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A national spotlight: libertarian watchdog group targets Forest City Enterprises for "political profiteering"; while report goes over the top, Forest City's defense is too pat

I have a rather mixed response to the report issued yesterday by Cause of Action, a self-described nonpartisan Washington watchdog group that aims "to protect economic opportunity when federal regulations, spending, and cronyism threaten it."

(Given the "economic opportunity" line, and the leadership of Dan Epstein, a former staffer at the Koch Foundation and for House Republicans, I'd describe the organization as libertarian, though they don't use that term.)

While I think it's valuable to shine a spotlight on a little-known but quite powerful company, I don't find the numbers convincing, and I recognize that such strategic spending on campaign contributions and lobbying is not uncommon.

Still, I don't think Forest City's defense is fully credible and Cause of Action--which plans additional sections--is likely to point out how the developer did not deliver on promises for project benefits in places like Brooklyn and Washington.

I'm not sure that can clearly be blamed on lobbying and campaign contributions, but when elected officials like the governor and mayor get behind a project, like Atlantic Yards, the developer has the upper hand when agencies controlled by those officials (MTA, ESDC) are asked to renegotiate settled deals.

There's a lesson here: protecting the public requires much vigilance.

Numbers too pat?

According to the article yesterday in the New York Post, Barclays builder ‘pay to play’ (which relies on the report's simplistic executive summary):
Forest City Enterprises, the real-estate behemoth whose subsidiary built the Barclays Center, has taken pay-to-play to new levels, an explosive new report charges.
The company has gotten indirect government subsidies totaling $2.6 billion over the last decade — or 23 percent of its $11.4 billion in revenues over the period, according to the report.
That's way too conclusory, because, for example, subsidies like tax breaks are delivered over decades and can't be attributed to the current bottom line unless treated as "present value." In fact, the Cause of Action report notes that the New York City Independent Budget Office calculated that the arena would be  $40 million net loss for the city--a figure that does derive from more subtle calculations (even though some of the numbers need adjustment).

Also, a footnote in the full report says subsidies include the "full value of tax-exempt bonds as opposed to only calculating savings on interest." That doesn't make sense. That would mean that Forest City Ratner would be credited with full $511 million values of the Atlantic Yards arena bonds rather than the $150 million or so saved on interest.

Though such calculations surely overstate benefits, at the same time the report does not tote up all the fiscal benefits gained through government assistance, such as low-cost loans to Forest City Ratner through the EB-5 immigrant investor program, which city and state officials promoted (at no cost other than travel and reputation).

Nor does it include the value of naming rights to the Barclays Center, which the state simply gave away, though the arena is nominally owned by the public.

So it's safe to say that Forest City Enterprises and its subsidiaries, including Forest City Ratner, have become very good at getting subsidies, and it's part of their business plan.

Remember how then-CEO Chuck Ratner in April 2008 said "We still need more" subsidy, and Forest City Ratner got it? Or how the New York Times last September described Bruce Ratner's "reputation for promising anything to get a deal, only to renegotiate relentlessly for more favorable terms"?

Cause and effect

It's also simplistic to suggest that Forest City's considerable spending on campaign contributions and lobbying directly delivers subsidies and government assistance.

“For far too long, Forest City Enterprises has operated on the model of political profiteering, essentially rigging the marketplace by paying off government officials with lavish campaign contributions and gambling with taxpayer funds for its private profit,” Cause of Action's Epstein told the Post.

After all, Mayor Mike Bloomberg, when he said, "I want to get it done" after being shown plans for Atlantic Yards, didn't need cash to be convinced, or to later increase subsidies for Forest City (though the developer's later donation to the Mayor's Fund to Advance the City of New York surely didn't hurt).

Then again, consider the Ridge Hill case in Yonkers, where it sure looked like Forest City Ratner was engaged in pay-to-play, though the developer escaped sanction.

Forest City's response

Forest City's response was a wee bit defensive and self-righteous. In the New York Post:
Forest City spokesman Jeff Linton said, “It should come as no surprise that we support candidates whose policies promote economic development and job creation. However, to suggest or imply a direct connection between this support and our opportunities as a company is baseless and defamatory.”
He said without government development incentives, most of the company’s development projects “would not be economically viable.”
Forest City spokesman Jeff Linton called the report "absurd." He said Forest City's activities are no different from that of other corporations. He said it's not surprising that the company's political donations would go to "candidates who support economic development urban policies and job creation, and it shouldn't surprise anybody that we have focused our giving on the markets where we have offices and activity."
"We are being criticized for participating in our democracy in a way that is transparent, above board and adheres to all the rules," Linton said.
Multiple strategies

Well, as Cause of Action demonstrates, the political contributions seem well-coordinated beyond simply philosophical support for economic development. (I'll write more about that finding shortly.)

And, if Forest City Ratner was were completely transparent and above-board, wouldn't they have hired the promised Independent Compliance Monitor for the Atlantic Yards Community Benefits Agreement?

It's fair to say that Forest City Enterprises and Forest City Ratner use multiple strategies to win friends and influence people, including campaign contributions, lobbying, and more.

The latter appears to include the hiring of people connected to key supporters, such as Nets scout Khalid Green, the son of then-Assemblyman Roger Green, or Michael Rapfogel, whose parents are, respectively, Assembly Speaker Sheldon Silver's chief of staff and his close friend.

The business model

According to the Cause of Action report:
The FCE business model is dependent upon political profiteering: relying on public money and government influence to reap millions in profit. Using highly paid lobbyists, political connections, campaign contributions, and strategic hiring of government officials, FCE obtains lavish public subsidies, tax-exempt financing and the seizure of private land from eminent domain condemnations.
That's part of it, but if it were that simple, everyone would do it. And they do, more or less, though not always as successfully. Lots of real estate developers spend money on campaign contributions and lobbying, though arguably Forest City pushes the envelope (see: Ridge Hill).

Forest City brings significant expertise to the table, so those political officials can say, plausibly, that they're entering into a win-win "public-private partnership," even if it turns into a "private-public partnership."

Going forward

According to the executive summary:
In the reports that follow, resulting from Cause of Action’s twenty-four investigation, CoA will show how FCE took public benefits under the premise of providing jobs for minority workers but failed to deliver as well as how FCE enriched itself through bribery and political graft, without ever being subject to investigation or oversight.

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