Monday, August 17, 2009

How the MTA blew off state Senator Perkins; how board members have a fiduciary duty but new bill would make it easier to enforce

A representative of state Senator Bill Perkins was not overstating the case when he testified June 24 that the Metropolitan Transportation Authority (MTA) had essentially ignored a letter Perkins sent with some tough questions.

As I explain below, MTA Acting Executive Director Helena Williams sent him a cordial but most complete brush-off. While Williams may not have been required to have a fiduciary duty to the authority, board members did have a fiduciary duty. 

And it's questionable whether they followed it in relaxing the terms of the deal with Forest City Ratner for the Vanderbilt Yard, saving the developer $100 million on a replacement railyard, accepting $20 million down for a $100 million cash deal, and giving FCR 22 years, at a generous interest rate, to pay off the $80 million. 

(Note that this fiduciary duty is different from that required in a pending bill covering public authorities that Governor David Paterson seems unwilling to sign, though the new bill would make it much easier to enforce that obligation.)



(The video above includes comments from Assemblyman Brennan, City Council Member Letitia James, and, at 6:40, Danny Serrano, representing state Senator Bill Perkins.)

Perkins’s questions ignored

Serrano, director of public policy for Perkins, who heads the Senate committee overseeing the MTA, declared, “It is clear that the project no longer resembles the project that was originally approved. It will not and cannot provide anywhere near the level of public benefits that were originally planned.”

“Much of the controversy surrounding Atlantic Yards has been aggravated by a chronic lack of honesty, transparency, and accountability,” Serrano declared. “This proceeding today is an example.”

Several days before the hearing Perkins submitted a letter with several “very basic, fair, logical” questions for the MTA. He received a letter, but, as Serrano reported, “it was in fact unresponsive.” Williams refused to answer or acknowledge the questions.

He began by asking why there was a renegotiation rather than demanding performance or reissuing the RFP. Asked to speed up, Serrano said, veering on sarcasm, “I’m going to run through the questions so you have the benefit of thinking about them.”

The other questions: whether MTA considered that most of the alleged public benefits it considered in 2005 have since substantially diminished or vanished altogether? Whether MTA contracted an independent appraiser? What is the current Fair Market Value? Isn’t an appraisal required? What are FCR’s obligations to the MTA if the deal closes but the developer does not proceed with the project?

Williams's response

I got a copy of Williams's response via a Freedom of Information Law (FOIL) request (right). She wrote, in part:
Since the original deal was struck, the commercial lending markets have virtually dried up. The national and local real estate industries have also experienced unprecedented downturns as part of what many are calling "The Great Recession." The downturn in the Brooklyn real estate market and in the economy as a whole has, unfortunately, led FCR to propose significant revisions to terms of the 2006 transaction. The MTA is currently engaged in discussions with FCR concerning their revised proposal and at this time the terms are not finalized. In fact, we are presently in meetings and discussions with FCR in an effort to conclude the terms.

The MTA is an open and transparent state public authority, and we plan to present the terms and conditions of the MTA's modified agreement with FCR as an information item to the MTA Finance Committee... [and] plan to bring the modified agreement to the full MTA Board....


In other words, she ignored the questions.

That raises some other questions: Could she get away with it? Could her successor, Jay Walder, act similarly?

Keep in mind that Walder has been nominated as both CEO and Chair, so he'd also be a board member.

Fiduciary duty

In the MTA Bailout Bill passed this spring, the text in CAPS was added:
The governor may remove any member for inefficiency, neglect of duty, BREACH OF FIDUCIARY DUTY or misconduct in office....

That means, as Assemblyman Richard Brodsky said in June:
I would point out that the heart of the bill that we first put it out... and what is perceived as the heart of the existing reform bill, is the question of fiduciary duty. That is to say, to whom does the authority owe a debt of loyalty, the board members? I took the aggressive legal posture, which was that we had to write it down in statute: you have a fiduciary duty. That’s what the bill this minute says.

I worked with a guy named Ira Millstein, who’s a corporate governance expert, and he kept tugging on my sleeve, saying, ‘y’know, they really already have a fiduciary duty.’ So when the MTA statute came up, the speaker and I conferred and we tricked the Senate and governor, and it worked.

So what we did in that statute is we added to the list of things for which a board member may be removed: violation of the fiduciary duty. Now the consequence of that is not huge in the legal sense. But it was huge in the political sense--I don’t mean partisan sense--in that it reminded everybody that the board members had a fiduciary duty.

On the MTA, where this has just been added, this is going to come up very quickly, because the Nets are going to ask the MTA to take less money for the Nets arena. I believe that the decision to accept that offer would be a violation of the fiduciary duty of the board members.


That, however, would require the governor to act. The pending bill, A2209, states that "Board members are required to faithfully obey existing fiduciary duty to the authority and its purposes."

Also, it would require the new Authorities Budget Office to develop and issue, after consultation with the Attorney General's office, a written acknowledgement that a board member must execute--either upon taking office or 60 days after the bill becomes law--in which the board member acknowledges that he/she understands "their independence, including their duty of loyalty and care to the organization and commitment to the authority's vision."

Brodsky said yesterday that would ensure that the board members' duty is "known and enforced."

Brodsky again

Brodsky did not testify regarding the MTA board's fiduciary duty, nor has he indicated an intention to examine Atlantic Yards before the fact as he did Yankee Stadium after the fact, but he has expressed skepticism. 

He said in July:
Take the Seven line extension, take the West Side Yards, take Atlantic Yards. In all those cases, it seems to be me provable that, whether you like the projects or you don't--I'm not taking a position on the projects--that the MTA's fiduciary responsibility to the system and the riders was to maximize the value of the assets it was putting out. It could not do that in many of those cases.

That struck me as a violation of the fiduciary duty. But because I passed a law in 2006 that had a mistake in it, we had a CEO of the MTA who was not bound by the fiduciary duty. Now we can fix that. The law gives Mr. Walder a clear defense that, when the next time the Mayor says, "Go build me a subway line to nowhere." Whether he will use that will become, I think, the chief measure of his success or his failure.


But it's not simply a question of the CEO's actions. The board could be subject to scrutiny, as well, under the provisions of the existing law, though the pending bill would make such scrutiny more direct.

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