Law review article: "Urban Redevelopment Policy, Judicial Deference to Unaccountable Agencies, and Reality in Brooklyn’s Atlantic Yards Project"

Atlantic Yards has survived all court challenges, but some of the wins have been ugly, leaving significant doubts about the capacity of the legal system to oversee such projects. So let the revisionism begin. (Cf. a line from the New York Times on Atlantic Yards.)

In the same issue of The Urban Lawyer that contains a revisionist article on the seminal Berman v. Parker eminent domain case, the author of that article, Amy Lavine, a staff attorney at Albany Law School's Government Law Center, and I collaborate on an article titled "Urban Redevelopment Policy, Judicial Deference to Unaccountable Agencies, and Reality in Brooklyn’s Atlantic Yards Project."

The article is embedded at bottom. Lavine did the first draft, and offered me credit because she relied so much on my work. I collaborated significantly on revisions. (Note Lavine's disclosure--unknown to me until this article--that she "provided limited research for Develop Don’t Destroy Brooklyn’s state eminent domain and MTA lawsuits.")

(The quarterly journal is published by the American Bar Association Section of State and Local Government Law, and edited by professors and students at the University of Missouri-Kansas City School of Law.)

Below I offer some choice excerpts.

A public-private project?

We liken this project to a private-public development, rather than a public-private development, because it was devised by a private developer, it has significant private components and special private benefits, and because the public partner’s role has been more of an enabler than a policy-maker or supervisor.

NIMBY concerns?

Many of the concerns about Atlantic Yards might be classified as NIMBYist (not in my backyard), but many of the concerns are also well-founded, and project supporters’ attempts to paint critics as reactionary and frivolous are overstated and plainly incorrect. The planning process, or lack thereof, raises serious concerns about transparency and public accountability in the planning process, and the lawsuits have sought vindication of important constitutional and statutory rights.

Deferential judges

The courts have repeatedly used the principle of legislative deference to pass on the difficult issues—such as whether an arena is really a public good, whether private developers should be able to dictate that public good, the meaning of “blight,” and when a project changes so much as to require reapproval.

Inadequate process

Some of the most objectionable aspects of Atlantic Yards involve the development approval process, which failed to provide anything more than token opportunities for public competition, meaningful public involvement, or even review by local elected officials. While FCR and ESDC may not have violated any procedural laws or regulations, their actions were inconsistent with recommended best practices in the planning and redevelopment field. They also created the appearance of a backroom, sweetheart deal, although this perception has not been validated by courts.

Questionable bidding

Andrew Alper, then-president of the New York City Economic Development Corporation (NYC EDC), refused to acknowledge that there was anything amiss about the bidding process, explaining at a city council hearing that “we were not out soliciting a professional sports franchise for Downtown Brooklyn. . . . 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.” While the bidding process may have been lawful, it was certainly not above reproach. Urban planning professor Tom Angotti echoed Justice Kennedy’s concurring opinion in Kelo v. New London, calling the process “backwards.” As he explained, “[n]ormally, government does a plan for the area, then looks at the potential environmental impacts of the plan, decides what to do, and then either does it or puts it out to private developers to bid on. In Atlantic Yards. . . it is just the reverse.”

The Empire State Development Corporation's power

ESDC was given the authority to insulate itself from political and community opposition so that local concerns would not interfere with projects of statewide significance, either by delaying them with red tape or by prohibiting them altogether. Although neither the court of appeals nor the legislature has made any attempt to limit those instances in which ESDC can use its override authority, we believe, based on statutory guidance and general planning policies, that Atlantic Yards is not the type of project that should implicate such extensive powers. ESDC’s enabling legislation itself limits its ability to override local laws to cases where “compliance is not feasible or practicable,” and given ESDC’s compliance with ULURP for other large redevelopment projects, it is unclear why it would have been unfeasible or impracticable for Atlantic Yards.

Need to revamp ESDC role

Finally, limiting ESDC’s ability to override local zoning and planning laws is warranted because best practices in urban planning have changed dramatically since 1968, when ESDC was created. The importance of local comprehensive planning has been increasingly recognized and support for community-based planning (like that facilitated by ULURP) has grown in tandem with the smart growth, environmental justice, and sustainability movements. These planning considerations are not the sort of bureaucratic red tape intended to be avoided by ESDC’s creators.

The problem with SEQRA

SEQRA was intended to provide a “vital fulcrum from which the public can participate in . . . decisions inflicting environmental impacts on local communities.” Unfortunately, the statute is something of a paper tiger. It is an expensive and lengthy process, and it can be manipulated to exclude meaningful public participation and serious reviews of negative project impacts. This occurs all too frequently, as “officials often treat public participation as if it obstructs or provides only marginal benefits to the decision process, rather than embracing it as an essential element of decisionmaking.” SEQRA reviews can be particularly inadequate for projects like Atlantic Yards that are governed by negotiated bilateral contracts, rather than by fixed zoning and planning laws. In these cases, extensive negotiations between the public partner and the developer occur long before members of the public have the opportunity to offer comment. With decisions already made, public participation may become mostly ceremonial in nature.

The problem with environmental consultant AKRF

Aside from the cozy relationship between AKRF and FCR—which, it has been suggested, carries “an implicit warranty that travels with the work”—ESDC officials have acknowledged that AKRF, its “perennial environmental consultant,” always produces studies that are in accord with the agency’s plans. ESDC’s defense—that AKRF merely provides factual data, leaving the board to make the final decision—is weak. An EIS may be factual, but the manner in which data are (or are not) collected and reported can have a decisive impact on ultimate conclusions. And a supposedly independent consultant could easily be biased by a desire to maintain its go-to status for lucrative state contracts.

The problem with the Community Benefits Agreement

Although the Atlantic Yards CBA does promise some important community benefits, the unregulated CBA negotiation process cannot replace thorough, transparent, and accountable government planning, nor should it be portrayed as an adequate alternative. In the case of Atlantic Yards, the CBA was used to help legitimize the departure from ULURP and to simulate a measure of community involvement. As a result, decisions concerning development amenities were made secretly, and by a select group of project proponents, while critics were shut out of the process.

The problem with assessing public costs

The potential for Atlantic Yards to generate economic development benefits cannot be fully assessed without taking into account contributions from the public fisc. Unfortunately, subsidies are often indirect, hidden, or structured in such a way as to be unintelligible to the average taxpayer. And while subsidies can be obscured, project benefits are easily communicated: “jobs, housing, hoops.” In 2003 and 2004, Atlantic Yards was characterized by FCR and Mayor Bloomberg as primarily privately funded, although full disclosure might have added that much of the private funding would be dependent on the availability of public financing.

The standards for an eminent domain case

Both the district and circuit courts were hostile to the plaintiffs’ pretext claim, refusing to accord the litigants a chance to seek discovery. This result was due to the application of the Twombly/Iqbal heightened pleading standard and to the courts’ uncertainty as to how Kelo’s pretext language should be understood. According to the Second Circuit, the pretext analysis did not demand “a full judicial inquiry into the subjective motivation of every official who supported the Project,” as this would have entailed “an exercise as fraught with conceptual and practical difficulties as with state-sovereignty and separation-of powers concerns.”

But by cutting motivation out of the pretext analysis, the court ignored the heart of the complaint. While a pretext test based solely on motivation would be problematic, the court’s characterization of such motivational analysis as having “dubious jurisdictional pedigree” was incorrect. Numerous state courts have invalidated takings with conceded public purposes because of apparently unlawful or hidden motives.

The problem with deference

The Second Circuit also took a curious approach to the plaintiffs’ argument that ESDC did not deserve the same level of deference accorded to true legislative entities. While the court stated that “the primary mechanism for enforcing the public-use requirement has been the accountability of political officials to the electorate,” it did not acknowledge the fact that no elected offi cials had ever approved Atlantic Yards. Had the court disposed of the fiction that ESDC is accountable to the electorate, it might have put more weight into the plaintiffs’ pretext arguments—largely mirroring the factors set out in Justice Kennedy’s concurring Kelo opinion—based on the developer-driven nature of the project plans, the fishy sequence of the bidding process, the lack of procedural checks, and the incidental-versus-predominant value of the project’s asserted public benefits.

Pretext in state court

As in the federal court litigation, the second department and the court of appeals basically ignored the petitioners’ pretext arguments, giving no consideration to the actual motivations of ESDC. More significantly, given the low probability that the petitioners would have been able to prove bad faith intent on ESDC’s part, the court of appeals also failed to discuss the petitioners’ argument that the New York constitution requires the public use of a condemnation to be predominant, or more
than incidental. New York case law actually contains fairly significant support for the existence of such a balancing requirement. In addition to the 1951 case Denihan Enterprises, Inc. v. O’Dwyer, which invalidated a taking using this reasoning, numerous cases over the years have made use of the predominant/incidental dichotomy. Such a balancing test would be subject to the same high level of deference accorded to ESDC in other contexts, especially given the subjective nature of many public and private benefits. Nevertheless, ESDC failed to require FCR to submit any sort of profit projection, and it also failed to conduct a market study reviewing real estate trends in the project footprint, even though one had been specified in the contract for the blight study. These sorts of calculations, while not necessarily outcome-determinative, would seem to be basic components necessary to any weighing of public and private benefits for a project like Atlantic Yards. Although the petitioners could have better presented this argument by focusing less on the strict public use interpretation in their briefs—indeed, the comparison of public and private benefits only briefly came up during oral arguments —their overemphasis on a losing argument did not excuse the court from addressing the predominant/incidental argument.

The case challenging the environmental review

Justice [Joan] Madden’s analysis of whether an arena qualifies as a “civic project”—defined by the statute as a “project . . . providing facilities for educational, cultural, recreational, community, municipal, public service or other civic purposes”—was questionable, even accepting the low standard of review. The statute contains separate definitions for commercial-type projects, and her explanation that being a spectator at a sports facility is essentially equivalent to participating in the sports activities themselves was not satisfying. She stood on firmer ground in determining that the project was a “land use improvement project,” as the classification is similar to a blight determination.

The case challenging the MTA's revision of the Vanderbilt Yard deal

Somewhat dubiously, [Justice Michael] Stallman concluded that the 2009 deal was more valuable to the MTA than the 2005 terms—he did not mention the generous 6.5% interest rate on what was essentially an $80 million loan or discuss the fact that the “value engineered” replacement railyard was much smaller than the one originally promised by FCR—but his ultimate determination that the petitioners failed to prove that the MTA acted arbitrarily or capriciously was more sound. The rational basis standard of review, after all, gives the MTA vast leeway to make decisions based on its assessment of what is in the best interests of the public. Although Stallman discussed the fact that property disposed of in furtherance of an economic development project need not be sold for fair market value under
the PAAA, he did not comment on the MTA’s debatable contention that it could not have bargained for a better deal, or waited for the market to adjust, because FCR had it over a barrel due to the recession.

The case challenging the revised Modified General Project Plan

The MGPP suit was dismissed on March 10, 2010, the day before the arena groundbreaking. State Supreme Court Justice Marcy Friedman, despite criticizing ESDC’s “deplorable lack of transparency,” rejected the petitioners’ UDC Act and unlawful delegation claims, and deferred to ESDC’s decision to reapprove the MGPP in 2009 without first completing a supplemental EIS.Friedman’s analysis was not especially nuanced, however. While she conceded that “ESDC’s continuing use of the 10 year build-out was supported. . . only minimally,” she determined that it was rational for ESDC to rely on the future existence of a ten-year provision in the development agreement despite the fact that the MGPP contained only an “agreement to agree” to this condition. Such contracts are enforceable only if they leave no material terms for later negotiation, and we submit that the development agreement’s provisions regarding extensions and penalties are material terms affecting FCR’s promise to comply with the ten-year timeline.

The bottom line

Like Judge [James] Catterson’s concurring opinion in the EIS case, Friedman’s
statement emphasizes just how anemic judicial review of Atlantic Yards has been. The rational basis test is admittedly a low bar, but opinions like these suggest that it is no bar at all.

Note that Friedman in June--after the deadline for this article--allowed a reargument on that case, and a decision is pending. (Update 11/16/10: Friedman found for the petitioners.)

And read on to the end of the article for multiple suggested areas for reform.