Thursday, March 18, 2010

The Darryl Greene asterisk on minority contracting (not that Paterson noticed), the Bloomberg asterisk on the CBA, and now the City Bar's CBA critique

This week and next I'll try to compensate slightly for the failure of any metro columnists to show up and glean insights from the rich spectacle of the Barclays Center groundbreaking March 11.

The irony was crushing: moments before New York's political luminaries posed proudly at the ceremonial groundbreaking event, a not dissimilar deal, much criticized for its lack of transparency, was being unceremoniously dumped.

Aqueduct Entertainment Group (AEG) was gone from the Aqueduct racetrack video casino deal, and with it, a process seen as tainted by Governor David Paterson's political ambitions and the role of a shady consultant named Darryl Greene--a consultant key to the Atlantic Yards project.

And Jay-Z, the rapper and entrepreneur who drew fawning treatment from the likes of Barclays' Bob Diamond and Brooklyn President Marty Markowitz, had only days earlier extracted himself from the wrong side of the AEG deal.

The CBA irony

There was another obvious irony: even as developer Bruce Ratner and the Rev. Al Sharpton buffed the Atlantic Yards Community Benefits Agreement (CBA), Mayor Mike Bloomberg refrained from pointing out that he considers CBAs to be "extortion."

Three days earlier--though it didn't surface widely until the New York Observer's Eliot Brown reported on it yesterday--the Association of the Bar of the City of New York issued a sober but tough report cautioning against CBAs:
They may be appropriate conditions to impose upon developers in return for economic development subsidies, but we urge the City to clearly and firmly reject any consideration of CBAs in the land use approval process.
(In the case of AY, there were both subsidies and an override--by the state--of the land use approval process.)

Some of the issues raised in the report--transparency, representativeness, accountability and enforceability--emanate from criticisms of the Atlantic Yards CBA. Though the report could've been much tougher on the CBA, none of these concerns surfaced.

The AEG case

The report on the New York Times's CityRoom blog emerged at 12:56 pm last Thursday.

At that moment, in Brooklyn, VIPs were arriving at the arena groundbreaking by limousine and protesters organized by Develop Don't Destroy Brooklyn were handing reporters pages with the graphic below (click to enlarge) I prepared for a March 4 report on this blog.


The Times reported:
Gov. David A. Paterson’s office announced on Thursday that the company he had chosen to build and run a casino at the Aqueduct racetrack could not pass muster with state licensing officials and would not be awarded the lucrative contract.

A senior administration official said the company that had been selected, Aqueduct Entertainment Group, had supplied insufficient financial details for some of its investors. In other cases, the state’s Lottery Division was not comfortable licensing some of the company’s investors. The state had given the company until Tuesday to supply the information.

Barry Berke, a lawyer for Aqueduct Entertainment Group, called the state’s decision “arbitrary and capricious” and suggested the group is considering filing a lawsuit.

(To update the chart, Jay-Z dropped out of the deal as of March 9, two days before the groundbreaking. Smart move.)

At the podium

Meanwhile, Paterson was motoring ahead. His mastery of factoids read into his morning voicemail was not unimpressive, as noted by New York Magazine's Daily Intel:
Solidifying his reputation as a trivia machine, Paterson reeled off the project's projected (and disputed, by some) stats — on jobs and housing units and the percentage of minority contracts — to the point of almost losing the crowd's (and Jay-Z's) interest.
As I reported, Paterson said, "Already, $51 million in contracts have been awarded to contractors and, of that procurement, 80% of it will go to women and minority-owned businesses. Of the 65 contracts that have been awarded, 43% of them will go to companies that are located right here in Brooklyn. That is part of the overall commitment that Forest City Ratner has made to ensure that 30% of the contracts and 45% of the construction jobs will go to women and minorities."

Those goals may seem impressive, but the devil's in the details, After all, as I wrote, $20 million to Brooklyn firms over several years is hardly impressive, given the much larger subsidies.

Moreover, the statistics come not from the Independent Compliance Monitor required by the CBA but by Greene's firm, The Darman Group.

When it came to AY, however, Darryl Greene wasn't tainted. He was Teflon. No one told Paterson and no one noticed.

Remember, Greene, who exited the AEG deal in early February, in 1999 admitted participating in a mail fraud scheme that scammed $500,000 from governmental and private entities. (Disturbingly enough, he only had to make restitution of at least $100,000. Does that mean crime does pay?)

The City Bar report

The 48-page report describes the extant and proposed CBAs in New York, tracing them back to the first major CBA in the country, signed in Los Angeles in 2001 regarding the Staples Center, as well as longer standing efforts to tie mitigations and amenities to the land use approval process:
In a typical CBA, community members agree to support the developer’s proposed project, or at least promise not to oppose the project or to invoke procedural devices or legal challenges that might delay or derail the project.
In the 1980s, a commission organized by Mayor Ed Koch and later a special committee of the City Bar, both cautioned against CBA-like provisions, with the latter recommending
that amenities should be a part of the land use process only if they were confined to needs that are “directly arising from the project” -- i.e., only if there was a nexus between the identified project impacts and the mitigation requested or required.

...Unrelated amenities distort the budgeting and planning process, as well as public priorities, the Committee found, and create the risk of eroding or corrupting the decision making process.
Why CBAs are sought

The report delineates reasons why communities might want CBAs:
CBAs may give neighborhoods a more meaningful role in the development process than the opportunities ULURP provides for public participation.
Ironically enough, there wasn't even ULURP in the case of Atlantic Yards. The CBA was used to paper over the fundamental lack of participation.
CBAs give neighborhoods a role in the development process when the City’s typical land use processes are preempted

CBAs give neighborhoods an opportunity to address issues, such as wage rates or employment practices, that the City may not have the authority to address in the normal land use process.

CBAs allow neighborhoods to control the distribution of at least some of the benefits of the development.
Developers have their own reasons:
CBAs may garner community support for the project and therefore increase the chances that the project will be approved.

CBAs may provide more certainty that a project will not be challenged in court.
The latter, of course, did not occur with AY.

Local officials have their own reasons:
CBAs may allow municipalities to bypass legal constraints on land use regulation imposed by statute and judicial precedent.
The report notes, however, that two Supreme Court decisions
preclude municipalities from imposing exactions on proposed projects unless those exactions have a substantial nexus to impacts of the developments that would otherwise justify rejection of the development proposal, and unless the exaction is roughly proportional in amount to those impacts.
Thus there's an incentive to keep CBAs like the one for AY outside official channels:
CBAs may allow elected and appointed officials to distance themselves from politically unpopular community demands or from politically unpopular developments.
That may be a description of Atlantic Yards.
CBAs may allow borough presidents and city council members to secure more for their own constituents than the public approval processes might allow.
Maybe for City Council Members representing neighborhoods a good distance from the AY site, such as Darlene Mealy.

Atlantic Yards


Several pages are devoted to Atlantic Yards, and the report does a decent job sketching concerns about the AY CBA--e.g., the lack of involvement of a certain groups.

However, it starts off, dismayingly, by misdescribing the site:
The 22-acre development would occupy the space that had been used as open-air rail yards for the Long Island Rail Road, controlled by the Metropolitan Transit Authority (MTA).
That's actually the Metropolitan Transportation Authority. The footnote leads to an erroneous--and uncorrected--New York Times article from 3/4/05, headlined Deal Is Signed for Nets Arena in Brooklyn:
Mr. Ratner, chief executive of Forest City Ratner Companies, would build a $435 million, glass-enclosed arena designed by Frank Gehry on the railyards at the intersection of Flatbush and Atlantic Avenues.
(I've tried to get that and similar errors corrected; I'll have to try again.)

Less important but telling is the footnote that lists the eight signatories, since the report fails to point out that two have since changed their names (First Atlantic Terminal Housing Committee to Brooklyn Endeavor Experience and All-Faith Council of Brooklyn to Faith in Action), a hint of their precariousness.

Affordable housing?

Still, the report at the outset nails the fuzziness regarding the promise of affordable housing:
Neither the CBA nor the [Memorandum of Understanding] specifies what level of government subsidies are necessary to trigger the developer’s commitment, or what would happen if the “necessary modifications” to allow the units to qualify for affordable housing subsidies are not secured.
Indeed, only this January did we learn of the Development Agreement's inclusion of a clause allowing the developer to cite an "Affordable Housing Unavailability."

Legal and policy concerns

Atlantic Yards, in fact, exemplifies the legal and policy issues posed by CBAs, such as whether "community groups represent the community. The report notes:
The problem of representativeness is compounded by the potential for conflicts of interest. The cooperation of at least one community group that signed the Atlantic Yards CBA, BUILD, followed closely behind Forest City Ratner’s financial contribution to the organization.
Actually, all AY CBA signatories have received money from the developer, and national ACORN--the parent of New York ACORN--was bailed out by Forest City Ratner.

The report also notes that it's unclear whether negotiators will drive a good bargain and, again, there's an AY example:
The Atlantic Yard [sic] negotiations, for example, required the valuation of such benefits as job training and ‘’special initiatives to work with the prison population.” Valuations of such benefits (not to mention the comparison of the value of the benefits to the costs the development might impose on the community) are notoriously problematic and controversial.
Also, CBAs may result in neighborhood solutions to problems that should be addressed on a broader basis. Yes, there's an AY example:
The Atlantic Yards CBA, for example, promises to provide affordable housing but envisions that the housing will draw upon various public subsidy programs. Those public subsidies are limited resources and the provision of affordable housing of a particular type and in a particular neighborhood pursuant to a CBA may distort the City’s priorities for spending those resources. The subsidies might go much further if used for other developments, but the City would be hard-put to refuse to subsidize affordable housing promised in a particular CBA and thereby risk having to take “blame” for the development’s failure to provide community benefits.
As I've pointed out, Bloomberg is likely to steer scarce subsidy dollars to AY affordable housing to fulfill the promise of an agreement in which he had no part.

Also, should CBAs be an official part of the land use process, they may not be legal. Even if they are, they may compromise sound planning. And they may be unenforceably vague, again with an AY example:
In the Atlantic Yards CBA, for example, the developer’s commitments often are phrased in terms of “the developers agree to work … towards the construction of a high school,” or the developers “will seek to …” and the developers “intend to” do various things, but do not actually commit the developers to do those things. Other provisions defer specifics, noting, for example, that FCR will provide space for a community health center “at rent and terms to be agreed upon.” Further, some promises are subject to liquidated damages clauses – the developer can “buy-out” its obligation to provide an pre-apprentice training program, for example, by making a one-time payment of $500,000 to the community coalition.
I'd add that the CBA is not binding on a successor.

Recommendations

The report recommends that the Deputy Mayor for Economic Development, working various agencies and organizations,
reconsider how the land use approval process and the environmental review process could be refined to provide neighborhoods with a more meaningful and satisfying role in the approval process.
But CBAs for projects like AY that involve land use planning should be banned:
CBAs which contain provisions unrelated to land use planning and impacts considered in the environmental review process are not an appropriate basis for the official’s decision and therefore should not be made a condition, either explicitly or behind the scenes, for governmental approval.
And CBAs for projects that only include subsidies require standards:
The City may choose to employ CBAs in deciding whether to grant subsidies, sell or lease City property or provide other support to projects as part of its economic development program, because economic development processes are not subject to many of the constitutional constraints applicable to the land use process. However, because economic development projects often will involve land use approvals, the use of CBAs in connection with subsidies must be carefully circumscribed to avoid affecting the land use process...

In these instances, the City must set forth standards that CBAs must meet in order to satisfy the requirements of the economic development agreement or land disposition agreement. Such standards should address concerns addressed in Part IV of this report regarding transparency, representativeness, accountability and enforceability, and should seek to ensure that citywide interests are not compromised by the CBA.
The Role of Community Benefit Agreements In

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