the isolation imposed in the interior, which reflects on the exterior as well. The New York Times reported 5/26/04:
“It’s a problem of malls in dense urban areas that kids hang out there, and it’s not too positive for shopping,” Mr. Ratner said. “Look, here you’re in an urban area, you’re next to projects, you’ve got tough kids.”

Ultimately, however, even Bruce Ratner blames the bad design on himself, not inexorable external forces, as New York magazine's Kurt Andersen wrote in an 11/20/05 column:
Until now, most of Ratner’s buildings have ranged from the uninspired to the bad, like his shopping center across from the Atlantic Yards. Even he admits the Atlantic Center mall is “not up to snuff. Philip Johnson did a first design, but I made a decision not to use him. I have to blame myself. I’ve been talking for ten years about trying to use ‘design architects’ instead of ‘developer architects.'"

In other words, it was a bottom-line decision that could have gone another way.

Thursday, June 19, 2008

Marty says Brooklyn attractive because of more "friendly" residential density

Interviewed recently for CUNY-TV’s real estate talk show The Stoler Report, Brooklyn Borough President Marty Markowitz sounded just a little bit like some Atlantic Yards opponents, as he explained Brooklyn’s attraction as a residential district because it is “more... friendly, in terms of density.”

He of course wasn’t saying that in the context of Atlantic Yards and, indeed, at another juncture (about 27:00 of the show) noted, “In many of our neighborhoods... I bitterly oppose the construction of out-of-context [buildings], but there are areas where it’s appropriate to grow.” There was otherwise little mention of AY, though Markowitz at about 4:00 of the show predicted the arrival of “the Nets arena, Barclays Center, in a few years.”

The show, titled What’s Happening in Downtown Brooklyn (video), was taped March 18 and broadcast for the first time on June 10.

Affordable Brooklyn?

The density issue came up at about 20:50 of the show, when panelist John Catsimatidis of Red Apple Companies suggested, “One of the reasons people come to Brooklyn is they can’t afford Manhattan. They’re looking to Brooklyn as the affordable New York.” Then Catsimatidis, who may be the 2009 mogul-for-mayor candidate, lapsed into campaign mode, saying that “we have to keep safe streets and make sure they feel good walking around...”

Markowitz responded, “I’m not sure that’s why people are moving into Brooklyn, because we’re cheaper. What happens is, very often, is that younger people, they start having families, and they need more space... And they take a look at Brooklyn, they say, ‘Y’know what, I can get more space within the budget that I have’--and also they want a life that is a little more, how do you say it, friendly, in terms of density... Even though they may live in those bigger buildings, they still want lower density, in terms of more management, more control of a life.”

Catsimatidis kept trying to get a word in edgewise, finally declaring, “More space for the same dollar equates to cheaper.”

Defending MetroTech


At about 11:27, Markowitz defended Atlantic Yards developer Forest City Ratner’s first Brooklyn project: “I must tell you that we do get some criticism, from the people who want to stop the arena or development... and they use MetroTech as an example. But you have to look at it through the eyes of the folks that built it, Forest City Ratner... and what the crime rates were and why they wanted to create an environment that businesses felt would safeguard them.

Stoler seconded that, “But in the same situation, Marty,...when Citibank built in Long Island City, they did the same thing. They built a building where the stores were within the facility.” (That was in 1989. Buildings in MetroTech were constructed shortly after that, though the project lingered through 2002.)

Markowitz continued, “But the bottom line is that MetroTech showed for its time that in fact it has become a wonderful addition to Brooklyn. It encouraged and opened the door for businesses to think about Brooklyn as an alternative, and retail, to some degree. And today, to the credit of Bruce Ratner and Forest City Ratner, in my opinion, now one of the highest priorities for the Forest City Ratner people is design, architecture, star architects. Really. It’s a credit. But it's also based upon what Brooklyn is today. Certainly the Atlantic [Center] mall, the first mall, you can’t say it’s an attractive mall. We all know it’s not. But when it was built, I and almost all the other elected officials were celebrating, my god, somebody is investing something in the area. Now, in 2008, now it’s a whole different story, thank God, thank God that we have that and so these good folks here are really making it possible....”

Markowitz was referring not just to Catsimatidis but also fellow panelists Robert Levine of RAL Companies, developer of One Brooklyn Bridge Park, and Paul Travis of Washington Square Partners, developer of the CityPoint mixed-used project.

Times change

The lingering question is whether, in December 2003, when Markowitz and other officials embraced Forest City Ratner’s Atlantic Yards plan, whether they should have driven a much harder bargain.

“You should be celebrating,” Markowitz said on the Brian Lehrer Show shortly after the announcement. “You’re talking about two-and-a-half billion of investment, development in Brooklyn, this is one of the best things that happened to our borough in decades.” He also claimed, “He made it clear, over and over again, the mayor, this city has no money, no money to provide in any way at all.” The total is now $205 million.

Changes around MetroTech

On the broadcast, Travis, a former Forest City Ratner official, said MetroTech “was really thought of as an office park,” with the developer having to convince tenants they could be isolated from the surrounding neighborhood. Since then, he said, “there's been tremendous change,” with 500,000 people in neighborhoods around Downtown Brooklyn, 20% with household incomes greater than $100,000 a spur to new retail and entertainment. He also noted that organizations and companies outside financial services have been leasing space at MetroTech, in some cases moving closer to where many of their employees live.

Downtown Brooklyn should still be a lure for office space. At about 23:50, Stoler asked Travis about the rent differential between Downtown Brooklyn and Lower Manhattan. In the latter, Class A office space rents for $70 a square foot. “In Downtown Brooklyn, we think it will go in the high 40s a foot,” Travis said, noting that, with the addition of tax incentives, “you’re probably talking about net rents in the 20s.”

The benefits of upzoning


At about 7:00 of the show, Catsimatidis discussed land he bought 20-25 years ago on Myrtle Avenue east of Flatbush Avenue. “MetroTech was built across the street from us, which was a great help,” he said. “And the city upzoned the area, which created value. And when the city upzones areas, it creates incentive for developers to build something. Without upzoning, there’s no incentive to build.”

It’s a little more complicated than that. The growing value of real estate has been incentive enough for some development. While Catsimatidis had planned affordable housing on the site, he has since changed his plans. While he has zoning to build approximately 1.3 million square feet in four buildings, now he’s “proceeding with caution... instead of four buildings, one at a time.”

Thus, when Markowitz said, “Whatever we build, we have to maximize affordability,” he was papering over a significant lapse on the part of planners, elected officials, and watchdogs, as the New York Observer pointed out in May 2006. The 2004 Downtown Brooklyn rezoning was sold as an effort to increase office space, but it became more attractive to build housing, and mandatory affordable housing was not part of the trade-off.

Wednesday, June 18, 2008

From Assembly Speaker Silver, non-candid candor on the arena

Mel Weiss of the Lilith Blog reports on an event at the Eldridge Street Synagogue, where Assembly Speaker Sheldon Silver, who represents the area, dropped in:
I daydreamed through much of Speaker Silver’s talk, enjoying the architecture but a bit put off by all the nostalgia, until I heard a brave question from a random audience member: “Is the arena going to be built?” The question, referring to the Atlantic Yards debacle, was said in a defiant tone, and Speaker Silver hurriedly gave a non-answer and left.

Silver is a notoriously careful speaker, and his non-answer may not have represented his real feelings or expectations. Moreover, Forest City Ratner's gift of $58,420 to Democratic Assembly Campaign Committee's Housekeeping account should trigger even more caution.

Still, in comparison to Bruce Ratner's facts-be-damned project timetable and faux nonchalance regarding arena funding, Silver's non-answer was, essentially, more candid. Even though a betting person would have to go with the big money, we just don't know right now.

Times corrects arena site caption

Was this the Atlantic Yards arena site, as 6/13/08 New York Times suggested?


No. Today's Times published a correction:
A picture caption on Friday with an article about an Internal Revenue Service proposal that would make the construction of three expensive sports arenas in New York even more costly referred incompletely to the site of the planned Barclays Center arena, the centerpiece of the Atlantic Yards project in Brooklyn. The arena site is in the upper left quadrant of the photograph; it does not extend to the area in the center of the frame.

In fact, they even changed the caption:
ARENA SITE In the upper left quadrant of the photograph, the site of the planned $950 million Barclays Center, an 18,000-seat basketball arena for the Nets and the centerpiece of the Atlantic Yards project. Ineligibility for tax-exempt financing would significantly increase its cost.


Actually, the upper left quadrant of the photo would encompass only part of the Barclays Center site. As I wrote, "Rather than stretch solely along the Metropolitan Transportation Authority's Vanderbilt Yard, as in the picture, the arena site would end at the Sixth Avenue Bridge in the upper left quadrant of the photo and stretch south below the Pacific Street boundary, at the far left of the photo."

Treasury official: Intangible benefits, political constraints fuel stadium deals

The only parties who seem to be justifying the use of tax-exempt bonds backed by fixed PILOTs (payments in lieu of taxes) to build sports facilities are sports team owners and their municipal backers. Academic analysts of professional sports and a wide array of civic groups criticize the provision as a wasteful subsidy.

Even the Chief Counsel for the Internal Revenue Service, Donald Korb, called the plan the IRS (seemingly reluctantly) approved for the construction of stadiums for the New York Yankees and New York Mets a "loophole" the IRS tried quickly to close.

Rep. Dennis Kucinich, who chairs the Domestic Policy Subcommittee of the House Committee on Oversight and Reform, doesn't think the IRS should let the stadium deals go through in the first place and has called for a moratorium until the IRS and Treasury Department explain their positions.

After all, as testimony last year showed, the Treasury Department had trouble justifying the deals, suggesting that local decisionmaking was affected by perceived intangible benefits as well as political and fiscal constraints.

That suggests that projects like the Atlantic Yards arena are essentially political projects that require significant scrutiny in the news pages, not cheerleading in the sports pages.

Treasury official on the spot

Kucinich, during a 10/10/07 hearing of the Domestic Policy Subcommittee, heard from Eric Solomon, Assistant Secretary for Tax Policy, Department of Treasury.

Solomon offered testimony that gently buttressed the academic argument:
The tax policy justification for a Federal subsidy for tax-exempt bonds is strongest in circumstances where State or local governments use Governmental Bonds to finance public infrastructure projects and other traditional governmental functions to carry out clear public purposes.

The tax policy justification for a Federal subsidy for tax-exempt bonds is weaker when State or local governments use Governmental Bonds to finance activities beyond traditional governmental functions, such as the provision of stadiums, in which the public purpose is more attenuated and private businesses receive the benefits of the subsidy.


The benefit principle

Then Kucinich pressed the issue. (Video available. Go to about 24:15.)

REP. KUCINICH: I'd like to go to this issue of the benefit principle of taxation.... In part, it is based on the idea that those who benefit from services should be the ones who pay for them. Now let's say that City A is told by the owner of a professional sports team that they will have to finance a new stadium or the team will leave. And let's further say that City B offers twice as much to the team to lure it away from City A. Now, of course, all the bond financing offered by City B and City A -- if they choose to give the team what it wants, will be tax-exempt.

Apply the benefit principle of taxation to this transaction. How do federal taxpayers benefit from the team moving to City B, or for that matter staying in City A, with a new stadium? How do they benefit?


Solomon (right) allowed himself a smile before offering a deadpan reply.

MR. SOLOMON: The current structure of the Internal Revenue Code leaves discretion to the state and local governments to make these decisions. And that is part of the framework. And we present, in our written testimony, possible options that one might consider if one were to decide that it is an appropriate --

His questioner was skeptical.

REP. KUCINICH: So you really can't say, is what you're saying.

MR. SOLOMON: I'm not an expert on local economic issues, of the determinations that state and local governments make, as to what appropriate projects are --

REP. KUCINICH: Let me try one more question, then. If the economists are right, that building professional sports stadiums do not raise incomes, create jobs, or increase revenues, while new ballparks do increase the value of the team franchise, would you say that building a professional sports stadium is mostly a private activity, or is it a public activity?

MR. SOLOMON: State and local governments, and those who are in state and local government, need to make these decisions. And they make these decisions, not necessarily on dollars and cents--

REP. KUCINICH: Okay. Okay. I got it. I got it. I know where you're coming from.

Political constraints

Later, Rep. Darrell Issa (R-CA), asked Solomon why, cities continue to compete to attract teams and to offer stadium subsidies. (The scarcity issue was also discussed at the hearing as contributing to the problem.)

REP. ISSA: Why, in your opinion, are cities making that decision if it's a bad business investment? What do you think the real reason that cities are voluntarily doing this, and continuing to do this bidding process?

MR. SOLOMON: Because the cities believe that there are various benefits. Perhaps they cannot be specifically identified, but there are various intangible benefits. And they -- of course, there are political constraints on their decisions as well as financial constraints.

And that's why developers like Forest City Ratner spend big money on lobbyists.

Board members of ESDC, other authorities, would finally become fiduciaries if reform bill passes

Somewhat buried in a New York Times Empire Zone column on Monday, headlined Stance on Same-Sex Marriage Brings Surprises for Paterson, was an item, under the sub-headline "Seeking Oversight for Agencies," indicating the potential passage of “the first meaningful oversight of the Metropolitan Transportation Authority, the New York State Thruway Authority, the Empire State Development Corporation [ESDC] and a multitude of other state and local authorities.”

Notably, it would require a fiduciary duty of authority board members--a duty of care arguably lacking in the ESDC's treatment of the Atlantic Yards project.

Such proposed reforms have been under discussion for years, and the current proposal draws on both Assembly and Senate bills and the report of a special commission convened by then-Gov. George Pataki. As the Times reported:
The broad outlines of the proposal would overhaul an existing budget office for authorities and transform it into an entity with teeth, as well as give the state comptroller broader power to reject contracts. Board members of authorities would also be considered fiduciaries under the plan, with responsibilities that would make them legally responsible to uphold the interests of state taxpayers and potentially subject to legal recourse if they did not.

Negotiations among the Assembly, Senate, and Governor’s office are ongoing, with the goal of reaching a resolution before the legislative session ends next Monday, Emma Furman, Deputy Chief of Staff for Assemblyman Richard Brodsky, told me. “We are working hard to try to get it done.” Brodsky is sponsor of Assembly Bill A9296A.

Bill details

According to a memorandum in support of the bill, it would not only establish and fund the Independent Office of Public Authority Accountability, it would require study of additional potential reforms, mandate referral of suspected wrong-doing to entities qualified to conduct investigations, require the State Comptroller to review and approve certain public authority contracts, prohibit state public authorities from forming subsidiaries without legislative approval, except under defined circumstances, and require all state authorities to include contract participation by minority-and women-owned businesses.

The fiduciary duty & AY

The plan to establish a statutory fiduciary duty owed by public authority board members to the authorities they serve and to require such members to acknowledge their fiduciary duties upon taking office, while too late, most likely, for the Atlantic Yards project, suggests that future iterations of the ESDC might not approve a project so cavalierly.

Did ESDC board members, in their brief 12/8/06 approval of the project bother to check:
  • if the arena financing plan was legitimate or a took advantage of a "loophole"?
  • if there would be enough affordable housing financing to get the project done anywhere close to the “anticipated” ten-year timetable?
  • if that ten-year timetable would be enforced in future ESDC contracts or whether the agency would give the developer 12+ years to build Phase 1 and no deadline for Phase 2?
These are all questions that might be pursued if the Assembly Committee on Corporations, Authorities, and Commissions, chaired by Brodsky, turns its direct attention to Atlantic Yards.

What a fiduciary duty means

The bill would amend the Public Authorities Law to “establish a statutory fiduciary duty on the part of authority board members to perform their functions in good faith and with the degree of independence, diligence, care and skill which ordinarily prudent persons would exercise under similar circumstances, and in all ways consistent with their fiduciary duties of loyalty and due care to the organization and obedience to the authority's corporate purposes

Corporate governance expert Ira Millstein, who chaired Pataki’s Commission on Public Authority Reform, testified before a joint Assembly/Senate hearing 3/7/07. “You need to have directors of these authorities which understand that they have a job to do,” Millstein said, according to a transcript of the hearing. “[W]e've talked to a lot of these directors in the past, and most of them did not, and still don't understand that they have a job. “

“This is a real job," he continued. "Now how do you tell people that they have a real job? Well, you tell them that they have a fiduciary duty. This is a common, well-known expression which everybody in the world understands. You have a fiduciary duty to do the job that you've been appointed to do. And that means you have the duty of loyalty, you have the duty of care, you have a duty to carry out the mission, and it's a duty. It's not something that you have because you think it's a good thing to do. There is a requirement that you do that.”

He noted that corporate directors have fiduciary duties enforced by stockholder derivative suits, while public authorities have gotten into trouble only when “something blatantly went wrong” and the issue was covered by the press.

The penalty is shame

Brooklyn Assemblyman Hakeem Jeffries, a member of the committee, asked what kind of penalties authority board members might face, given that authorities are not corporations. Millstein suggested that civil penalities were not necessary, given that the monetary penalties corporate directors might pay are nearly always covered insurance and thus not a deterrent.

The real deterrent, he suggested, was shame: “Nobody likes to read about themselves in the newspapers of having been on a board that went to sleep. “

And that’s why the press should have paid more attention to the ESDC’s approval of Atlantic Yards.

Implications for AY eminent domain case?

Regarding the ESDC’s performance, the plaintiffs in the Atlantic Yards eminent domain case have argued, in appeal papers before the U.S. Supreme Court,
that the case differs from one in Washington, DC, involving the City Council, a legislative body:
As the court observed, legislators enjoy both statutory and common lawprivileges and immunities from disclosing their subjective motives and intentions in considering and/or acting on legislation.
Here there is no such privilege or immunity and thus no reason for hesitancy. Ratner’s and Pataki’s decision to condemn respondents’ properties was rubber-stamped by the ESDC, an unelected, quasi-governmental corporation. Indeed, the ESDC is so removed from state government that the Eleventh Amendment does not protect it from suit.


That may not be the same as lacking a fiduciary duty, but strikes me as a parallel issue. The suit argues that the ESDC has not been very accountable. So does the pending reform legislation.

As groups lobby against tax-exempt bonds for sports facilities, is WFP hamstrung by ACORN's AY deal?

There seems to be a consensus among good-government and neighborhood activist groups that tax-exempt bonding for sports facilities, as keyed to the PILOT (payment in lieu of taxes) deals crafted for the new Yankees and Mets stadiums, and planned for the Atlantic Yards arena, is bad public policy. The loss to the federal treasury often benefits sports team owners more than the public at large.

That's why two letters issued yesterday said very much the same thing--but with a curious discrepancy that suggests that the housing group ACORN's role in the Atlantic Yards project may have hamstrung the Working Families Party from explicitly criticizing tax-exempt bonds for the AY arena.

Coalition letter

Yesterday, a coalition of groups, notably Good Jobs New York, the New York Public Research Interest Group, the anti-AY group Develop Don't Destroy Brooklyn and the Yankees resisters at Save Our Parks, sent a letter to New York State's Congressional delegation, asking them to "clearly communicate to the Treasury Department and the IRS that its regulations should be clarified to ensure that in the future no sports facilities will be eligible to receive federal tax exempt financing." (Click on graphics to enlarge.)

In other words, even though the Yankees and Mets were able to use a "loophole," in the words of the chief counsel of the IRS, to use PILOTs to pay off stadium construction, they shouldn't be allowed to gain any more tax-exempt bonds. Nor should Atlantic Yards developer Forest City Ratner, even though city and state officials are lobbying Washington to make sure that these projects escape a proposed new regulation tightening the availability of such bonds.

The WFP effort

Yesterday the New York Working Families Party asked supporters to send a message urging Mayor Mike Bloomberg to stop lobbying to help the Yankees get more tax-free bonds. The message, which mentioned neither the Mets stadium nor the Nets arena, pointed out, as did testimony by Good Jobs New York and others at a Congressional hearing last October, that subsidies for sports facilities can divert funds from critical infrastructure.

Yesterday, Develop Don't Destroy Brooklyn posted an email sent out by the WFP, signed by several officials, including WFP Co-Chair Bertha Lewis, executive director NY ACORN, and a signatory of the Atlantic Yards Housing Memorandum of Understanding (MOU) and a staunch supporter of the project.

The letter also cited only the Yankees Stadium but laid out the broad policy argument, calling it "very sensible" for "private sports teams [to] not have access to tax-free bond money meant for public development projects."

The letter added, "If they succeed, other sports teams in NYC, and around the country, could see billions more in public money heading their way."

The policy argument applies, obviously, to the Atlantic Yards arena. Indeed, as DDDB points out, Forest City Ratner could proceed with taxable bonds. But that could cost an estimated $165 million in revenue, reason enough to doubt Bruce Ratner's nonchalance in claiming the project would be funded no matter what.

WFP neutral?

As a Working Families Party representative commented on this blog in September 2006, the WFP is neutral on Atlantic Yards. Indeed, City Council Member Letitia James, the most prominent political opponent of AY, is an WFP member.

Then again, given that ACORN is a founder of the WFP, the party can't ignore ACORN's position. So, even though the WFP could legitimately mention all three sports facility projects, it chose to mention only the Yankees deal.

ACORN hamstrung WFP on this issue?

Why? I'll speculate that the WFP faced some internal pressure from ACORN, which is required, according to the Housing MOU (above) to "take reasonable steps to publicly support the Project by, among other things, appearing with the Developer before the Public Parties, community organizations and the media as part of a coordinated effort to realize and advance the Project and the contemplated creation of affordable housing."

Though that clause strikes me as difficult to enforce, I can't imagine that Forest City Ratner is happy with anyone lobbying public officials to tighten regulations on tax-exempt bonds. So if Lewis and ACORN were going to criticize "corporate welfare," the least they could do was not mention by name one of the chief recipients of such tax breaks.

Tuesday, June 17, 2008

The clock stalls (a bit) on Goldstein v. Pataki; will be discussed on Thursday

[Updated] At least according to the U.S. Supreme Court's official docket, on Thursday, June 12, the nine justices were to consider whether to accept the cert petition--the appeal--in the Atlantic Yards eminent domain case, known as Goldstein v. Pataki.

However, the order list issued Monday, with the results of Thursday's deliberations, doesn't mention the case. There's only one more conference, on Thursday, during the court's current calendar--[updated] and Goldstein v. Pataki is on the list.

So next Monday we should have a decision on that cert petition, unless there's another postponement--until the fall.

Another potential snag for AY arena financing: foregone property tax may severely cap tax-exempt bonds

Even if the Empire State Development Corporation (ESDC) and the City of New York succeed in getting tax-exempt financing for the Atlantic Yards arena under the more lenient rules that applied to the new Yankees and Mets stadiums, bonding for the arena faces another potential snag: tax-exempt bond payments, given the cost escalation of the arena, threaten to significantly exceed the amount of foregone property tax, which would cap the bond payments.

If so, that would limit the amount of tax-exempt bonds issued by the state on behalf of the $950 million arena. That suggests that developer Forest City Ratner, which aims to have $800 million in tax-exempt bonds issued--at a savings of an estimated $165 million over taxable bonds--might have to accept a smaller amount of tax-exempt bonds.

The more taxable bonds, the more the deal would cut into the developer’s profit. Thus, should Atlantic Yards proceed, the city’s tax assessment on the arena site will deserve a close look, given that the assessment would regulate the amount of tax-exempt bonds issued and thus the amount of payments in lieu of taxes (PILOTs) used to pay back the bonds.

That figure remains unknown, but if it bears any relation to the foregone property tax for Madison Square Garden, it might be a big problem for Forest City Ratner. Tax assessments, of course, are subject to many factors, so it’s also possible a revised assessment might line up neatly with the amount of tax-exempt bonds that Forest City Ratner ultimately seeks.

ESDC aims to maximize tax-exempt bonds

“Our goal is to maximize the amount of tax-exempt bonds,” ESDC spokesman Warner Johnston stated by email. “We have not determined the dollar amount of the annual PILOT payment. However, PILOT payments will not exceed full taxes, which is based on the assessment.”

[Note the comment below, which suggests the term "full" implies the absence of various exemptions, and thus potentially a significant sum.]

The assessed value of the premises will be determined by the city assessor, he noted, and that has not yet occurred. “Consequently, the maximum amount of tax-exempt financing that is permissible may be impacted by the assessment,” he said.

Bettina Damiani of the watchdog group Good Jobs New York has taken a close look at the Yankee Stadium project; she said that the expected PILOT payments for the arena and the stadiums should have been announced “long ago--when a project is proposed.”

She acknowledged that numbers change regarding such projects, but they can be updated. “People want to be engaged in these large projects,” she said. “It makes it easier to think it a done deal when people on the ground aren't given figures they should have.”

Looking at the rules

Let’s recap. Tax-exempt financing for stadiums, according to a 1986 law, appears limited to bonds backed by general governmental revenues, such as a sales tax. Such a plan may not be popular with voters, so lawyers for the city, along with the three New York-area teams, came up with a more creative idea: the tax-exempt bonds would be bonds instead backed by PILOTs.

Why PILOTs? Because the land is tax-exempt. So the team owners get to pay off the arena by paying off bond payments that would not be larger than the property tax on the site that would be assessed were the property not tax-exempt.

That’s the reason that Yankee Stadium and the Atlantic Yards arena would be nominally publicly-owned--it’s another discount for the AY developer, since Forest City Ratner has to pay only PILOTs rather than the combination of bond payments and property taxes.

The Internal Revenue Service (IRS), which apparently had not agreed to such PILOT deals before, claims that it was compelled to do so regarding the Yankees and Mets in 2006 because of 1997 regulations. Rep. Dennis Kucinich, D-OH, chair of the Domestic Policy Subcommittee of the House Committee on Oversight and Reform, disagrees strenuously.

Narrowing the regulation

However, to close what the IRS chief counsel admits is a “loophole,” the IRS in 2006 proposed narrowing--but hardly eliminating--the opportunity to use PILOTs to pay off tax-exempt bonds. Rather than allow the PILOTs to be a fixed sum--which makes it much easier to sell the bonds, since bond buyers seek predictability--the PILOTs would have to be keyed to fluctuating property tax assessments.

In other words, they really would have to look like payments in lieu of taxes.

The city and ESDC oppose such a limit. They are currently lobbying to get grandfathered in both the Yankees and Mets deals, given that both teams want to sell additional PILOT bonds this year, as well as the Atlantic Yards arena, given that plans were in process before the revised regulation was proposed.

The regulation was supposed to be finalized early last year, but Kucinich’s subcommittee held two hearings relating to the issue, and lobbying continues. On May 23, Kucinich asked the IRS and Treasury Department to desist from approving any more sports facility deals based on PILOTs, pending further clarification of their policies.

Damiani warned that the financing plans in New York may become a national issue. “Is this going to be the straw that breaks the camel's back on public financing?” she mused. Unless Congress fixes the rules, “what prevents all the stadiums in the future from hiring the Yankees’ attorneys?”

The Yankee Stadium example

For some $943 million in tax-exempt bonds were issued by the city, the Yankees would make PILOT payments of $56.7 million. (See chart at right, from page marked 6 of this 23MB+ PDF. Click on graphic to enlarge.)

How would those numbers relate to property taxes? In a 4/25/06 analysis, the Independent Budget Office estimated the projected initial property tax bill for the new Yankee Stadium to $39.6 million.

Some two weeks earlier, in testimony before the City Council, the IBO noted:
The solution devised by the project’s planners is a payment in lieu of taxes, which according to the Industrial Development Agency documents will be calculated in a manner similar to the city’s regular property tax. (The stadium will actually be exempt from property tax because it will be publicly owned and leased to the Yankees, rather than being owned outright by the Yankees, in part to help qualify the deal for tax exempt financing.)

Given the large annual payments needed to service the $866 million of tax exempt bonds proposed in the financing plan, it is not clear that a property tax-based PILOT would be sufficient. Assuming an interest rate of 6.5 percent, annual debt service payments for 30 year, level payment bonds would be about $66 million. Based on the $736 million estimated construction cost for the new stadium plus the existing land value, IBO estimates that a regular property tax bill would be about $37 million (before exemptions)—considerably below the annual debt service payments.

(Emphasis added)

Note that the amount of tax-exempt bonds has already gone up to $943 million, a nearly nine percent increase, so we can assume that the property tax bill would have risen from $39.6 million to well over $40 million.

But does it reach $56.7 million, the amount of the PILOTs? That’s a question that should be asked at the State Assembly hearing planned on these stadium deals.

The Atlantic Yards arena example

Extrapolating from the amount of bonds and the PILOT payments for the Yankees, a similar 6% ratio suggests annual PILOT payments on $800 million in tax-exempt Atlantic Yards arena bonds would be about $48 million.

In 1/7/08 testimony to the City Council Finance Committee, Theresa Devine of the Independent Budget Office stated that owners of Madison Square Garden, who benefit from a full property tax exemption, were saving $11 million in the current fiscal year.

That’s a lot less than $48 million.

In its September 2005 report on Atlantic Yards, the IBO estimated the value of the Atlantic Yards arena at $100 a square foot, compared to Madison Square Garden at $125/sf. Based on the $100 figure, the IBO had calculated the foregone property tax at the Atlantic Yards arena at only $3.85 million.

The value of Madison Square Garden, IBO’s George Sweeting told me in a recent email, is now calculated for tax purposes at $250/sf. So even if doubled to $200/sf, the foregone property tax for the AY arena would be less than $8 million a year--a reasonable ratio if the figure for Madison Square Garden is $11 million.

Sweeting noted that the agency’s 2005 analysis “was based loosely on the Department of Finance’s official market value for MSG at the time, discounting for differences in land value. It is probably true that neither the MSG value assigned by the city, nor the AY arena value estimated by IBO, reflect the actual cost somebody would pay to buy the land and build a new arena. We based our value on an assumption that whatever the Finance Department is doing when valuing MSG, they would do for AY.”

If so, there would have to be a lot more taxable bonds than currently contemplated.

Will PILOTs track property tax?

In a footnote to its September 2005 report on Atlantic Yards, the IBO noted:
Under IRS regulations, there are a number of tests concerning the use of revenue from sports facilities to back private activity bonds. Essentially, in order to qualify for tax-exempt status, debt service can be paid from arena-generated revenue only if it is collected as payment of an existing tax or tax-equivalent (that is, a PILOT). This seems to imply that the PILOT payments cannot be significantly discounted or increased from the regular property tax amount or they will not pass the IRS test.


So what would be the regular property tax amount for the AY arena? That issue becomes ever more worthy of scrutiny as the question of PILOTs for Atlantic Yards emerges. How can the foregone property tax--which would seem to be less than $10 million--match up with PILOTs that could well exceed $40 million?

Then again, maybe there’s some wiggle room to calculate what ESDC said was “full taxes.” Would some other calculation be added to suggest that the foregone property taxes for the AY arena would be larger than those forgone by Madison Square Garden, which, while older, is somewhat larger and clearly located at a more valuable intersection?

Push for AY Development Trust begins; how much power would it have?

As elected officials and community representatives from the BrooklynSpeaks coalition gathered yesterday to support the creation of the “Atlantic Yards Development Trust” to oversee the project, one thing became clear: while such an organization--common with other large projects and thus a glaring weakness of the AY plan--certainly might channel public input, it would be unlikely to fundamentally change power dynamics.

Among the 15 voting members of the trust, eight would be appointed by the governor, two each by the Assembly Speaker, Senate President, and Mayor of New York, plus one by the Brooklyn Borough President. A non-voting member would be appointed by the Stakeholder Council, which would represent local residents.

Such an organizational structure is par for the course; it mirrors the Hudson River Park Trust, which is similarly is governor-controlled. “A balance has to be struck between making sure we maximize community input and the reality of getting legislation passed,” said Assemblyman Hakeem Jeffries (at dais), a sponsor of the bill, which is likely to receive serious consideration not this legislative session but the next one.

But whether such a trust could actually respond to local concerns, as City Council Member David Yassky put it, about buildings being too tall, and traffic and environmental problems, is another question. Jeffries suggested that the yet-to-be negotiated ground lease for the project gave the state--and, presumably, the trust should it emerge--some leverage.

Kent Barwick of the Municipal Art Society, a major component of BrooklynSpeaks, said the trust aimed not to take the governor’s power away “but get the public’s voice in the discussion.” Barwick (at right in photo) said public involvement was needed because it’s “just basic civics” and also because “large-scale public projects in New York take a long, long time;” such continued oversight is even “in the interest of the developer.”

Public promises

The group gathered on the steps at City Hall yesterday morning. "Atlantic Yards is a public project built on public land using public money overseen by a public entity for a public purpose," Jeffries declared. "It therefore deserves maximum public participation." (Actually, as Eric McClure of NoLandGrab pointed out, some of those statements deserve footnotes. Update: AY is more accurately a public-private partnership.)

“This developer has promised thousands of units of affordable housing. We want to make sure that affordable housing is built,” Jeffries said. “This developer has promised to build this project in a responsible fashion. We want to make sure this project is built responsibly. This developer has promised thousands of jobs and economic opportunity for women- and minority-owned business. We want to make sure those promises are met.”

Assemblyman Jim Brennan (at left in photo), a co-sponsor of the bill along with Jeffries and Assemblywoman Joan Millman (and State Senator Velmanette Montgomery in the Senate), noted that the governing agency, the Empire State Development Corporation (ESDC) “has been in turmoil."

"In the meantime," he added, "we have a paper concept that, that as it gets tested in the marketplace, continues to show increasing costs, a lack of accountability, and an uncertain future, as the city and state has given the developer up to 12 years before deeming the project to be abandoned." (Actualy, it's 12 years to build Phase 1.) "This is unacceptable to the people of the community, to be forced to deal with a project of virtually indefinite duration, indefinite cost, and no accountability.”

Yassky spoke up for the role of the City Council in the Uniform Land Use Review Procedure, or ULURP, which was bypassed under the ESDC’s management: “The fundamental mistake that was made here, really the original of this project, is that it was approved in a way that went around all the usual process for approving a big project... We never had a chance to fix all the problems... I believe there is, somewhere buried underneath all the... special treatment, very deep in there, there is a good project, but the process never had a chance to find it.”

Mend it, don’t end it

Yassky’s statement was a reminder that the elected officials, as well as the civic groups that are part of BrooklynSpeaks, follow the “mend it, don’t end it” philosophy regarding Atlantic Yards. Not participating in the press conference were any representatives of Develop Don’t Destroy Brooklyn, which has organized two lawsuits still challenging the project.

Thus the presence of City Council Member Letitia James, who represents the project footprint and is the project’s leading political opponent, seemed a covery-your-bases bow to pragmatism. She thanked her colleagues “for stepping up and recognizing that what this project needs is accountability and transparency.”

James echoed Yassky in saying that developer Forest City Ratner “should not be given any further public money until people know what this project is.” Given that they’ve already denounced additional subsidies, I’m assuming they meant already pledged money.

Indeed, Yassky noted that the developer has already gotten $55 million, “and nobody here can tell me when we’ll see the first affordable housing, $55 million when our public housing is falling apart, our schools are underfunded.” In the future, he said, the trust could say, “Not so fast.”

“This notion that this project is a done deal is a false notion,” James declared. “This project is far from done.”

ULURP redux?

When a spectator, Develop Don’t Destroy Brooklyn supporter Susan Metz, noted that she supported the alternative UNITY plan and asked whether the ULURP process could be reinstated, Jeffries’ answer was brief, and general. “It’s something that we’re looking at,” he said. “Our colleague, Assemblyman Brennan, has taken the lead. I certainly expect we will all work together.”

Brennan, in fact, has drafted a bill that would put Atlantic Yards through a very fast-track version of ULURP by the end of the year. Given that the bill was not even mentioned at the press conference yesterday, it’s safe to say that a revision would be needed before it could gather even local support.

After Michael Ratner's support for Kucinich, blowback?

Now that Rep. Dennis Kucinich, an Ohio Democrat best known for his maverick presidential run and his effort to impeach President George Bush, is going after the "loophole" behind financing for the Yankees and Mets stadiums and the Atlantic Yards arena, one of his supporters in New York City, radical lawyer and Nets part-owner Michael Ratner, has to be considering the concept of blowback.

Kucinich is questioning the statement by the Internal Revenue Service and Treasury Department that they had no choice but to endorse a questionable interpretation of the tax code via a Private Letter Ruling (PLR) for the Yankees and the Mets stadiums--a policy on which the Empire State Development Corporation and Forest City Ratner have relied to plan financing for the Atlantic Yards arena.

The IRS has since proposed tightening the rules. Kucinich has asked the IRS and the Treasury department to offer "additional clarification of your position before you proceed with further rulemaking in this area." He noted that, "While the new PILOT rule would tighten the requirements for the use of PILOTs in certain respects, it would further legitimize their use for financing stadiums by placing them on firmer regulatory authority."

As far as I can tell, the tightening of requirements is enough to provoke serious concern among Atlantic Yards proponents, since it would ensure that PILOTs not be fixed, as bond payments should be, but rather fluctuate according to tax assessments. (More from Neil deMause.)

Four contributions

Michael Ratner, the human rights lawyer who heads the Center for Constitutional Rights and just happens to be the brother of Bruce Ratner and a part-owner of the Nets, has four times given modest contributions, totaling $3500, to Kucinich for his Congressional and Presidential runs.

Michael Ratner has a record of supporting progressives in New York City and elsewhere, just as he has a curious record of supporting undistinguished products of the Brooklyn machine (who also support Atlantic Yards), as I wrote in September 2006.

While Ratner's not talking, his Brooklyn political contributions seem guided not by ideology but by the interests of Forest City Ratner (FCR). Indeed, as federal filings show, while he generally lists his employer as the Center for Constitutional Rights, some list his affiliation as First New York Partners, a separate operating entity of Forest City responsible for providing property management and services to all Forest City buildings and their tenants. In other cases, he lists his address not as his Greenwich Village home, but 1 MetroTech, FCR's headquarters in Brooklyn.

Will he ask Kucinich for his money back?

Monday, June 16, 2008

As IRS moves to close "loophole," ESDC fights for AY funding scheme

The strategy under which the Empire State Development Corporation (ESDC) and developer Forest City Ratner seek tax-exempt bonds for the Atlantic Yards arena has been acknowledged by the chief counsel of the Internal Revenue Service (IRS) as a “loophole” the agency moved quickly to eliminate.

Donald Korb’s testimony came at a 3/29/07 oversight hearing of the Domestic Policy Subcommittee of the House Committee on Oversight and Reform, headed by Rep. Dennis Kucinich (D-OH). The hearing, covering “Taxpayer Financed Stadiums, Convention Centers, and Hotels,” mainly focused on the stadiums, starting from the premise that they do not bring economic development and potentially divert funds from critical infrastructure.

The IRS in July 2006 issued two Private Letter Rulings (PLRs) related to financing for stadiums for the New York Yankees and the New York Mets. (Here's one.) In both cases, the IRS agreed that payments in lieu of taxes (PILOTs) used to pay off the bonds could substitute for property taxes, even though critics warn that they do not seem commensurate with such taxes but simply mirror debt service.

The use of PILOTs, paid for by the team owners, saves the local governments from legal restrictions that otherwise would require tax-exempt bonds for stadiums to be repaid by governmental sources of funds, including generally applicable taxes, like sales taxes or hotel taxes.

Notably, the PILOT payments were set at a fixed amount by agreement between the teams and the ESDC. While that number could easily be tied to annual bond repayments, taxes often fluctuate. And bond buyers, as Neil deMause explains on his Field of Schemes blog, don't like uncertainty in their bond payments.

Under the proposed change by the IRS, according to testimony (PDF) by Korb, “[E]ligible PILOT payments must be based on the current assessed value of the property for property taxes for each year in which the PILOTs are paid, and the assessed value must be determined in the same manner and with the same frequency as property subject to generally applicable taxes. A payment is not commensurate if it is based in any way on debt service on an issue or is otherwise set at a fixed dollar amount that cannot vary with the assessed value of the property.”

Tax exempt bonds save developers money because those buying the bonds accept a lower interest rate--on $800 million worth of Atlantic Yards arena bonds, I estimated that Forest City Ratner might save $165 million. Federal taxpayers, not state or city ones, bear the brunt of the burden.

NY strikes back

In a May 8 letter to the U.S. Treasury Department and the IRS, according to an article last Friday in The Bond Buyer, officials from the New York City Industrial Development Agency and the ESDC have argued that the proposed regulations, which would apply to bonds sold after 2/18/07, should not apply to the Yankees or Mets, both of which expect to sell additional PILOT bonds within the year, or to the Atlantic Yards arena.

"The impact of the proposed effective date is that projects that were in progress long before the proposed regulations were issued are prevented from going forward," according to the letter. "This broad impact did not seem intended" by the proposed regulations.

The letter asked for the rules to be suspended until 2/19/09, with an exception for the Atlantic Yards project in case litigation further delays bond sales. However, the letter suggested that the first PILOT bonds for the Atlantic Yards arena would be be issued by the ESDC this year--which is questionable, since litigation may linger.

Meanwhile, in a letter sent May 23, Kucinich asked the IRS and Treasury Department to desist from approving any more sports facility deals based on PILOTs, pending further clarification of their policies. He was essentially questioning whether the IRS should have granted the PLRs in the first place. The IRS regulations were actually scheduled to go into effect in early 2007, but apparently have been postponed.

(The May 8 letter is apparently what has triggered the recent news coverage about the issue.)

From the GPP

From page 24 of the Atlantic Yards General Project Plan or GPP (Part 2), approved 12/8/06:
ArenaCo would enter into a payment-in-lieu-of-tax ("PILOT") agreement with ESDC and the LDC under which it would agree to make payments not to exceed the amount that full real estate taxes would be if the land and improvements were not exempt from such taxes as a result of ESDC's ownership thereof.

Note that the footnote indicates that the financing has been "contemplated" by the ESDC and the city "for at least three years," but it doesn't say that the process has been legitimized. An earlier version of the General Project Plan, issued 7/18/06 (below) indicates that the payments might be equal to debt service rather than property taxes.

From Field of Schemes

Author deMause’s book Field of Schemes (written with Joanna Cagan), describes the Yankees and Mets deals (p. 311):
The other remaining obstacle affected both teams and involved the $1.56 billion in tax-exempt bonds that would be used to raise money for construction. Ever since the 1986 Tax Reform Act, it had been considered illegal to use federally subsidized bonds for projects where more than 10 percent of the cost would be repaid by a private entity. The Mets and Yankees stadiums were to use 100 percent private money to repay the bonds--but, the city claimed, these payments were technically not private but rather "in lieu of" the property taxes that the teams were not going to have to pay.

It was a distinction fine enough to raise more than a few eyebrows among development experts. One national bond expert, speaking on condition of anonymity, called the city's argument "a transparent end run around the 1986 provision saying stadiums cannot be financed with private-activity bonds. We have simply interposed an empty box into which the Yankees' stadium-related revenue would be placed, labeled that box 'PILOT,' and transformed black into white. If only solving the problems of real life were that simple."

Dan Steinberg [of the watchdog group Good Jobs New York] recalls a meeting of the city council's finance committee where members split unprecedented semantic hairs over the difference between "public" and "private" money. "The entire point of the hearing was to determine whether or not the council was comfortable using money that the city would normally collect," he says. "But meanwhile, throughout this very hearing, you had council members defending the project by arguing that it was privately financed. I remember thinking, if the IRS were in this room, and heard the arguments that the council members were making, it would be very difficult to justify the use of payments in lieu of taxes."


No public purpose?

During the 3/29/07 hearing, Kucinich questioned Dennis Zimmerman, Director of Projects at the American Tax Policy Institute and, as deMause now says, the “national bond expert” quoted in his book. (The institute is a nonpartisan organization; Zimmerman was speaking personally. The quotes come from watching a C-SPAN video of the hearing.)

DK: "You are a former Congressional Research Service and Congressional Budget Office analyst. In your opinion, what is the public purpose fulfilled by tax-exempt financing of the construction of Yankee Stadium?"

Zimmerman allowed himself a small smile.

DZ: "If you go by the structure of the bond rules prior to the [ruling], it would not have been allowed. In general, since these things provide no benefit to federal taxpayers, it’s not clear why one would want to subsidize these things."

DK: "Has the IRS, in its rulings for the Yankees and the Mets, adhered to the meaning and the intent of the law?"

DZ: "The meaning and intent of the law is sort of in the eye of the beholder, frequently. As I read the law, prior to the PILOT ruling, it is not consistent."

DK: "How would you characterize the impact of the IRS rulemaking on the 1986 law?"

DZ: "It circumvents what the 1986 Tax Act rules say, because it reclassifies stadium-related revenue, which clearly should be counted against the 10% security interest test, it reclassified it as generally applicable taxes, and converted these things from private activity bonds, which are taxable, into governmental bonds, which are tax-exempt."

Rep. John Tierney (D-MA) asked Zimmerman to explain the rules.

DZ: "Bonds are taxable or tax-exempt depending upon two tests. One is whether more than more than 10% of the bond proceeds are used by a private business. The second is whether more than 10% of the debt service is secured by property used in a trade or business. You have to exceed the 10% for both of those. So, for a stadium, obviously more than 10% of bond proceeds are being used by a private entity. So the question... is: can you structure the deal that no more than 10% of the debt service is paid for by stadium-related revenue, that’s the property being used in the trade or business. The ‘86 act said, if you don’t satisfy that 10% security interest test, you can’t issue a stadium bond. So it would have to be a governmental bond, which forces you to finance it with general tax revenues."

JT: "So the IRS rulemaking letter--was that an interpretation or a change in law?"

DZ: I’m not a lawyer. I can only tell you what the effect was. It converted what, absent the PILOTs ruling, would’ve been considered stadium-related revenue, and would have classified it as a taxable private-activity bond. It would not have been eligible for tax-exempt financing."

The IRS testimony

Korb, in his testimony, acknowledged that “[d]ifficult interpretative issues arise when a payment purporting to be a generally applicable tax is imposed in a customized fashion on a private business that uses bond-financed property... This line becomes particularly difficult to draw when the tax is abated through negotiations or is a PILOT that is specifically crafted for the transaction and essentially results in debt service being fully paid by the private business.”

The plan for PILOT payments set at a fixed amount for the New York stadium deals generated “serious concerns” at the IRS, but, Korb testified, 1997 regulations issued by the Treasury Department under the Clinton administration “compelled the result.”

However, IRS then concluded that existing regulations “could be interpreted to permit PILOTs to be used to pay debt service on tax-exempt bonds in situations where the PILOTs bear an insufficient link to the otherwise generally applicable tax, and in fact closely resemble the expected debt service on the bonds.”

Hence the proposed regulations. “We spotted a flaw in the 1997 Treasury regulations, and we moved expeditiously to fix it,” Korb said.

(I haven't yet found a link to those regulations.)

Korb under the gun

During the hearing Kucinich questioned Korb as to whether the Yankees should have been concerned the plan wouldn’t be allowed. He wouldn’t acknowledge that, but did acknowledge that the Yankees would have had to choose a very different strategy. “ That’s why we moved very very quickly to eliminate the loophole created in 1997,” he said.

While Kucinich queried Korb about whether the PLR would let the Yankees owner keep a greater share of the revenues and whether the new stadium would raise the value of the team, the lawyer begged off, saying he was a tax lawyer, not a sports lawyer.

Kucinich asked Korb if he agreed with Zimmerman’s testimony that the interpretation violates the 1986 tax act. Korb said no, that it was based on the 1997 interpretation. “We felt our hands were tied,” he said.

Kucinich still skeptical

Kucinich remained skeptical, noting that the PLRs rely on the stated purpose that the payments are for “economic development and recreational opportunities in the City” that would be generated by using the PILOTs to pay for the bonds:. “As you’ve heard, there’s a consensus among economists that stadium construction does not lead to economic growth. Did the IRS simply accept at face value the claims of stadium financing applicants... or did you try to verify the representations?”

Korb said the IRS had no discretion.

Kucinich’s letter

In his May 23 letter to IRS and Treasury, Kucinich returned to the issue, writing, "In the PLRs, the Treasury Department uncritically accepted the position of the proponents of the Yankees' and Mets' deals that the PILOTs were 'designated for a public purpose' because they would 'promote and encourage economic development opportunities in City.'”

A bond attorney quoted in the newspaper said local officials are not responsible for determining if stadiums are a public good.

Kucinich also accused Eric Solomon, a Treasury Department official, of offering a misleading response regarding the department’s discretion to regulate PILOTs rather than wait for Congress to act.

Zimmerman testimony

In his testimony (PDF), Zimmerman explained that the Tax Reform Act of 1986 made stadiums ineligible for private-activity bonds, previously known as industrial development bonds. As he testified, "The expectation was that local governments would be reluctant to use the other option, governmental debt, to finance stadiums, and the use of tax-exempt debt for financing stadiums would wither."

However, Zimmerman said, "those who benefit most from stadiums (owners of teams, players, fans, some related businesses) learned how to utilize pseudo-economic studies to argue that the economic benefits from stadiums generated sufficient additional tax revenue to pay for the public subsidy, a proposition that runs counter to an extensive economics literature.... Second, the monopolistic structure of professional sports leagues maintains excess demand for franchises, forcing cities to compete for a limited number of franchises with offerings of stadium subsidies. As a result, many stadiums were built for which local taxpayers, who receive limited benefits, paid at least 90 percent of the debt service on the bonds."

“Creative” PLRs

In 2006, the IRS approved what Zimmerman called a "creative" effort when it agreed, via the PLRs, that "stadium-related revenue could be used to pay the debt service on governmental debt. Since 1986, payment of more than 10 percent of debt service with stadium-related revenue would make the bonds taxable private-activity bonds. But IRS ruled that stadium-related revenue is actually payments in lieu of taxes (PILOTs) and qualifies as generally applicable taxes, not as revenue arising from private business activity."

He warned that the PILOT ruling, while attractive to local taxpayers and better than using general tax revenues for stadium financing, increases federal subsidies of stadiums and “might open the door for widespread tax-exempt governmental bond financing of private investment projects” and “raises the prospect of making elected officials into commercial bankers in charge of allocating ever-larger portions of the nation’s scarce supply of savings.”

He recommended a compromise: "[A]d stadiums to the list of private activities eligible for tax-exempt financing; subject stadium bonds to the private-activity bond volume cap; and wipe the PILOT precedent off the books. Private-activity bond financing would encourage use of the benefit principle of taxation. Requiring stadium projects to compete for scarce private-activity bond volume cap with other eligible private activities such as mortgage revenue bonds, small-issue industrial development bonds, and student loan bonds would minimize the federal subsidy. And eliminating the PILOT precedent would prevent its indiscriminate application to a broad range of private activities and would control elected officials’ role of commercial bankers."

The "volume cap" means that only a limited amount of bonds can be issued, as opposed to the unlimited amount of bonds under the current plan.

Sunday, June 15, 2008

"Shoot Hoops Not Guns" restaurant doesn't make it to arena opening

The High Stakes Cheese Steaks restaurant on Flatbush Avenue near Bergen Street, which opened in December 2006, replacing the Silver Spoon diner, has closed. The restaurant business is always a gamble--one in four restaurants fail in their first year, and three of five in three years, according to Business Week.

The restaurant's "Shoot Hoops Not Guns" sign, though it may seem a reference to a teen basketball program, was put up, an owner told the New York Post, in a 12/22/06 article optimistically headlined A WINNING $HOT: BROOKLYN EATERY TO BE COURTSIDE, because "he wants his business associated with the arena." That sign was either lost or removed fairly early in the restaurant's lifespan.

The Brooklyn Paper quoted landlord Michael Pintchik as observing that such a narrow menu was difficult to pull off. That, and the fact that the arena wasn't going to open in a year--nor in three. Those were long odds.

(Top photo by Daniel Alex Finkelstein)

Bagli and Brodsky: two of the most powerful people in NY real estate (this week)

When the New York Observer last month released its list of the 100 most powerful people in New York real estate, the choices were quite debatable and, in hindsight, even more so.

For example, Charles Bagli, the veteran real estate/development reporter for the New York Times--and formerly at the Observer--did not appear on the list and he's the most powerful journalist covering New York real estate and development. It was his coverage on the Metro front page Friday that clarified the issue surrounding tax-exempt bonds for sports facilities: it's more about the Nets arena than Yankee Stadium.

And Assemblyman Richard Brodsky, listed at #89 (behind me!), showed that he can make news and put officials under the spotlight, both criticizing "Soviet-style" tactics regarding the negotiations for such bonds, and scheduling an Assembly hearing within three weeks.

In the past week, I'd say, Bagli and Brodsky deserve a place in the Observer's top ten.

Saturday, June 14, 2008

Rep. Kucinich asks IRS, Treasury to hold off on approving financing deal for AY arena, other projects

Who loses when triple tax-exempt bonds are used to finance stadiums for the Yankees and Mets, and the planned Atlantic Yards arena? Overwhelmingly the savings come at the expense of federal taxpayers, not state or city ones, which is why city and state officials are so eager to use such a financing mechanism--the costs are just too diffuse.

Rep. Dennis Kucinich, a Democrat from Ohio, former maverick presidential candidate, and Chairman of the Domestic Policy Subcommittee of the House Committee on Oversight and Government Reform, yesterday released a letter asking the Internal Revenue Service and the U.S. Treasury Department to desist from approving any more sports facility deals based on PILOTs (payments in lieu of taxes), pending further clarification of their policies.

In other words: don't approve any deal involving the Nets arena just yet.

It's not clear to me whether Kucinich, whose letter was dated May 23, was piling on the recently-surfaced concern about such deals, or whether the original delivery of that letter triggered additional alarm among New York officials whose expectations of smooth sailing for AY arena funding and more bonds for Yankee Stadium had already been dashed.

The Times reported yesterday:
The Internal Revenue Service initially approved the use of the bonds for the ballparks, but quickly issued a proposal in 2006 to tighten the rules governing the use of tax-exempt bonds so that it would be more difficult, and perhaps impossible, for this kind of financing to be used again by profitable, private enterprises like professional sports teams.


Shining a light

We know that such a PILOT deal is contemplated for Atlantic Yards, though we don't know whether it is under discussion in those departments. On page 10 of the letter, Kucinich asks a bit disingenuously whether additional sports franchises seek to use PILOTs and "To your knowledge, does the Atlantic Yards proposal include use of PILOTs to fund an arena for the Nets?"

It's not clear whether Kucinich's subcommittee has the power to stop the agencies from acting. But the subcommittee, concerned about lagging investment in the country's infrastructure, has been trying to shine a light on the public policy distortions caused by devoting subsidies and tax-exempt funding to sports facilities, holding two hearings last year.

(Here's an explanation from Neil deMause, author of the book Field of Schemes and the Field of Schemes web site, about how PILOTs work in this context.)

No net benefit from sports facilities

The letter states:
There was abundant evidence adduced at Subcommittee hearings demonstrating that the financing of sports stadiums with tax-exempt bonds does not provide a net economic benefit to communities, whether or not the financing is accomplished through PILOTs.


Kucinich's letter cites testimony by three critics of such stadium financing, including Bettina Damiani of Good Jobs New York and deMause:
"There is absolutely no evidence that $18.5 billion dollars in public benefits have been generated since 1990 to compensate for the $18.5 billion dollars in public costs. Variations on the loophole, including recent creative use of payments-in-lieu-of-taxes should be similarly prohibited. The opportunity cost is significant, viewed in the context of infrastructure or any of a host of other important public services, and competition between local jurisdictions is becoming increasingly counter-productive when measured at the national level."

From Kucinich's letter

The letter opens:

The Domestic Policy Subcommittee of the Oversight and Government Reform Committee is writing regarding the U.S. Department of Treasury's (Treasury Department) and Internal Revenue Service's (IRS and, collectively, Treasury Department) regulation of the use of payments in lieu of taxes (PILOTs) in the financing of the construction of sports stadiums.

I believe that in testimony to this Subcommittee, the Treasury Department inaccurately characterized its decision in two Private Letter Rulings issued in 2006 (PLRs) to treat PILOTs made by the Yankees and Mets as permissible sources of financing for tax-exempt private activity bonds.' I am particularly troubled with Treasury Department testimony that the department existing regulations compelled the Treasury Department's decision to allow the use of PILOTs in this context. After carefully considering your testimony and the relevant regulations, I believe that your putative lack of discretion to prohibit the use of PILOTs is incorrect as a matter of law. In fact, there is strong argument that Treasury Department's existing regulations compelled a decision to prohibit the use of PILOTs for tax-exempt bonds used to finance stadium construction, both in the cases of the Yankees and Mets projects and more generally. At a minimum, the Treasury Department retains discretion to prohibit their use.

The Treasury Department's rulings open the door to other sports franchises to emulate the Yankees' and Mets' use of PILOTs to finance tax-exempt bonds. This is a significant change with, according to many Subcommittee witnesses, substantial negative public-policy ramifications. Between the Tax Reform Act of 1986 and 2006, stadium projects involving tax-exempt bonds were financed by what were indisputably generally applicable taxes, such as broadly applicable sales taxes borne generally by the public. The Treasury Department has insisted to this Subcommittee that it had no choice to allow the PILOTs and that it promptly proposed a new PILOT rule that would close an old "loophole" in the existing regulations. On the contrary, it appears that this loophole was partially of the Treasury Department's own recent creation. While the new PILOT rule would tighten the requirements for the use of PILOTs in certain respects, it would further legitimize their use for financing stadiums by placing them on firmer regulatory authority.

Because of the importance and technical nature of this issue, we request additional clarification of your position before you proceed with further rulemaking in this area.

(Emphasis in original)

The letter goes into considerable technical detail, as well.

The $165 million difference: why Ratner can't play it cool about IRS rules

Given perhaps $165 million in savings at stake, Forest City Ratner CEO Bruce Ratner seems curiously unperturbed about the possibility that new Internal Revenue Service restrictions would limit the amount of tax-exempt bonds for the planned Atlantic Yards arena.

NY1 reported Friday:
"We don't see really a problem,” said Ratner. “You know if the regulations don't change, do change, whatever the regulations will do, we'll be able to finance this. We've been assured of that. We've been working on it over the last two months, and it will take another three or four months to finish the documentation, but there's not a problem.”

While Ratner's playing it cool, his company is surely lobbying hard, along with city and state officials, to ensure that the long-contemplated plan to issue tax-exempt bonds that would be repaid by PILOTs (payments in lieu of taxes) will go forward.

Looking at the numbers

The difference is worth many millions. The Yankees would save $189.9 million over the 40-year life of $920 million in tax-exempt bonds, according to the Independent Budget Office. (The Times, quoting the IBO, suggested $190 million savings on $943 million in bonds.)

Though the IBO has not calculated the savings on the arena's new $950 million price tag, a similar ratio to the Yankees numbers suggests that those building the Atlantic Yards arena, for which $800 million in tax-exempt bonds are sought, would save $165.1 million.

So Ratner may tell the press that the arena might go forward with taxable bonds. But surely Forest City Ratner's investment plan assumes tax-exempt bonds and the attendant savings.

Friday, June 13, 2008

Brodsky to hold hearing on bonds for Nets arena and two stadiums

The news about the city's efforts to get the Internal Revenue Service to obtain tax-free bonds for the Nets arena and Yankees and Mets stadiums has prompted two legislators to schedule a public hearing in less than three weeks.

The press release:

Assemblyman Richard Brodsky (D-Westchester), Chairman of the NYS Assembly Committee on Corporations, Authorities & Commissions, and Assemblyman Sam Hoyt (D-Buffalo), Chairman of the NYS Assembly Committee on Local Governments, have today invited the New York City Industrial Development Authority (NYCIDA) to testify a Public Hearing to be scheduled on either June 30, July 1 or July 2 in New York City. Final date and location will be announced shortly.

The Hearing will examine the NYCIDA’s practices and procedures for issuance of public debt with respect to sports facilities for the Yankees, Mets and Nets. The Committees have been investigating the facts and actions of the issuance of public debt by state-created entities that operate in secret and without the control of elected officials. Legislation to reform such practices is being considered by the committees.

Arena site in the Times? Nah

Is this the Atlantic Yards arena site, as today's New York Times suggests?


Nah. Rather than stretch solely along the Metropolitan Transportation Authority's Vanderbilt Yard, as in the picture, the arena site would end at the Sixth Avenue Bridge in the upper left quadrant of the photo and stretch south below the Pacific Street boundary, at the far left of the photo.

Below is the arena site outlined, more or less, in a photo by Jonathan Barkey. Click on both to enlarge.

As officials admit lobbying IRS for Nets arena, Lieber says AY groundbreaking by 2009 (at least)

Deputy Mayor for Economic Development Robert Lieber, speaking at a Crain's New York Business breakfast yesterday, declared that Atlantic Yards would be "under construction by the end of 2009."

[Update: The remarks, as prepared: In Downtown Brooklyn, we, along with colleagues in the State, have created the conditions to jump start the development at Atlantic Yards where the Nets Arena and at least one residential tower will be under construction by 2009. We’ve built in penalties to the agreements should the project not proceed as planned, but we’re confident that these projects are well poised to move forward.]

That raised a few eyebrows, given developer Forest City Ratner's stated goal--reiterated with confidence in today's New York Times--to begin construction this year. After his remarks, Lieber backed off the prediction, saying he was just responding to the request by Crain's Editor-in-Chief Greg David to list projects under way by the time the administration leaves office. (Actually, however, his speech came before David’s question.)

He acknowledged he couldn't predict a specific starting date for Atlantic Yards, saying that depends on the “last bit of litigation.” So perhaps he chose the end of 2009 as a date by which it's more likely litigation will be concluded, yet Mayor Mike Bloomberg would still be around to participate in a groundbreaking.

Needless to say, a 2009 groundbreaking makes an arena opening in 2010 almost impossible.

IRS rules challenge AY

Ratner’s plans depends not only on litigation but also the capacity to get tax-exempt bonds, a challenge highlighted this week by the New York Yankees' apparent effort to complete the new Yankee Stadium with tax-exempt bonds.

But it turns out that was only the tip of the iceberg--the Yankees' new stadium is mostly on the way, but the $950 million Nets arena would be very dependent on such bonds.

Today's New York Times, in an article headlined A Question Mark Looms Over 3 Expensive Projects, reports that, while the new Yankees and Mets stadiums were financed through tax-exempt bonds, the IRS quickly issued a proposal in 2006 to tighten the rules governing the use of tax-exempt bonds so that it would be more difficult, and perhaps impossible, for this kind of financing to be used again by profitable, private enterprises like professional sports teams.

So maybe Lieber, when he said that the city had been "working with colleagues in the state to create conditions" to get Atlantic Yards moving, meant not only the creation of infrastructure and distribution of subsidies but also lobbying in Washington to change Internal Revenue Service rules.

(Note that the "Arena Site" caption in the Times is incorrect: rather than stretch solely along the Metropolitan Transportation Authority's Vanderbilt Yard, as in the picture, the arena site would end at the Sixth Avenue Bridge in the upper left quadrant of the photo and stretch south below the Pacific Street boundary, at the far left of the photo. Below is the arena site outlined, more or less, in a photo by Jonathan Barkey. Click to enlarge.)

NYC EDC helping developer

Indeed, Seth Pinsky, who heads the New York City Economic Development Corporation told the New York Sun that the developer Forest City Ratner Co. had expressed interest to the city about seeking additional tax-exempt funding, but that the request was being handled by the state.

What "additional tax-exempt funding" means is unclear--is that the difference between 2006l plans for a $637 million arena and current plans for a $950 million arena? Or has the arena tab continued to grow?

Assemblyman Richard Brodsky, who's been looking into such financing arrangements--which hurt the federal treasury more than the city and state, hence the attraction to local officials--told the Sun he was concerned about the city's willingness to go to bat for the team owners: "These decisions are being made in secret in these Soviet-style meetings and it is outrageous."

More subsidies for AY?

During the Crain's session, David pointed out that “the opposition which has dogged” Atlantic Yards had been inflamed by reports in March of delays in project construction, the developer’s call in early April for more subsidies, and the general question of what might be done with the site, as exemplified by City Comptroller William Thompson’s April 30 acknowledgement that “I’m not sure what that project is any longer” and his hint that it might be revived by bringing in additional developers.

[Updated: Lieber's response, verbatim comments: You know, Atlantic Yards is going through the last stages of the litigation. You know, again, what I wanted to try and emphasis here is that we’re trying to do is to lay the foundation so that the private market can respond appropriately here. So the development activity that’s going to take place in Atlantic Yards is going to be a byproduct of what the economic conditions and what the financing markets are going to be. But we do believe this project is going to get underway. We do believe you’re going to see construction begin on the Nets arena and we do believe you will see residential begin there. And as far as bringing in other developers, no I don’t see any reason to do that. That’s- and frankly that’s nothing that’s ever even been contemplated at least that I’ve heard about.

He was asked, "Do you think the project needs additional subsidies and would you entertain a request for additional subsidies?"

Lieber's response, verbatim: Well, we have not received any kinds of requests formally from Forest City Ratner to date but we’re open minded and we’ll listen and if we think there are things that make sense we’ll contemplate that.]

Remember, Brooklyn Borough President Marty Markowitz, during an interview shortly after the December 2003 announcement of Atlantic Yards, said: He made it clear, over and over again, the mayor, this city has no money, no money to provide in any way at all. This is all incremental funds.

The few or the many?

David also asked whether the administration should concentrate on moving a few projects rather than the many projects—he counted 15—Lieber mentioned in his remarks, given the short window until the end of Bloomberg’s term in December 2009.

Lieber said no. “We have to think big,” he declared. “It’s critical for us not to back off… If anything, we’re putting our foot down and accelerating harder.” Indeed, he said the administration was making “not just the money choices, but the political choices” to ensure that projects stay on track.

Yankees need bonds?

Also, Lieber was asked about the apparent effort by the Yankees to seek $350 million (or, as has been reported, $400 million) in tax-exempt financing to finish their new stadium.

Lieber said that he didn’t think there was a connection, that there were “a number of alternatives” in the taxable and tax-exempt bond markets. (Of course, the former would cost the team more.) He said he had no "iota of doubt” that the stadium would be completed on time.

So the discussion about the lobbying in Washington apparently has to do with Atlantic Yards more than anything else.

The Times says Ratner was optimistic about AY timetable--well, so was the state

From an article in today's New York Times, headlined A Question Mark Looms Over 3 Expensive Projects:
When the project was approved in December 2006, Mr. [Bruce] Ratner optimistically indicated that its first phase — the arena, an office tower, a retail complex and three residential buildings — would be completed by 2010. But under a financing agreement completed nine months later, he was given 12 years to complete the first phase.

Actually, it wasn't just Atlantic Yards developer Ratner who indicated that the first phase--five towers rather than the current four--would be completed by 2010. That was the foundation of the Empire State Development Corporation's environmental impact statement (above) and General Project Plan (right).

The State Funding Agreement gives the developer 12 years after the close of litigation and the delivery of property via eminent domain to build Phase 1--and the City Funding Agreement allows it to be smaller than planned, without penalty.

The Times did not report on the timetable in the State Funding Agreement after I broke the news March 24 but finally reported on the timetable May 1, after a lawsuit was filed.

An AY governance bill emerges, aimed at 2009

A press conference will be held at City Hall Monday at 10 a.m. to to launch “The Campaign to Reform the Governance of Atlantic Yards,” an initiative to pass new legislation that would reform the governance of the Atlantic Yards project--changes that have been resisted by the Empire State Development Corporation.

The proposed legislation would set into law the governance structure recommended by the BrooklynSpeaks coalition. According to the press release, the Atlantic Yards Governance Act (A11395) would create the “Atlantic Yards Trust” to oversee the project with a board of state and city appointed officials, overseeing policies to mitigate the environmental impact of the project (and recommending additional policies). A “Stakeholders Council” comprised of local residents appointed by local elected officials would advise the Trust.

Goal: 2009

Among those at the press conference will be Assemblymembers Hakeem Jeffries and Jim Brennan, and City Council members Letitia James and David Yassky, along with Brooklyn community leaders. Given that the state legislative session essentially ends June 23, it's unlikely that the bill would pass the Assembly in time, much less the Republican-controlled state Senate.

However, the Senate may tip Democratic after this year's elections, and the bill, once introduced, can be considered again, said Jeffries, the legislative sponsor. So it seems that the bill is being announced as an effort to get attention to the issue before it gets serious legislative consideration.

Jeffries, Brennan, and Yassky have all supported aspects of the project, though lately all have become more critical. (Another cosponsor is Assemblywoman Joan Millman.) James is the most prominent political opponent of Atlantic Yards; her support for the bill, which assumes that the project eventually will go forward (though it's stalled for now), suggests she's being pragmatic.

From the bill

The lack of a subsidiary, such as one parallel to the Battery Park City Authority, has its impacts, according to the bill:
The result is that the project is governed in a less transparent, less accountable manner than comparable projects, and without any vehicle for coordinating the city and state agencies involved in the proposed development, or involving local elected officials and the relevant community boards. Further, changes in administration in State government, as well as changes in the ESDC`s internal organization, pose risks to the continuity of project oversight which may threaten the realization of Atlantic Yards` stated goals.

Thursday, June 12, 2008

After Yankees snag, will IRS regulations slow tax-exempt bonds for Nets arena?

Without a waiver, Internal Revenue Service restrictions on tax-exempt bond deals may hamper the construction of Yankee Stadium and, without further waivers or changes in Washington, could snag plans for construction of the Nets arena in Brooklyn and other sports facilities in the city.

The issue surfaced Tuesday when Assemblyman Richard Brodsky and Assemblyman Sam Hoyt asked Seth Pinsky, president of both the New York City Economic Development Corporation (NYC EDC) and the New York City Industrial Development Authority (NYC IDA), its bond-issuing arm, whether the latter “had quietly increased its indebtedness for the new Yankee Stadium project by $400 million, probably as a result of cost overruns at the project.” (About $941 million in tax-exempt bonds have already been issued.)

NYC EDC spokeswoman Janel Patterson wouldn’t confirm that number, saying, "IDA has not increased the Yankees indebtedness.” She did confirm that limits on tax-exempt bonds pose an important challenge which the agency is trying hard to overcome.

Waiver needed

“The Yankees have expressed an interest in receiving additional financing for their project,” she said in a statement. “ Currently, they are not permitted to do so on a tax-exempt basis pursuant to IRS regulation. If that were to change, we would be willing to consider the option, but have not made any final commitments or agreements. The City is working with the State in Washington to seek relief from the applicable IRS regulation, as this regulation has taken away a tool that would be useful for a number of important, New York economic development projects--not just Yankee Stadium."

Translation: other projects include the Nets arena.

Stadium slowed?

Yankees President Randy Levine, who claimed to Reuters that “this will not affect the completion of the stadium," nevertheless confirmed the effort to gain an IRS waiver. "We are working under the strong leadership of the city and state to try to seek relief from the regulations," Levine said.

The flurry of statements left some apparent contradictions. While Brodsky told the AP that Pinsky "told me that the Yankees have said they may not complete the stadium if this issue is not resolved," Patterson later said that the Yankees have promised they intend to complete the project on time.

(Brodsky was more certain in the New York Post, saying "I was told authoritatively they needed the money to complete the project, and the Yankees said they couldn't complete the Stadium without additional financing”.)

The world “intend” may be a weasel word, but I’m not sure. In the Atlantic Yards context, remember, Bruce Ratner said in May, “We anticipate finishing all of Atlantic Yards by 2018.”
(Emphasis added)

IRS waivers

The IDA in 2006 sold $941 million of tax-exempt bonds for the Yankees and $548 million in such bonds for the Mets. To do so, the teams had to get a waiver from the Internal Revenue Service, which has limited such bonds. In its report, Insider Baseball, the watchdog group Good Jobs New York (GJNY) explained how the IDA “won a landmark ruling” from the IRS “to issue nearly $900 million in low-interest, triple tax-exempt bonds to finance the construction of the stadium, saving the Yankees an estimated $172 million in interest.” The same firm represented IDA in its negotiations with the IRS and also served as the Yankees’ bond counsel.

While the Federal Tax Reform Act of 1986 repealed the use of tax-exempt private activity bonds for sports facilities, Congress did not repeal the tax exemption for bonds that are paid off with tax dollars, thus apparently intending to preserve tax-sheltered financing for multi-use, publicly owned arenas, according to GJNY. The bonds, exempt from city, state, and federal taxes, have an interest rate about 25 percent below taxable bonds.

However, city lawyers asked the IRS for a special ruling allowing payments-in-lieu-of taxes (PILOTs) to be considered the legal equivalent of taxes for the purpose of servicing the bond debt. The IRS said yes, “despite language in its own regulations that seemed to contradict the ruling,” according to GJNY.

So now you know why the Atlantic Yards arena would be paid off by PILOTs--it’s the same deal. And now we know that not only pending lawsuits may hinder such tax-exempt bonds, but so might the IRS.

Bettina Damiani of GJNY warned to Metro that the Nets and Mets would likely similarly request such bonding from the city. “This is coming from the mayor who said he’d end corporate welfare as we know it,” she said. “It’s almost comical.”

The conduit in the Bronx

[corrected/updated] An interesting twist is the conduit for [certain] bonds must be a not-for-profit organization; for the Yankees' [parking garages], the IDA selected Bronx Community Initiatives Development Company (BCIDC), whose sole member is the Community Initiatives Development Corporation (CIDC), a non-profit corporation that operates in six states apparently just for such tax-exempt financing.

CIDC, headquartered in Hudson, NY, more than 100 miles north of New York City, is a well-connected organization, according to GJNY. Its senior VP, Joseph Seymour, is the former executive director of the Port Authority of New York and New Jersey. Its president, William Loewenstein, is a former city official and also a strategic partner with incentives procurement advisors Stadtmauer Bailkin Biggins. (And yes, that company, now known as Stadtmauer Bailkin, has worked with Forest City Ratner.)

A new avenue for debt

Brodsky also asked if the Capital Resource Corporation (CRC), a private, not-for-profit corporation that is an arm of the EDC, would issue debt formerly issued by the NYCIDA on behalf of other private not-for-profit corporations. No immediate answer came from EDC, but yesterday, at the CRC board meeting, appointees from Bronx Borough President Adolfo Carrion and City Comptroller William Thompson voted against a proposed amendment that would give the CRC power to issue such bonds, according to GJNY.

GJNY last week testified against the proposal: “We are concerned that projects that receive funding from the CRC would not have to abide by new reporting or job standards that could be required in future statewide IDA legislation. As you are aware, proposed legislation in Albany would codify comprehensive reporting on IDA recipients and ensure job and wage standards for employees at subsidized firms.”

For the amendment to pass, the staff of the EDC and members of the board holding veto power, including Thompson’s representatives, must reach consensus--so the issue isn’t dead.

Brodsky, who chairs the Assembly Committee on Corporations, Authorities, and Commissions, has been taking aim at nontransparent governance. "The explosion of public debt issued by obscure semi-public and private institutions is reaching unmanageable proportions,” he said. “These deals are usually negotiated secretly, with little accountability or public oversight, and directly or indirectly leave taxpayers on the hook. We must reform this entire process. The Yankee Stadium financing may or may not be a good thing, but it certainly should be done in the light of day.”

Want to hold a rally at Borough Hall and Cadman Plaza? It's simple

A couple of readers wanted to know exactly how Forest City Ratner got permission to organize the "Brooklyn Day" rally held last Thursday at Borough Hall and the surrounding Cadman Plaza.

The process, apparently, is fairly simple. "They paid the standard $25 application fee for special events," said Parks Department spokesman Phil Abramson. "The permit covered the central plaza from 11:45 a.m. to 3:00 p.m. Any other group is welcome to hold similar events. All they need to do is fill out a special event application on our web site at least three weeks in advance of the event and pay the $25 fee."

Permittees are responsible for clean-up and insurance, which obviously cost more, and must get a police permit for amplified sound. We can assume Forest City Ratner spent a lot more on staff, food, music, and more.

(Photo of participants during the singing of "The Star-Spangled Banner" by Tracy Collins.)

Borough Hall steps

And what about using the steps of Borough Hall? "The application filed with us didn’t specifically include the steps," Abramson said. "We permit the plaza and the Borough President’s office can OK activities on the steps."

As for using Borough Hall, Mark Zustovich, a spokesman for the Borough President's office, told me, "There is no paperwork or fee associated with use of the steps… except in the case of a motion picture/television production. When there is no Borough Hall event scheduled on the steps, groups with Parks permits often also use the steps."

Wednesday, June 11, 2008

At post-Kelo conference, AY ironies amid support for eminent domain

If, as the saying goes, "the enemy of my enemy is my friend," then "the friend of my enemy is my enemy," which makes the Atlantic Yards eminent domain case--now on appeal to the U.S. Supreme Court--rather tainted, in the eyes of many who emphasize the importance of eminent domain to urban redevelopment.

Why? Not just because of the partial challenge to the Supreme Court's controversial 2005 Kelo v. New London eminent domain decision, but also the tangential involvement of and support from the libertarian Institute for Justice (IJ), which has a broader property rights agenda nationally that could hamstring local governments.

That was a major message from a November 9 conference at Princeton University titled Land and Power: The Impact of Eminent Domain in Urban Communities, hosted by Princeton's Policy Research Institute for the Region (PRIOR) and the Penn Institute for Urban Research. The audience included lawyers, planners, government officials, advocates, and analysts, with the panels generally tilted toward supporters of eminent domain who believe that smaller-scale reforms, rather than fundamental challenges, are needed. (Webcasts available.)

The irony, however, is that property owners/leaseholders in Goldstein v. Pataki, the Atlantic Yards case, seek not to overturn Kelo, which libertarian opponents of eminent domain slammed, but to hold the Supreme Court to what may be a difficult-to-enforce doctrine, that eminent domain should proceed only after carefully formulated plans and when there are no questions that the transfer is a pretext to assist a private party.

A further irony is that, unlike with eminent domain cases brought by the media-savvy IJ, the Atlantic Yards case has been framed less as creating specific sympathetic victims--the old lady who would lose her home--than as a victimization of the surrounding community.

And, given the community resistance to such victimization, there's been enough local support to fund legal challenges, so the plaintiffs in Brooklyn did not have to enlist the IJ, which scouts for headline-making cases.

Reacting to Kelo

The plaintiffs in Kelo gained broader support than in other eminent domain challenges; the property owners’ appeal to the Supreme Court, though organized by the IJ and backed by other conservative or libertarian groups, also drew support from the NAACP, the AARP, and others hardly associated with the right wing.

Develop Don’t Destroy Brooklyn (DDDB), along with the West Harlem Business Group (property owners facing eminent domain because of Columbia University’s expansion plan), filed a friend of the court brief on behalf of the plaintiffs, urging the judges to follow states (notably Michigan's Hathcock case) that have adopted more restrictive rules than the court’s national doctrine.

In Kelo, the Supreme Court 5-4 reaffirmed that the use of eminent domain for economic development was a legitimate public purpose. While hardly a departure from precedent that established that public use--the constitutional justification for eminent domain--can mean public purpose, it nonetheless galvanized public opinion, given the widespread if exaggerated concern that the case indicated, as Justice Sandra Day O’Connor wrote in her dissent: The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.

At the conference, the bottom line came from Patricia Salkin, a professor at Albany Law School and Chair of the New York State Bar Association's Task Force on Eminent Domain, which later issued a report advising technical rather than major changes in state law, as well as a state commission to advise on further changes. “I think we need legislation to address the abuse, not whether the tool should exist,” she said.

(Salkin also tracks land use issues in her Law of the Land blog.)

Restraining abuse

Salkin’s paper, titled The Kelo Effect in New York, New Jersey and Pennsylvania: Assessing the Impact of Kelo in the Tri-State Region, offers a nuanced defense of eminent domain, while acknowledging the need for reform. She noted that, while Kelo was based on existing precedent, it involved the loss of a person's house, quite different from previous cases involving a department store (Berman v. Parker) or land oligopoly (Hawaii Housing Authority v. Midkiff), and thus easier for the public. to identify with.

She wrote:
Eminent domain is one important tool that, when necessary and appropriate, can be used to further redevelopment goals. Instances of abuse should not be tolerated. Understanding the problems that may aggravate abuse—such as lack of public involvement, conflicts of interest, both perceived and actual (implicating state and local ethics law…or the lack thereof), state and local procurement laws, campaign finance issues, municipal financial climates in which local governments are pressured to increase tax revenues, and procedural mechanisms that may be difficult for condemnees to navigate—is essential.... Courts and legislators faced with economic development takings need to be aware of these related issues, and policymakers and lawmakers should not be so hasty to condemn a legitimate tool outright rather than focusing on opportunities to eliminate abuse.

As she wrote, anecdotally, the real impact of Kelo in the tri-state area has been increased media attention, a more informed constituency, and "perhaps more cautious government officials."

Salkin doesn’t think that litigation, as in the Atlantic Yards challenge, is the proper solution to address such abuses, but she didn’t give any alternative suggestion—absent future reforms—for Atlantic Yards opponents.

A solution in Brooklyn?

Later, after I asked, she told me that, though she hadn't read all of the pleadings in Goldstein v. Pataki, she thought that "many of the abuses that have been alleged and in some cases documented in the eminent domain process [in general] are things that relate to irregularities or ethical lapses on the part the actions of public officials" and that an appropriate response would be to look at "strengthening state and local procurement laws and ethics laws."

In her paper, though less so her presentation, she gave some credence to Justice Anthony Kennedy’s nonbinding concurring opinion in Kelo, in which he laid out indicia—such as the absence of competing bids—that eminent domain might be aimed primarily at private gain and thus would be illegitimate.

Comparing a New Jersey case to the Brooklyn case, she wrote that the former shows that the court took heed of Kennedy and reviewed the record regarding favoritism: The result is certainly more satisfying than the district court's response to the takings case brought in relation to Atlantic Yards, where the court rather summarily dismissed the plaintiffs' claims as not plausibly establishing that the purposes of the plan could have been pretextual.

Another panelist at the conference offered a glimmer of hope to the Atlantic Yards plaintiffs, suggesting that Kennedy’s concurrence should be taken seriously, and might lead the Supreme Court to revisit eminent domain, should a case emerge that the four conservative eminent domain opponents think might lead Kennedy to join them as the swing vote.

The eminent domain frame

Conference presenters displayed a sense of embattlement, that the good liberal tools of eminent domain for urban redevelopment have been cast as evil by the IJ, which has its own agenda to go beyond eminent domain and stop “regulatory takings,” regulations--from zoning to wetlands permits--that can limit landlowners' discretion to make use of their land.

“Our buildings were no match for their people,” lamented Jennifer Bradley of Community Rights Counsel, which helps communities defend against eminent domain challenges, contrasting the more abstract benefits of eminent domain with the specific victims who make good copy. (She wrote a 12/18/05 American Prospect article headlined Property Wrongs.)

Salkin suggested that many eminent domain challenges are brought by holdouts who don’t represent the community at large, but are supported in a media campaign led by the IJ.

The AY exception

Though the Atlantic Yards eminent domain case was not discussed in this context, the frame is different. There are a few stereotypically sympathetic plaintiffs, long-term low-income renters, but lead plaintiff Daniel Goldstein—as columnist Errol Louis is eager to remind us—moved into his condo in the footprint just months before the project was announced and serves as spokesman for DDDB.

(Goldstein had lived in the adjacent Park Slope neighborhood for seven years and many DDDB backers are much longer-term residents of neighborhoods surrounding the footprint.)

Instead, the buildings, not the people, have become the issue. Salkin writes in her paper that the eminent domain lawsuit is “spearheaded by local holdouts,” but the 17 buildings of Atlantic Yards—the extremely dense 22-acre project--have exercised many in nearby neighborhoods who back DDDB.

Thus, given community opposition to the project's scale and the process behind it, DDDB has been able to raise money for legal services and use volunteer lawyers rather than rely on an ideologically-driven law firm like the Institute for Justice.

Amicus briefs

Salkin identifies with the camp defending existing eminent domain doctrine. In Kelo case, she signed onto two amicus briefs, one filed by the American Planning Association and the other filed by 13 law professors in response to a brief filed by 13 more conservative law professors. Both of those amicus briefs urged the Supreme Court not to require heightened scrutiny of eminent domain cases.

At the Princeton conference, summarizing her paper, Salkin pointed out that most eminent domain cases are not justified, as in Kelo, simply by economic development. Instead, “blight is the big issue.” Indeed, one of the main justifications of the Atlantic Yards condemnation is the removal of blight, which is backed by a blight study--though plaintiffs argue that blight was not raised as a justification for years after the project was announced and New York offers condemnees little leverage to challenge such determinations. (Other justifications include affordble housing, improved mass transit, and a "publicly-owned" sports arena--which would be leased for $1 a year.)

The AY focus

Salkin devoted the last few minutes of her presentation to Atlantic Yards, which also gets several pages in the paper. She said that Bruce Ratner put together a plan to “redevelop the Atlantic Yards,” thus making the common error of conflating the 22-acre project with the 8.5-acre railyards.

She suggested the developer deserved some credit for not going straight to the hammer: “The interesting thing… they did go out and try to purchase, without asking the city to exercise eminent domain.” Yes, but eminent domain was always in their back pocket as a plan/threat, and; Goldstein said it was threatened even as offers were made.

And Salkin acknowledged familiarity with the developer's rough-and-tumble tactics. She pointed to the 6/16/04 New York Post article about buyouts that require sellers to speak positively of the developer. “It was like a gag order," she said, dropping her voice. "I frankly don’t agree with it.”

(How many more examples of tactics, like Forest City Ratner's many brochures, might it take to point out how much more this is a developer-driven political campaign compared to a governmental attempt to overcome blight, given, for example, the ESDC's failure to address upkeep of the MTA's Vanderbilt Yard?)

She said Atlantic Yards was the first major project with a Community Benefits Agreement (CBA) and “it all sounds great… except the opposition says those groups have been bought.” Actually, it's more than the opposition; other supporters of CBAs have raised questions about the Atlantic Yards CBA.

Public vs. private benefits

Though Atlantic Yards would bring major public benefits, according to the ESDC, whose conclusions were endorsed by U.S. District Judge Nicholas Garaufis (and later by the Second Circuit Court of Appeals), Salkin noted that plaintiffs claim there would be too much private benefit.

“My personal answer is that government is not in the business of being a redeveloper,” she said. “Government's got to provide the opportunity for the private sector to come in and do the redevelopment projects. Why is the private sector going to do anything if they can't make money? It's the same argument we have with builders about affordable housing. Yes, we need affordable housing, but affordable housing doesn't mean the developer has to underwrite the cost of the project. otherwise, they're not going to make a living either, and let's face it, this is America.”

That quote, with its echo of then-Forest City Ratner executive Jim Stuckey’s July 2006 observation on the Brian Lehrer Show, "It is, after all, America," skates over some controversy. Is the issue simply profit, or, as Kennedy’s concurrence warns, allegations that the game is rigged?

She cited “allegations of bid-rigging,” a reference to the fact that city and state officials announced their support for Atlantic Yards and signed a Memorandum of Understanding some 18 months before the MTA's Vanderbilt Yard, 8.5 acres of the 22-acre site, was put out for bid. “We need to look at procurement,” she said, presaging her later comments of ethics laws. However, that would not offer much relief to the current Atlantic Yards plaintiffs.

She also acknowledged that the city of New York has a more inclusive process than the state, which reviewed Atlantic Yards: “States and localities must do a better job of engaging the public from the public from the start of the project.” In other words, the process should improve going forward. That still leaves critics of the Atlantic Yards process with little recourse.

More criticism in the paper

In her paper, Salkin was a bit more critical:
It is obvious that the defendants rely on strong legal precedent in making their argument that once a public use is established, the private benefits that may also accrue to certain parties are irrelevant. At the same time, however, the plaintiffs make a compelling case that this position may not the best one, and that the private benefits in a case as this may outweigh the stated public uses of the project. The plaintiffs have also raised contentions that, while the eminent domain procedures of New York may have been followed in this case, other irregularities in the process (i.e. those problems related to bidding and the lack of local review) show that increased judicial scrutiny of the public process may be warranted.

...Perhaps more generally than the need for increased public participation in the planning process, the Atlantic Yards development illustrates the need for governmental planning entities to make efforts to demonstrate to the public that they have the community’s needs, and not private interests, in mind, especially in large-scale projects.

Eye of the beholder

Salkin, like judges in the case, relied on secondhand sources, so her statement that opponents claim “the area may be coming back on its own” while not inaccurate, doesn't encompass the new luxury construction nearby or the statement from Forest City Enterprises’ Chuck Ratner that the AY site is “a great piece of real estate.”

(Photo by Tracy Collins; the building, at the northwest corner of Carlton Avenue and Dean Street, is across the street from the AY footprint at the northeast corner.)

Of course it’s coming back; the question is whether there was another way to accomplish a large-scale development. Remember, the ESDC solemnly (and improbably) declared: The project site is not anticipated to experience substantial change in the future without the proposed project by 2016 due to the existence of the open rail yard and the low-density industrial zoning regulations.

Salkin in her presentation and paper also fudged a bit on why the project was allowed to bypass the city’s Uniform Land Use Review Procedure, writing that “the bulk of the project is being built on land owned by the Metropolitan Transportation Authority” and stating that the state “owns a majority of the land.” Actually, the figure is less than 40 percent.

In "The Burrow"

She closed her presentation by playing a sample from John Pinamonti’s video of “The Burrow," noting offhandedly that “you can find anything on YouTube now.”

To some Brooklyn ears, the tune might seem a mix of fight-song and elegy. However, at the conference, with attendees primed to consider the AY eminent domain challenge somewhat quixotic and misguided, the audience reaction seemed more like “isn’t that cute.”

Will the Supreme Court revisit Kelo?

Jamison Colburn, Associate Professor of Law, Western New England College, said he felt conflicted about eminent domain. “I don’t think I’m for the condemnation at the judgment of local officials willy-nilly,” he said. “I want them to have a plan. We all want them to have a plan. But just because you require them to have a plan doesn't necessarily mean they have a good plan. Because these things are extremely hard to predict. Considering what's going to be a good redevelopment for an area as opposed to a major opportunity cost or a major governmental boondoggle, that's extremely difficult."

Discussing the apparent liberal-conservative split on the Supreme Court, he suggested that the five members of the slim majority in Kelo “were willing to defer to the political judgment of the community’s leaders.” He called it “judicial federalism," indicating that the justices didn't want federal courts to sit in review while states are adjusting local laws.

Kennedy’s concurrence... is something people should take seriously,” Colburn said. If the four conservative justices “think they can get [Kennedy’s] vote [because] the economic plans were harebrained plans or even seriously mistaken," he said, "I think they'll take that case."

That’s certainly a contention in the Atlantic Yards case, as plaintiffs contend that the projected economic benefits might be nil. Then again, Colburn said he’s not sure if any of the cases Salkin discussed would qualify; when he spoke at the conference, the Second Circuit Court of Appeals had not ruled on Goldstein and the Supreme Court appeal was obviously not filed. We'll see the results next week.

A libertarian view

Libertarian legal scholar Ilya Somin, an opponent of the Kelo decision who did not appear at the conference, thinks the Atlantic Yards case was correctly decided at the appeals court level. He wrote that, under Kelo, they had very little choice... Kelo mandates very broad judicial deference to the government in determining whether a condemnation is a genuine "public use" under the Fifth Amendment. Any potential benefit to the general public is sufficient, even if it is greatly outweighed by the project's cost.

Nevertheless, he suggested the case reveals some of the serious shortcomings of Kelo and related precedents, given that the court acknowledged that, while the developer was the impetus for the project, that's not enough to prove that the taking was a "pretextual" one under Kelo. At the very least, however, such a pattern of events should trigger heightened judicial scrutiny of the government's true purposes in undertaking the condemnation.

Somin's essay does not mention the Franco case from the District of Columbia Court of Appeals, a major case which the plaintiffs say conflicts with Goldstein.

Changes in New Jersey

If AY were in New Jersey, the eminent domain case would be very different. Salkin in her paper notes that New Jersey courts have revisited their interpretation of “blight,” which she deems “likely part of the Kelo-effect.” In 2006 and 2007, New Jersey Public Advocate Ron Chen issued two reports critical of eminent domain as its used in the state, and recommended several reforms.

Salkin summarized them:
revising the statutory criteria for designated areas in need of redevelopment in order to ensure that they are actually blighted, focusing on the impacts that redevelopment has on minority and lower income populations, facilitating public involvement and transparency in the redevelopment process and increasing compensation to tenants and property owners. The report also... suggested that the factual inquiries involved in blight determinations should be more thorough, that property owners should have increased opportunities to appeal blight designations, and that redevelopment plans should be more comprehensive in scope. The 2007 report... detailed various case studies and identified specific problems of abuse, including “bogus” determinations of blight, due process deprivations, insufficient compensation and the prevalence of conflicts of interest.


Chen considers eminent domain an important tool “in the successful redevelopment of truly blighted areas,” but notes that it should be wielded carefully.

In his speech at the conference, Chen suggested that eminent domain issues may be well suited to federalism, as different states are more urbanized and thus have different needs for redevelopment. Indeed, legislative and judicial reforms have proceeded in some 42 states, as noted in the AY appeal briefs; New York is an outlier.

Only 20% non-blighted?

Chen has endorsed one reform bill, passed by the Assembly in 2006, A-3257, which has yet to be passed by the state Senate. Among other things, it would limit the amount of non-blighted property that could be included in a generally blighted area to twenty percent of the land mass.

Twenty percent? If such a law were in force in New York, it might seriously threaten the Atlantic Yards project. Yes, the Vanderbilt Yard and Site 5 are part of the longstanding Atlantic Terminal Urban Renewal Area (ATURA), which is by statutory definition blighted, despite their enormous market value, but the buildings on Pacific and Dean streets that are part of the AY footprint are not part of ATURA.

(I had previously written that the ESDC had determined that 79% of the parcels in the Atlantic Yards footprint, including ATURA and selected parcels outside it, were blighted. However, it's likely they comprise more than 80% of the land mass. Then again, the blight designation for several of the parcels has been fiercely contested.)

How much latitude, asked New York State Supreme Court Justice Joan Madden last May, does a redevelopment agency have to add non-blighted lots to a blighted area? It’s not unlimited, responded ESDC attorney Philip Karmel, defending against the environmental lawsuit; “it’s a question of reason.” New Jersey may set that at 20%.

Beyond that, New Jersey allows much greater opportunity to challenge the designation of blight. Salkin also pointed to the April 2007 Gallenthin case in New Jersey, in which the Supreme Court said land can’t be condemned just because it’s “not fully productive.” Gallenthin, according to Salkin, has “sparked a trend of increased judicial scrutiny.”

Indeed, in the subsequent case in which eminent domain for the Mulberry Street project in Newark (adjacent to the Prudential Center arena) was overturned, the plaintiffs' expert was allowed to challenge the government's finding in a lower court proceeding. Such a process is not available in New York State.

Moving forward in NJ

Robert Goldsmith, a lawyer in New Jersey who frequently represents municipalities, opened his presentation by mentioning how, “if the Nets want to come to Newark, [home of the just-opened Prudential Center,] I’m sure they’d be welcome.”

“This is a capitalist society,” he said. “[Eminent domain] really can be win-win.” And he pointed out that O'Connor's Motel-6-to-Ritz example wouldn’t fly under Gallenthin, given that there must be other factors convincing a court.

The main issue, he said, is “diverse ownership in urban areas” that hamper the assemblage of large sites for major projects. Indeed, regarding Atlantic Yards, that’s a much stronger argument than simply blight, and one the ESDC brought up in the pending Supreme Court appeal. To complete a large project, a developer needs all the land. However, that brings up the questions of how much non-blighted property is needed for assemblage and how exactly the footprint is selected.

Goldsmith cited the July decision in which the Mulberry Street plan was invalidated. “Surface parking lots in the heart of urban Newark,” he said with exasperation.

(Photo by Jonathan Barkey; the arena is in the background, to the left.)

Public Advocate Chen said, regarding Mulberry Street, “the city of Newark, wisely in my view, chose not to appeal.” He acknowledged that there's an urgent need to develop the area. “Whether there’s another way to designate those parking lots on Mulberry Street as blighted,” Chen noted, it wasn’t for him to say. “I do not do drive-by blight designations.”

Drilling down

Salkin was asked why she preferred greater transparency rather than substantive changes like more tightly defining blight. She said blight is hard to describe in law, given that it's "in the eye of the beholder" and that proposals to define it get too detailed. When opponents say they don’t trust the government or the developer, she said, "those are government ethics issues, not redevelopment issues.... They're not abuses of eminent domain... They just happen to be in the context of a condemnation proceeding.” (Perhaps, but Kennedy suggests that an abuse of process might violate the law.)

I asked whether the sequence cited in the Atlantic Yards appeal—that the developer drew the map and drove the process—made a difference. "I think that it doesn't matter, as long as it's open and transparent," Salkin said, "and if it's a good idea... and government does their own independent study after the developer comes forward with the idea." So far the courts have agreed--though critics in Brooklyn have challenged the legitimacy of the study. In fact, said New Jersey attorney Goldsmith, some smaller municipalities lack the planning staff to do such work and statutes in New Jersey permit developers to approach municipalities.

In the Connecticut Supreme Court’s Kelo decision, a dissenting judge questioned whether the promised benefits were guaranteed. “My view is that there are no guarantees,” Salkin said. “That’s why it has to be a publicly vetted process. For anybody who's a land use planner in the room, we come up with plans but we tell people, the plans are a living document.... Things can change.... You have to cosntantly stay on top and be vigilant about the plans and about the process as it moves through. I just don't think you can guarantee...You come forward with a good idea... if everybody buys into it, that's a validation that it sounds like something worth trying. Everything is a risk in economic development. So I think it would be very hard to force government to have to guarantee that a redevelopment project is absolutely going to be successful."

The lingering question regarding Atlantic Yards is exactly how "publicly vetted" the process was. Now that we know, from the State Funding Agreement, the state has given the developer 6+ years to build the arena and 12+ years to build Phase 1, with no deadline for Phase 2, that suggests a rather loose expectation of public benefits.

The anti-government agenda

Defenders of eminent domain point out that the right wing has used Kelo to advance an anti-government agenda. Bradley of Community Rights Counsel cited right-wing activist Grover Norquist, who called Kelo “manna from heaven” for the property rights movement.

(More from Bradley's 12/18/05 American Prospect article headlined Property Wrongs: Kelo held that local governments looking for redevelopment sites that might require condemnation could look throughout a municipality, rather than restricting their search to blighted areas most likely to be inhabited by poor and minority residents. In affirming that middle-class residents, not just the poor, should share the often intensely felt costs of urban improvement, the case was actually rather progressive.)

Bradley noted that condemnations like that in Kelo “are vanishingly rare—most condemnations for large-scale development rely on a blight finding.” Eminent domain defenders should cite successful projects—such as Baltimore’s Inner Harbor and “family-friendly Times Square”—achieved via eminent domain to combat the heartfelt personal stories of those fighting condemnation.

While lawyers and judges may have thought Kelo was an easy case to decide, given its reliance on precedent, “they couldn’t compete with newspaper headlines,” she said

A more skeptical take

At the conference, Peter Salins, a conservative sympathetic to property rights advocates, but trained as an architect and urban planner, suggested “public sector overrulings of the real estate market” may not serve the public interest.

“The unquestioned subtext is that planners and public officials know what they’re doing,” he said. “What if the planners don’t know what they’re doing?” (Former University of Pennsylvania President Judith Rodin made a similar point when writing about Penn's redevelopment efforts.)

“I will acknowledge that the unregulated market can produce bad outcomes,” Salins said, acknowledging that “property rights folks may not be occupying the moral high ground.” However, he said, “But there’s a great deal of evidence… that public interest has been harmed as much as advanced.”

The baby and the bathwater

Kate Rube, Policy Director for Smart Growth America, echoed the day’s theme, stating, “I don’t think we should be throwing the baby out with the bathwater.”

She suggested there were some silver linings in the aftermath of Kelo: it has forced those in the "planning, environmental, smart growth community" to explain why eminent domain is important, and to address legitimate flaws in the process.

“To be on the perceived opposite side of Kelo makes you seem not that in touch with the public,” she said. “One thing my group is talking about is principles-- not just property rights but also responsibilities.” Redevelopment projects must be “serving the public interest.”

Salins suggested some independent review was necessary to proceed with eminent domain. “You’ve got to get economists involved to validate these things,” he said. “I’d like to have planners external to the community… to vet these proposals.”

Imagine if the Empire State Development Corporation’s economic analysis of Atlantic Yards, which considered benefits but not costs, had been subject to rigorous outside scrutiny.

Bradley acknowledged that “many projections are based more on hope than facts.” While she said she supported additional safeguards, “even if [that addition] slows the process down,” she suggested that the environmental review process in New York State, which considers such issues as gentrification and community character, are already assessing some important questions.

Kelo and the press

A final panel addressed how Kelo was framed in the press. Penn Professor of Real Estate and Planning Lynne Sagalyn noted that past landmark cases like Berman and Midkiff got very little coverage. (She is author of Times Square Roulette, a study of Times Square redevelopment, with an interesting chapter on the press that I relied on in the final sections of my report on the New York Times and Atlantic Yards.)

Sagalyn said the complex issue “successfully lent itself to simplification,” leading to myths, mistakes, misrepresentation, and a “tremendous amount of inflammatory language.”

She said a New York Times reporter has publicly acknowledged how good IJ was at presenting the issues in its press kit. Given that the press has a lot of competing issues, Sagalyn observed, “it is not hard to sway them with a good press kit.”

In coverage of Kelo, she said, “the collective benefits side of the equation was totally absent from the debate.” Rather, she said, the case was summarized in headlines mainly as the “scope of government power expanded” and “homeowners are vulnerable.” Inflammatory language in news coverage, such as “seize,” “wrest,” and “grab,” she said, “denies the legitimacy of statutory procedures and administrative process for eminent domain.”

The question, of course, is whether such procedures have been followed in a legitimate manner; the web site NoLandGrab uses those terms in a response to perceived absence of such legitimacy regarding Atlantic Yards.

Blight = "shot to hell"

Missing in the coverage, Sagalyn said, were the frames of blight--“when the fabric of a community is shot to hell”--and the need for government to intervene to achieve land assembly.

In the Atlantic Yards case, the fabric of the community certainly is hardly "shot to hell," but, yes, land assembly is a challenge. Were the project perceived as more legitimate, it's likely at least some of the plaintiffs in the eminent domain wouldn't have challenged it.

Politics or policy?

To invigorate the debate, Sagalyn suggested, planners and urban advocates must gain substantive information on the costs and benefits of eminent domain, and offer the message that it’s time for revision and reform.

Lobbyist and advocate Jason Jordan, formerly of the American Planning Association (APA), said the issue, instead, was politics. The right-wing used Kelo, with its frame of victim and oppressor, to replace “the prime battlefield, which was regulatory takings”--the movement's ultimate goal. He called Kelo “the gay marriage of land use,” a way to divide people on political lines.

“We looked at Kelo, wrongly in hindsight, as a fairly straightforward decision,” he said, acknowledging some internal dissent on how aggressive APA should be. First, there was a lingering hangover from urban renewal, where planners were often considered the bad guys. Ultimately, he said, planners and local officials are the wrong messengers regading eminent domain: “we need to find our own narrative.”

Presumably, that includes civic projects embraced by many. Mayor Mike Bloomberg generally cites not just Times Square but also Melrose Commons in the Bronx; note that a representative from his Law Department in May 2007 also cited Melrose Commons, but acknowledged that Atlantic Yards, at least from her secondhand knowledge, proceeded differently.

“We need good data, but we need good stories,” Jordan said. While planners must support fairness and reform, they should argue, to win over the many “dissatisfied and distrustful,” that the planning process is a more democratic way to address concerns than the courts.

That may be so, but what if the planning process, as with Atlantic Yards, raised more questions than it answered.

Lingering issues

Sagalyn pointed out that the press covers urban development as real estate rather than public policy, a point she made in Times Square Roulette and which has too often been the case with Atlantic Yards, which in the beginning was covered more as a sports story. (See, for example, some of these New York Times stories, which were in the Sports section.)

Penn planning professor John Landis cited political scientist James Q. Wilson, who observed that it’s hard to enact policies where costs are intense and local and benefits diffuse.

While proponents see Atlantic Yards as an example of what Wilson called "entrepreneurial politics," with concentrated costs and broad benefits, critics would contend that Atlantic Yards is instead an example of "client politics," with concentrated benefits to Forest City Ratner and much smaller benefits to the public at large.

Other ways possible

Sagalyn noted that eminent domain, in fact, is not the only approach to land accumulation for large projects. In Asia and elsewhere, there's the practice of “land readjustment,” in which the original owners get same value in a new project area. “There are other methods to provide for due process and just compensation,” she said.

The issue of "land readjustment" came up last month at a panel in New York; the Regional Plan Association's Robert Yaro suggested it as a potential solution, though the ESDC's Avi Schick was skeptical.

"The Battle for the World's Skyline" sounded better in the original German

Portfolio.com's Felix Salmon points to a Business Week article--well, an article on the magazine's web site--called The Battle for the World's Skyline, which is translated from and apparently written from a German perspective.

Salmon observes:
And it would be very hard indeed to find many New Yorkers who agree with the Business Week article that the scaling-back of Bruce Ratner's Atlantic Yards project in Brooklyn is "a tough blow for New York". (I suspect the authors will have lost most Brooklynites when they describe the area as "an industrial wasteland".)

Rather than try to build on that critique, I'll just translate the passage about AY from English back to German, then back to English, courtesy of Babelfish.

English

Yet another of Gehry's urban improvement ventures has run into difficulties. Gehry was commissioned to transform an industrial wasteland in Brooklyn into a mixed-use architectural pearl. The price tag of the Atlantic Yards project — which New York Mayor Michael Bloomberg praised as a "colossal achievement of one of the world's leading architects" — was $4 billion (€2.6 billion). But demand has been unsatisfactory, and Gehry was forced to reduce the size of the largest tower in the complex. According to the developers, construction of several of the planned buildings will be placed on hold.

It's a tough blow for New York. For real estate aficionados, it remains the "ultimate 24-hour American city," a place that attracts the global elite. But it takes some effort and a constant series of facelifts to keep it that way. Where else but in New York is there so must distaste for any form of inertia?

German

Noch eins von Gehry' s-hat städtische Verbesserungsrisiken in Schwierigkeiten gegeraten. Gehry wurde in Auftrag gegeben, um ein industrielles Ödland in Brooklyn in umzuwandeln Misch-verwenden Architekturperle. Der Preis der atlantischen Yards projektieren - die New- Yorkbürgermeister Michael Bloomberg als " pries; kolossale Ausführung von einer des world' s führendes architects" - war $4 Milliarde (€2.6 Milliarde). Aber Nachfrage ist unbefriedigend gewesen, und Gehry wurde gezwungen, um die Größe des größten Aufsatzes im Komplex zu verringern. Entsprechend den Entwicklern wird Aufbau von mehreren der geplanten Gebäude auf Einfluss gesetzt. It' starker Schlag S.-A. für New York. Für Immobilienanhänger bleibt es das " entscheidende 24-stündige amerikanische Stadt, " ein Platz, der die globale Auslese anzieht. Aber er nimmt etwas Bemühung und eine konstante Reihe facelifts, sie zu halten so. Wo sonst aber in New York gibt es muss so Widerwille für irgendeine Form der Schwungkraft?

Back to English

Still one of Gehry' s-has urban improvement risks in difficulties gegeraten. Gehry was given in order, around an industrial wasteland into Brooklyn in to convert mixture using architecture bead. The price of the Atlantic yards project engineering - which " new Yorkbürgermeister Michael Bloomberg as; praised; kolossale execution of the world' s prominent architects" - was $4 billion (€2.6 billion). But demand was unsatisfactory, and Gehry was forced, in order to reduce the size of the largest essay in the complex. According to the developers structure is set of several of the planned buildings on influence. It' strong impact S. - A. for New York. For real estate supporters it remains " crucial 24-stündige American city, " a place, which tightens the global selection. But it takes something effort and a constant row facelifts to hold it so. Where otherwise however in New York give does it must in such a way aversion for any form of the Schwungkraft?

Tuesday, June 10, 2008

In dueling briefs, AY eminent domain case ramps up for Supreme Court conference

Was the “Brooklyn Day” “dud’ rally aimed at Cleveland-based honcho Chuck Ratner, or local officials? Maybe--and I speculate here--the developer wanted news of support for Atlantic Yards to reach a very special audience of nine: the justices of the U.S. Supreme Court.

After all, the brief submitted to the Supreme Court on behalf of the Empire State Development Corporation (ESDC) and municipal respondents notes that Atlantic Yards “has the support of a host of elected state and local officials... local leaders, affordable housing advocates and union officials.”

On Thursday, June 12, the justices will meet to decide whether to accept the appeal in the case, known as Goldstein v. Pataki, in which 11 residential and commercial property owners and leaseholders are challenging the state’s plan to use eminent domain to take their properties for Atlantic Yards.

The justices’s decision to accept the case or not should be made public next week. Their decision will be based not on an evaluation of errors in the lower court decisions but on whether they think there are doctrinal differences nationally regading interpretations of the Supreme Court's 2005 Kelo v. New London eminent domain case that must be resolved.

The crux of the Brooklyn case (briefs here), which now involves an amicus curiae (friend of the court) brief from the libertarian Institute for Justice, can be seen through two lenses. If the government can claim that there are public benefits from the use of eminent domain, the plaintiffs contend, that shouldn't shut off any inquiry into governmental decisionmaking. By contrast, the defendants argue that if evidence of pretextual benefits appear flimsy and eminent domain would produce public benefits, such a case shouldn't proceed.

A long shot


Any Supreme Court appeal is by definition a long shot; the court takes fewer than 2% of cases brought (though perhaps 4% of cases brought by paid counsel as opposed to cases filed by indigents, according to this 1999 article).

Keep in mind that, while rejection of the appeal means the federal case is over—and the plaintiffs likely would file an even longer-shot case in state court—acceptance of the appeal would be the beginning, not the end.

If four members of the Supreme Court vote to grant certiorari--to hear the argument--that means the case would be further briefed, likely with many other friends of the court briefs from stakeholders in the eminent domain issue. Oral argument would be held, most likely in the fall.

More often than not a vote to "grant cert" means the court is prepared to overturn the lower court decision. However, were the case to be accepted and the plaintiffs to prevail, they still wouldn’t have stopped eminent domain in this case. Rather, the Supreme Court would allow them to present evidence in trial court that the project is a “pretext” to enrich the developer—a contention dismissed before trial by U.S. District Judge Nicholas Garaufis and upheld by the Second Circuit Court of Appeals.

Such a trial could go either way. Then again, the delay involved --perhaps a year until final decision by the Supreme Court, then potentially months more for a trial--could make government officials and Forest City Ratner more wary of the project. The could lead to further back-channel talks with operators of the Prudential Center in Newark, given that the Nets are steadily losing money.

Plaintiffs’ case

In April, I wrote about the central arguments in the plaintiffs’ appeal, which argued that the Second Circuit Court of Appeals ignored an important argument.

The initial appeal noted, “The court of appeals did not address petitioners’ argument that the only way to harmonize this Court’s precedents was to allow pretext claims to proceed past the pleading stage in those rare circumstances where, as here, the traditional indicia of a legitimate taking decision are plainly absent—e.g., inter alia, where (1) a legislative body plays no role in determining public purpose, (2) the properties slated for condemnation are selected by the private beneficiary in the first instance, rather than as part of a comprehensive government-initiated plan, (3) no alternative development sites are ever considered (i.e., sites that would not require condemnation at all, or sites that would burden those who the developer spared when he drew an oddly shaped, non-contiguous takings map), (4) the sole beneficiary of the land transfer is known before the decision to condemn, (5) no competitive process for selecting the private beneficiary is employed, (6) only a single plan (the developer/beneficiary’s plan) is ever considered, (7) the public benefit justification is identified after the decision to condemn, and (8) the normal process for approving massive zoning variances and assessing public benefit (here, review by the local legislature, the New York City Council) is bypassed entirely.”

The amicus brief

The amicus brief from the Institute for Justice (IJ) which brought the Kelo case on behalf of Susette Kelo and other homeowners, argues, “the Court should grant certiorari to confirm the continued invalidity of takings made in bad faith or for pretextual reasons, and the importance of factual development in making those determinations.”

Or, as stated more colloqually in the IJ’s press release, “IJ's brief urges the Court to defend a citizen's right to have a judge examine whether a city's claim of ‘public use’ is actually public use or merely a pretext for transferring property from one private entity to another for the latter's benefit, as is the case in Brooklyn.”

The standard established in Kelo, the brief states, depends on three characteristics: a carefully considered development plan, a fully-developed factual record that indicated no reasons to suspect questionable purpose, and the fact that the plan was adopted before the identity of private beneficiaries was known. Since then, a number of states and localities saw “Kelo as a blank check to use eminent domain for private-to-private transfers,” one this Brooklyn case would exacerbate, the IJ argues.

While plaintiff Kelo lost in a 5-4 decision that upheld the use of eminent domain for economic development, the decision has been a lightning rod for IJ and ideological allies to argue for state restrictions on eminent domain. They have not been successful in New York. Interestingly enough, in Goldstein v. Pataki, the IJ is, along with the plaintiffs, not asking for Kelo to be overturned but to be clarified.

Standard of review

The IJ says that the Brooklyn case is simple. The plaintiffs said the government’s purpose is a pretext. The defendants said that was false. The standard of review, however, is that courts should draw “every reasonable inference in favor of a plaintiff,” the IJ brief states. That didn’t happen.

“Simply put, the question presented in the petition is whether the presence of some degree of public purpose serves to end the judicial inquiry in a Public Use claim or whether citizens are entitled to present evidence that the purported public purpose is merely a veneer cast over a broader scheme to convey a windfall on a private individual,” the brief states. A pretext, according to Black’s Law Dictionary, is a “false or weak reason,” not necessarily a wholly imaginary one, the brief notes.

The effect of Franco

There are not a lot of cases based on Kelo, but the plaintiffs and their allies have seized on a 2007 District of Columbia Court of Appeals case called Franco v. National Capital Revitalization Corporation. In Franco, the appeals court reversed the eminent domain decision and sent the case back to trial court..

In Brooklyn, however, “rather than deference, the Second Circuit has adopted a rule of abdication,” the IJ states. The question in Goldstein is not whether a court’s scrutiny should be deferential, the IJ says, it’s whether “a court may engage in any scrutiny in the first place.” Thus the Supreme Court should harmonize the two cases.

Another explanation

As I’ve written, none of the parties have cited the single most comprehensive explanation for the decision to choose Ratner’s plan, which suggests less an active effort to assist the developer—though of course that’s happened—but a lack of rigor in evaluating the plan. It was given by Andrew Alper, then president of the New York City Economic Development Corporation, at a 5/4/04 City Council hearing:

The developer came to us with what we thought was actually a very clever plan. It is not only bringing a sports team back to Brooklyn, but to do it in a way that provided dramatic economic development catalyst in terms of housing, retail, commercial jobs, construction jobs, permanent jobs.

So, they came to us, we did not come to them. And it is not really up to us then to go out and try to find a better deal. I think that would discourage developers from coming to us, if every time they came to us we went out and tried to shop their idea to somebody else. So we are actively shopping, but not for another sports arena franchise for Brooklyn.


Then again, sports teams are a very limited commodity, which means communities nationally are faced with take-it-or-leave-it deals.

The defense responds

The defendants include former Gov. George Pataki, Mayor Mike Bloomberg, and other officials, along with the developer, but Forest City Ratner defers to the ESDC's brief.

The defense brief emphasizes longstanding claims of blight: “The allegations in Petitioners’ complaint do not refute, and both courts below unequivocally found, that the Project will remove blight that has plagued more than half the footprint of the Project for at least four decades.”

“The Project will also accomplish multiple other, well-established public purposes: construction of a $120 million platform over the Vanderbilt Yard," the brief states, adding, " a new sports arena designed by renowned architect Frank Gehry containing a 10,000-square-foot public atrium"--the Urban Room would be publicly-accessible but not publicly operated, I suspect--"and pedestrian passageway to the subways; office buildings; 6,680 housing units (2,250 of which will be below-market rate); significant mass transit improvements, including a new state-of-the-art railyard... and eight acres of publicly accessible open space.”

“[E]ven if a pretext claim was theoretically cognizable in the face of multiple, concededly quintessential public uses, the speculative and conclusory allegations in Petitioners’complaint could not support a claim of pretext,” the brief states.

Note that the lawsuit addresses the project as approved, so it's unclear whether the court would get a chance to consider the fact that some of the promised benefits, such as the open space--all designated for Phase 2, for which there is no governmental deadline--might be severely delayed or nonexistent.

Eminent domain & blight

The brief notes that the power of eminent domain is one of the ESDC’s most important powers, given the difficulty of assembling “diversely-owned parcels necessary for large-scale projects.” It notes that New York's Eminent Domain Procedure Law (EDPL) establishes comprehensive procedures for extensive public review and input followed by expedited judicial review. (Note below that the plaintiffs have a very different view of the fairness of the process.)

The 22-acre AY footprint “has suffered from physical deterioration and relative economic inactivity for at least four decades,” the brief states, noting that the petitioners have never disputed that the 63% of the site—petitioners only admit about half—is blighted because it falls into the Atlantic Terminal Urban Renewal Area (ATURA). The blight study ESDC commissioned in early 2006, the ESDC brief says, confirmed that the blight extended beyond the ATURA into the zone where the plaintiffs own or occupy property (the Takings Area), and that “one or more blight characteristics were present on most lots within the Takings Area.”

An interesting footnote

The brief also asserts that the petition “contains numerous factual assertions that were shown to be false” by the record or by the state court in the environmental review case, or that were not properly preserved for consideration by the Supreme Court, including assertions of a deal between Forest City Ratner and Newswalk developer Shaya Boymelgreen to exclude his building, charges that Extell’s cash bid of $150 million was more valuable than Forest City Ratner’s $100 million, charges that the Hudson Yards RFP was superior to the Vanderbilt yard RFP, and that the displacement of area residents would offset the affordable housing promised.

Should the case move forward, the ESDC says, “Respondents reserve the right to present a more comprehensive rebuttal of these and other erroneous factual assertions.…”

Complaints or conspiracy

The ESDC argues that the plaintiffs charges are gripes rather than real evidence: “The ‘facts’ identified to support this conspiracy theory consisted, in essence, of complaints about the process and sequence by which the Project was first proposed and developed—a process and sequence that comported fully with the procedures enacted by the legislature directing ESDC to cooperate with—indeed, 'encourag[e] maximum participation by'—private entities. Not a single paragraph in the entire complaint alleged any fact demonstrating that the public Respondents had or could have had any reason to abdicate their professional and public responsibilities in order to collude for the sole purpose of enriching the private developer.”

(Note that “maximum participation” meant something very different when the law establishing the ESDC was passed in 1968; here's my look at the ESDC's circular logic.)

Public accountability

As the brief points out, first, Magistrate Judge Robert Levy recommended that the federal court should stay out of the case, leaving the decision to state courts. Judge Garaufis overruled Levy on that issue, but dismissed the case, concluding that the plaintiffs had failed to state a claim for relief.

The Second Circuit affirmed that, recognizing, as the defense brief states, that “the primary mechanism for enforcing the public-use requirement has been the accountability of political officials to the electorate, not the scrutiny of the federal courts,” and thus deferred to the ESDC as a legislatively-authorized agency.

Unanswered is how exactly the electorate could hold the ESDC accountable. (Here's some skepticism from affordable housing analyst David A. Smith.)

As did Garaufis, the appeals court found that the issue was not whether the project would bring no benefit, but a debate about the extent of the benefit. An examination of the pretext claim would require subjective inquiries, “fraught with conceptual and practical difficulties,” into the motivations of governmental officials, the court ruled.

Need for harmony

While in their appeal, the plaintiffs cited three cases under which pretext claims have been litigated, the ESDC says that “sparse and undeveloped case law” means the court should stay away--presumably until more cases present significant conflicts--and, anyway, there’s no real conflict among the cases.

While in Franco, the D.C. Court of Appeals did reverse a trial court’s dismissal of a pretext claim, it “did so under very different circumstances,” the defense argues, notably that the draft bill authorizing the condemnation “did not explain why the properties were ‘necessary’ or to what ‘public use’ they would be devoted.” Later, another bill was passed but relied on no public hearing or study to assert the properties were blighted.

Also, the brief notes that the appeals court rejected claims that it should overturn the decision because “the identities of the benefiting private parties were known before the taking was authorized by the legislature and that there is no comprehensive plan for redeveloping the area”—issues the plaintiffs in Brooklyn have raised, given that they were apparent guidelines from Kelo.

In Brooklyn, the defense points out, “the Petitioners’ allegations on their face concede multiple undisputed public purposes served by the Project. It is only the subjective motivation of officials that Petitioners seek to challenge as impure and pretextual. Other lower courts have refused to recognize a pretext claim in the face of much less support for valid public purposes than presented here.”

Courts are not supposed to second-guess the condemnor about the efficacy of the plan or the boundary of the development, according to the lower court decisions. The amicus brief, the petition notes, warns against a rule “that would limit the ability of plaintiffs to develop a actual record to support suppositions of illicit motive.” But that would require subjective inquiries “fraught with conceptual and practical difficulties,” as stated by the appeals court.

Local reforms and Burford

The defense also argues against Supreme Court review because reforms of eminent domain “are being vigorously debated and resolved in the political and judicial branches of state and local governments, where they are best resolved.”

That may be true, in general--"42 states