Thursday, December 17, 2009

Due diligence on the BALDC leads down a rabbit hole, while other state agencies are more transparent than ESDC/JDA/BALDC

The Brooklyn Arena Local Development Corporation (BALDC) was omitted from most press coverage of the arena bond sale, with some reports claiming that Bruce Ratner sold the bonds himself and others acknowledging the role of an unnamed "local development corporation," or LDC.

It's enough to leave readers wondering, perhaps to wonder if the unnamed BALDC might be similar to the Atlantic Avenue LDC, or the LDC of East New York, or the Myrtle Avenue Revitalization Project LDC, or the BAM LDC.

It's not.

About the BALDC

Should someone be curious about the obscure, single-purpose entity that authorized and issued the bond, maybe they'd try to find a web site for the BALDC. There isn't any. There's no way to see its bylaws or learn about its board members.

The BALDC was created by the New York State Job Development Authority (JDA), a sibling agency of the ESDC, “to facilitate financing for the arena and certain infrastructure improvements related to the project.”

Why the JDA? “ESDC and JDA have differing statutory powers,” spokesman Warner Johnston told me earlier this year.

The JDA has no staff and no budget. But the JDA's creation of the BALDC allowed the arena bond transaction to skirt the review of the Public Authorities Control Board and the Comptroller, because only subsidiaries which have the same members or directors as the ESDC or JDA are included, according to Develop Don't Destroy Brooklyn attorney Jeff Baker.

Looking deeper

A 2005 Comptroller's report on ESDC management of subsidiaries generated this March 2008 response:
Recommendation 3 - Develop a complete and accurate management information system for subsidiary operations. The system should identify all existing subsidiaries, note their status, and provide summary information about their purpose and history.

Status - Partially Implemented

Agency Action - ESDC officials indicate that preliminary steps regarding the development of a management information system (MIS) have begun. They provided us with a sample page of a subsidiary database that they plan to use as the MIS template.
Not only is there nothing about the JDA or BALDC, you can't even find out about the executive staff and board of the ESDC itself, given a generic About Us page. (I had to ask to get the list of board members.)

By contrast, for example, the state Dormitory Authority lists its board and executive staff. It offers guidance on FOIL requests. The state Housing Finance Agency offers similar info, plus board minutes.

The State Comptroller's page on public authorities has no listing for the BALDC. (Was it because it was established only in November 2008?)

Has the Comptroller's office looked into the BALDC? No, it's not on the list of audit reports.

Is it on the Comptroller's list of the JDA's subsidiaries? No. That list is dated 3/31/07.

The ESDC's list? No. That list is dated 3/31/06.

Board transparency

I wrote December 2 that when the BALDC adopted several resolutions in September--including a predicate to the issuance of tax-exempt arena bonds--without a public meeting, it seemingly violated the state's Open Meetings Law.

However, that seeming violation likely had no impact on the issuance of those bonds because another clause in the law says its provisions won't affect the validity of bond issues.

In a 2004 audit of the JDA, the Comptroller's office suggested the JDA could be more transparent:
We also found that improvements were needed in the conduct of Board meetings. Meetings were not held as frequently (monthly) as required by JDA’s by-laws, the required number of Board members was not always present when decisions were made, Board members did not always receive their informational packages seven days prior to their meetings, and Board members who attended meetings by telephone were allowed to vote even though this practice is considered by the Committee on Open Government to be contrary to provisions of the State’s Open Meeting Law.
In its response, the JDA explained that it has "very minimal expenses," with no employees on its payroll and no rent charged by the ESDC; its only expenses are the payment of loan servicing fees.

As for transparency, it (via the ESDC) responded:
JDA does not believe state law requires Authority Members to be physically present to vote at JDA meetings. We disagree with the opinions of the Committee on Open Government with respect to this issue, can find no case law to support them, and are not bound to follow such opinions. In the current era of vastly improved communication technology, it is standard practice among corporate boards throughout the world to permit participation at board meetings telephonically--in fact, the state's Business Corporation Law permits such provisions in by-laws. In recognition of the many demands placed upon the availability of the Authority's Members--all uncompensated, and virtually all of whom have full time employment, JDA determined that in order to ensure maximum participation in meetings, it was advisable to permit telephonic participation at our publicly held meetings.
Now the JDA-created BALDC does business not even via telephone but by written consent, away from public scrutiny.

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