Fair warning? State knew AY land tab was rising when lowball MOU was signed

The government was warned that the public tab for Atlantic Yards would likely be more than the public pledge--and that the tab would almost surely rise, as it has. But the public wasn't told.

So the Mayor's Office, the New York City Economic Development Corporation (EDC), and the Empire State Development Corporation (ESDC) went ahead and signed a nonbinding Atlantic Yards Memorandum of Understanding (MOU) on 2/18/05.

In the MOU, the city and state each pledged $100 million to help fund site acquisition and infrastructure for the arena block, bounded by Atlantic, Flatbush, and Sixth Avenues, and Dean Street, and including properties on Pacific Street.

But that $200 million wasn't enough. More than seven months before the MOU was signed, a 6/28/04 business plan (excerpt above; click to enlarge) submitted by developer Forest City Ratner (FCR) indicated that infrastructure and condemnation costs had reached $221.2 million, up more than one third in the four months between February and June 2004.

The costs for general infrastructure/sewer and transit connections had more than doubled. Also, the costs of condemnation and site acquisition for the arena block had risen from $60 million to $85 million in those four months. There was no suggestion that costs would stop rising.

The document and associated documents were unearthed via Assemblyman Jim Brennan's recent lawsuit. (The documents were submitted to the ESDC; it's unclear how much they were shared with city agencies.) Had the documents--or at least the numbers behind them--been made public, there would have been scrutiny from the start of the original MOU.

Low-ball estimate

After all, the document above was clearly a low-ball estimate. Two months after the MOU was signed, in a 4/20/05 document (right), Forest City Ratner was still predicting that the tab for condemnation and site acquisition would be $85 million. In other words, the tab had not grown since the previous June, even though some properties had yet to be acquired and some tenants had not yet agreed to leave.

And the document explicitly acknowledges that the tab for arena-related infrastructure "may increase substantially" because of costs related to the Metropolitan Transportation Authority's transit connection and railyards.

Even with that $221 million estimate, as the document shows, there was a deficit of $21 million, given the $200 million total pledge by the public parties, the city and state.

City covers rising costs

But costs kept rising. Another document uncovered in Brennan's lawsuit, which tallies FCR's cost for site acquisition on the arena block, puts the total at $135 million as of 1/25/07. And costs would rise, given that a few property owners and leaseholders remain.

That $135 million is $50 million more than the $85 million estimated in the previous April. Couple that with the announced $21 million deficit, and the total deficit reaches $71 million. That would mean $271 million in Arena Infrastructure and Condemnation Costs, to use the document's heading.

No wonder the city agreed this year to provide $205 million, instead of the original $100 million pledged, to the Atlantic Yards project, for a total of $305 million from the city and state. That would appear to cover increasing costs for both land and infrastructure.

An EDC official told City Council May 8 that $100 million would go to land acquisition, which apparently represents a portion of the $135 million already incurred.

But the City Council and the public should have been told, before Mayor Mike Bloomberg's budget was proposed this year, that the original $200 million pledged would not be enough.

(Two City Council members have asked for the city and state support to be withheld.)

Project tab will rise

The infrastructure and condemnation costs will inevitably rise, since the project extends beyond the arena block. Forest City Ratner's increased spending on land acquisition also involves properties in the Atlantic Yards footprint east of Sixth Avenue, including several properties owned by plaintiffs in the pending eminent domain lawsuit.

While the MOU would not have the government pay for that land acquisition, it leaves open the possibility of additional governmental expenditure for "extraordinary infrastructure" outside the arena block. And such "extraordinary infrastructure costs relating to the mixed-use development" are mentioned in the graphic above.

Given that the infrastructure costs for the arena block have risen in tandem with the site acquisition costs, and that infrastructure costs have been cited by Deputy Mayor Dan Doctoroff to justify part of the city's $205 million pledge, it's a good bet that city taxpayers would see their tab increase.