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Appellate Court smacks down ESD, upholds decision ordering new study of long-term Atlantic Yards impact, requires new approval of Phase II; Forest City reminds us: it doesn't affect arena

In a unanimous decision with almost no chance for appeal, a state appellate court has unanimously upheld a lower court's decision to require the state to conduct a Supplemental Environmental Impact Statement regarding the second phase of Atlantic Yards and to re-approve the second phase.

In other words, the state should not have misled the public with its irrational insistence that Atlantic Yards could be built in a decade rather than, as is likely, a much longer period, even 25 years, as allowed by a belatedly released Development Agreement.

Nor did the state analyze the possibility of a scenario "in which area residents must tolerate vacant lots, above-ground arena parking, and Phase II construction staging for decades."

The case, known as Matter of Develop Don't Destroy (Brooklyn), Inc. v Empire State Dev. Corp., involves two sets of petitioners, a coalition led by Develop Don't Destroy Brooklyn and another led by members of Brooklyn Speaks. Both the Empire State Development Corporation (aka Empire State Development) and Forest City Ratner were defendants.

The decision has no impact on the Barclays Center arena, but complicates Forest City Ratner's plans regarding Phase II and casts a further shadow over the questionable approval process for the project. It also endorses skepticism about whether the promised jobs and affordable housing will be delivered in the long-promised ten years.

Moral victory, maybe more

The ruling represents a moral victory, if not necessarily an instrumental one; ESD surely will re-approve the project and issue a study, already begun (as a hedge) that likely will find few significant new impacts. The SEIS surely will have to examine Forest City's plans for untested modular construction.

Then again, the process for re-approval will allow for further public input--a public hearing on the SEIS will be mandatory. It also will provide impetus for the call for a new governance entity, or other structure, to ensure accountability and transparency.

Jo Anne Simon, 52nd District Democratic Leader, and a member of BrooklynSpeaks, said, “Now that the Appellate Division has upheld the lower court’s decision, we strongly urge Governor Cuomo to act to restore credibility to this process, and direct his agency to conduct a thorough and transparent assessment of the environmental impact of this project on central Brooklyn that involves our communities in a meaningful way.”

“It seems clear to me that if the facts regarding the impact of the development had been accurately presented two years ago, the resulting decision would’ve halted construction,” commented Council Member Letitia James. “We can be almost certain at this point that the jobs and affordable housing originally promised will not come to fruition anytime soon, and instead Prospect Heights and surrounding residents will have to live with vacant lots and construction for years to come.” (James, along with state Senator Velmanette Montgomery and Assemblyman Jim Brennan, joined the community groups as petitioners.)

"The fact is that the project should never have been approved at all—it is entirely illegitimate," commented DDDB's legal director Candace Carponter. "The tragedy here is, but for the blatant misrepresentations to the Court by Forest City Ratner and ESDC, it would been determined in 2010 that an SEIS was required and that would have stopped construction of Barclays Arena."

Defendants' reaction

The defendants can appeal, but given the unanimous decision and the emphatic language, it's very unlikely. Neither mentioned an appeal in their statements. Forest City Ratner said:
While we are disappointed with the decision, Forest City Ratner is deeply committed to moving forward with the Atlantic Yards project and delivering needed jobs and affordable housing to Brooklyn. The decision does not affect the first phase of the project and we remain on track to open the world class Barclays Center arena in September and moving forward with construction of the first residential building.
ESDC issued a statement:
"Although Empire State Development is disappointed with the decision, we are fully committed to building a world-class development that will bring thousands of jobs and affordable housing to Brooklyn. The decision does not prevent the arena opening this fall, nor does it affect any aspect of Phase I development, and we will continue working toward the full build-out of the project,” said Arana Hankin, Director of Atlantic Yards for Empire State Development.
What was won

Still, as described further below, Forest City Ratner saved perhaps $150 million on tax-exempt financing for the arena, which would have been precluded had the state, in 2009, fully studied the issue.

Wrote sports business reporter John Brennan of the Bergen Record, who's followed Atlantic Yards more closely than most on this side of the river:
I’ll be curious to see if the mainstream New York media digs deeper, considering we have a multi-billion New York City project here – and successive court rulings rebuking the judgment of the state agency that is supposed to be the people’s watchdog to make sure the project rolls out properly.
The history

Atlantic Yards was approved in 2006, with a ten-year buildout, then revised in 2009, as Forest City reopened settled deals with the ESDC (regarding the timing of condemnations) and the Metropolitan Transportation Authority (regarding the payment of railyard development rights and the configuration of a replacement railyard), in order to save money.

The petitioners said the state should have looked at a longer buildout, given that Forest City has 22 years to pay the MTA for the railyard development rights.
The case was initially argued 1/19/10 and decided 3/10/10, a day before the arena groundbreaking. In that decision, Supreme Court Justice Marcy Friedman criticized the ESDC’s “deplorable lack of transparency” and acknowledged that the ESDC’s use of a ten-year timeframe for the project buildout in the Modified General Project Plan (MGPP) was supported “only minimally.”

In that case, the main document was the MTA agreement. However, there was much more reason for skepticism. The Development Agreement, signed in late December 2009, was not released until January 25, after oral argument in the case.

Friedman did not allow it to be entered into the record for the case. It showed a clear contradiction with the professed time frame. So, both sets of petitioners asked Friedman to reopen the case, which she did, acknowledging a misapprehension--though not quite a mistake on her part--about the Development Agreement.

In November 2010, Friedman remanded the proceedings "to ESDC for findings on the impact of the Development Agreement and of the renegotiated MTA agreement on its continued use of a 10 year build-out for the Project, and on whether a Supplemental Environmental Impact Statement is required or warranted."

The ESDC responded by issuing findings, including a Technical Memorandum. that said no such SEIS was needed. Friedman, after hearing oral arguments on 3/15/11, issued her ruling 7/13/11.

Friedman wrote that the ESDC's Technical Analysis does not provide technical studies of the effects of "significantly prolonged construction" but "appears to take the position that it is a matter of common sense that less intense construction will result in lower impacts for conditions such as traffic, noise, and air quality. "

At oral argument

In the oral argument, held February 14 before the Appellate Division, First Department, in Manhattan, some judges were quite critical of the state, leading to optimism on the part of the petitioners.

No sooner did ESDC lawyer Philip Karmel begin his argument than he was interrupted by Justice Rolando Acosta.

“Can you explain what is the reason for your client’s obstinate adherence to this ten-year plan when evidence on the ground is different?” asked Acosta, pointing to the MTA agreement.

At the heart of the 35-minute argument in February was whether an intense buildout of the 17-building project within a decade would be worse than an extended, if less intense, buildout over 25 years. ESD said it would, but the petitioners said there were unique impacts caused by extended construction.

Today, the appellate court agreed.

I had contended that the defense arguments were a bit surreal, because statements made outside the record by developer Bruce Ratner make a mockery of the agency's longstanding claims the project would last ten years. Moreover, a regular pattern of construction-related abuses means that the mitigation plan created by and cited by the state is less "robust" than asserted.

Why the state accommodated Forest City

As BrooklynSpeaks attorney Al Butzel said at the oral arguments, the state failed to take a required "hard look," because, had it taken the time to examine a full buildout, it would've cost Forest City Ratner money.

“They stuck to the ten-year schedule because they had financing coming up," Butzel said. "If they agreed to do an SEIS, that opportunity might well have been lost." A provision allowing for tax-exempt financing--which saved Forest City Ratner expired at the end of 2009.

“The heart of an EIS is an alternatives analysis,” said DDDB attorney Jeff Baker. He noted that the state had chosen a single developer but had never considered the consequences if Forest City Ratner didn't have the wherewithal to go forward.

“They can’t get the benefit of misrepresentation,” Baker said in closing, referring to the discrepancy between the Development Agreement and the ten-year timetable.

The key passage

The key passage from today's opinion:
Pursuant to the MGPP [Modified General Project Plan], FCRC is required to acquire at the inception of the Project only the portion of the site needed for the construction of the arena. It has until 2030 to obtain all the property interests necessary for Phase II construction. Moreover, in a Development Agreement executed after the MGPP was approved by ESDC, FCRC was given until 2035 to substantially complete Phase II construction. The Development Agreement sets forth no specific commencement dates for the construction, other than for the construction of the platform on which 6 of the 11 Phase II buildings will be built, which is not required to be commenced until 2025, and the construction of one Phase II building on Block 1129, which is not required to be "initiated" until 2020.
However, in assessing the potential environmental impacts of the changes to the Project wrought by the MGPP, ESDC used a build date based on the same 10-year completion schedule for the Project as was used in the 2006 Plan, and determined that it was not required to prepare a SEIS before approving the MGPP.
We agree with Supreme Court that ESDC's use of a 10-year build date under these circumstances lacks a rational basis and is arbitrary and capricious.
A press release from BrooklynSpeaks, "State Court of Appeals agrees that 2009 Atlantic Yards plan was approved illegally"
“ESDC’s decision to appeal was deeply disappointing both to the community and to its elected representatives, who had pressed the agency to comply with the court order,” said Jo Anne Simon, 52nd District Democratic Leader. “Now that the Appellate Division has upheld the lower court’s decision, we strongly urge Governor Cuomo to act to restore credibility to this process, and direct his agency to conduct a thorough and transparent assessment of the environmental impact of this project on central Brooklyn that involves our communities in a meaningful way.”

BrooklynSpeaks sponsors had argued against the appeal, contending that ESDC fast-tracked its approval of the 2009 schedule concessions demanded by Forest City in order to allow FCRC to meet a deadline necessary for its arena bonds to qualify as tax-exempt. “ESDC’s actions saved the developer hundreds of millions in interest payments,” said Michelle de la Uz, Executive Director of the Fifth Avenue Committee, “but at the cost of thousands of units of affordable housing being delayed for decades. The Appellate Division ruling gives the Governor an opportunity to put the project’s public benefits back on the schedule promised.”

The Appellate Division rejected arguments by ESDC and Forest City that the impacts of 25 years of construction to surrounding neighborhoods were likely to be less severe than if Atlantic Yards were completed in 10 years, writing that such a conclusion “is not based on any technical studies of the environmental impacts of protracted construction. It is supported by the mere assertion that the build-out will result in prolonged but less "intense" construction and that most environmental impacts are driven by intensity rather than duration.” Significantly, the Appellate Division noted that ESDC “failed to consider an alternative scenario in which years go by before any Phase II construction is commenced — a scenario in which area residents must tolerate vacant lots, above-ground arena parking, and Phase II construction staging for decades.”

“In the two years since this suit was filed, nearby communities have had a ringside view of continued violations of Atlantic Yards’ stated commitments on air quality, noise and truck safety,” said Danae Oratowski, Chair of the Prospect Heights Neighborhood Development Council. “Less than six months before Barclays Center opens, we have yet to see the developer’s plans for parking and traffic management, or the City’s plans for crowd control and security. Today’s ruling should be a wake-up call for Mayor Bloomberg to engage the community and work together both to limit the impacts of continued construction, as well as to reduce the effect of the operation of an arena amid historic residential neighborhoods.”

“ESDC not only has allowed Forest City Ratner to steamroll local residents and their elected representatives, but has also played a role in violating State law to the developer’s advantage,” said Howard Kolins, President of the Boerum Hill Association. “Taken together with recent revelations of Forest City’s connection to political corruption cases in Brooklyn and Yonkers, today’s ruling shows the need to reform oversight of Atlantic Yards is more urgent than ever. The New York State Assembly has already passed legislation requiring ESDC to create a subsidiary to oversee the project. We now need swift action on the bill by the State Senate, and a commitment by Governor Cuomo to ensure Atlantic Yards is accountable to the public.”
A press release from DDDB
"We are thrilled that the Appellate Division affirmed Justice Friedman's decision. This has proven our long standing contention that the project is too big for the area and could not be completed in the unrealistic timeframe claimed by Forest City Ratner and ESDC. Instead the community will be faced with literally decades of construction impacts and developer induced blight," said DDDB attorney Jeffrey S. Baker of Young/Sommer. "The next step is an SEIS that will consider not only the impacts of the delayed project but alternatives that will provide a reasonable development in an achievable timeframe. While past practices by ESDC do not give us much reason to hope, maybe this strong decision will teach ESDC that it must undertake an honest and transparent SEIS."
"The fact is that the project should never have been approved at all—it is entirely illegitimate," said DDDB's legal director Candace Carponter. "The tragedy here is, but for the blatant misrepresentations to the Court by Forest City Ratner and ESDC, it would been determined in 2010 that an SEIS was required and that would have stopped construction of Barclays Arena. ESDC's dishonesty has allowed that to go forward and the community is already feeling the adverse impacts that have long been forecast. We hope that ESDC will abandon its servile devotion to Forest City Ratner and start representing the citizens of this area."
"The ruling gives Governor Cuomo the opportunity and impetus to reconsider and change the course of the project, instead of continuing to allow roughly 14 acres of demolished properties to be held hostage by a developer who has no feasible plan or financial wherewithal to build the desperately needed affordable housing he promised," said DDDB's cofounder Daniel Goldstein. "Only the Governor have the power to fix the mess the ESDC and Ratner have created at Brooklyn's crossroads. This will be a real test of their leadership and independence."
Candace Carponter concluded, "It has now been proven, in and out of Court, that Bruce Ratner simply cannot and will not do the job he promised the public, his supporters and elected officials. It is time to end Ratner's control of the site and move towards a Unity Plan style solution: divide the non-arena portion of the site into multiple parcels so that multiple developers can build a project that responds to the community's needs and concerns and brings true benefits, rather than pie-in-the-sky promises made to be broken. "
The timing

The court stated in its ruling today:
When it approved the MGPP, ESDC was aware that, under a new agreement with the MTA, FCRC had until 2030 to acquire the air rights necessary for the Phase II construction. ESDC knew that the then forthcoming Development Agreement would provide for a significantly extended substantial completion date of 2035, 25 years from then, for the Phase II construction. Moreover, ESDC has acknowledged that it is unlikely that the Project will be constructed on a 10-year schedule because the construction lagged behind the schedule provided in 2009 and because of continuing weak general economic conditions. When it approved the MGPP, ESDC certainly was aware that the same economic downturn that necessitated the negotiation of new agreements would prevent a 10-year build-out.
Nevertheless, ESDC relied on a provision in the MGPP and, later, in the Development Agreement that required FCRC to use "commercially reasonable efforts" to meet the 10-year deadline and complete the Project by 2019 (there had been a shift in the 10-year estimated construction schedule from 2016 to 2019). ESDC also maintained that FCRC had a financial incentive to complete the Project by 2019. However, the term "commercially reasonable efforts" is not defined in either the MGPP or the Development Agreement. While the Development Agreement provides specific dates for the construction of the arena and Phase I buildings, it does not provide specific commencement dates for Phase II construction, other than those noted above, and, while it provides for damages for delays in Phase I construction, it does not provide for significant financial penalties for delays in Phase II construction. Moreover, respondents failed to show that FCRC had the financial ability to complete the Project in 10 years.
Contrary to FCRC's contention, Supreme Court properly considered the Development Agreement, although the Agreement did not yet exist when ESDC approved the MGPP (see Matter of Featherstone v Franco, 95 NY2d 550, 554 [2000]). ESDC repeatedly informed the court that it relied on the terms of the Development Agreement in approving the MGPP. Thus, it was necessary that the court review the Development Agreement to conduct a meaningful review of ESDC's determination. Indeed, the court found that the Development Agreement made meaningful review possible by "correct[ing] ESDC's incomplete representations concerning the Agreement's terms regarding construction deadlines and their enforcement."
Failing to take "hard look"

The court stated:
We further agree with Supreme Court that ESDC failed to take a "hard look" at the relevant areas of environmental concern and failed to make a "reasoned elaboration" of the basis for its determination that it was not required to prepare an SEIS before approving the MGPP.
ESDC relied on its 2009 Technical Memorandum, which used a build date of 2019, based on a shift in the 10-year estimated construction schedule from 2016 to 2019, and analyzed certain environmental impacts beyond that only until 2024. Despite ESDC's cognizance of the essential new terms in the Development Agreement, the Technical Memorandum did not consider the changes in the Project schedule, which provided for construction beyond 2019 — indeed, potentially to 2035. Thus, the Technical Memorandum failed to consider the "Reasonable Worst Case Development Scenario," as required by the City Environmental Quality Review (CEQR) Technical Manual (at Chapter 2). Moreover, ESDC maintained that the construction impacts of a 10-year build-out would be the same as or even more severe than the construction impacts of a 25-year build-out because the construction would be less "intense" if it were delayed. However, the Technical Memorandum contained no comparison of the environmental impacts of "intense" construction over a 10-year period with the environmental impacts of construction that continues for 25 years.
In 2010, in response to a prior court order in these proceedings, ESDC prepared a "Technical Analysis of an Extended Build-Out of the Atlantic Yards Arena and Redevelopment Project," which concluded that a 2035 build-out would have no significant adverse environmental impacts that were not addressed in the Final Environmental Impact Statement (FEIS) for the 2019 build-out. The Technical Analysis provides no more support for ESDC's determination than the Technical Memorandum did. Its conclusion is not based on any technical studies of the environmental impacts of protracted construction. It is supported by the mere assertion that the build-out will result in prolonged but less "intense" construction and that most environmental impacts are driven by intensity rather than duration.
What about a stall?

The court stated:
Moreover, the Technical Analysis assumed that Phase II construction would not be stalled or deferred for years and that it would proceed continuously on a parcel-by-parcel basis. Thus, it failed to consider an alternative scenario in which years go by before any Phase II construction is commenced — a scenario in which area residents must tolerate vacant lots, above-ground arena parking, and Phase II construction staging for decades.
ESDC relies on mitigation measures adopted to address the impacts found in the FEIS in 2006. However, the Technical Analysis did not consider whether those measures were adequate in the case of a protracted period of construction.
We have considered respondents' remaining contentions and find them unavailing.


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