How ESDC practices ensure that, in cases like Atlantic Yards, the developer's choice of consultants, AKRF, will work for the state

Well, thanks to the oversight hearing last week, we finally have a public answer to a question I posed in July 2007, when I queried the Empire State Development Corporation (ESDC) about guidelines regarding hiring consultants who formerly worked on the projects that they will review.

There are virtually no guidelines. Though there's a paper-thin conflict-of-interest policy, described below, the ESDC's policy encourages the practice, essentially ensuring it will continue, absent legislative action.

If the consultant, namely AKRF, has already been hired by the project applicant--such as Columbia University or Atlantic Yards developer Forest City Ratner--that gives them an advantage, because the knowledge gained gives AKRF a head start and thus provides a more cost-effective product in the ESDC's eyes.

While state Senator Bill Perkins considers the ESDC's policy of hiring AKRF--while it was simultaneously employed by Columbia and after it had done work for FCR--a "glaring conflict," ESDC representatives defended it at the oversight hearing Perkins called January 5.

But their defense was weak, because they claimed AKRF merely provides a factual report, leaving the lay people on the ESDC board--who've been shown to be uninformed--to determine blight.

Moreover, the difference between the Columbia and AY cases--simultaneous vs. consecutive representation--is narrow, given that the project applicant pays the consultant's bills to the ESDC in either case and, as suggested by Noticing New York blogger Michael D.D. White, there's "an implicit warranty that travels with the work."

ESDC rep: AKRF situation with Columbia similar to AY

"Every project retains its own consultants," declared ESDC General Counsel Anita Laremont during the hearing, spurred by the Appellate Court decision blocking eminent domain for the Columbia University expansion.

"Do you have consultants in Atlantic Yards that were used by you that were also used by the developer," asked Perkins, who noted that two courts had criticized simultaneous representation in the Columbia case. "Like AKRF was used by you and also used by Columbia. Do you have a similar scenario with respect to Atlantic Yards?"

Laremont: "Yes."

Perkins: "Who are those, could you say?"

Laremont: "AKRF was one, for sure."

Perkins: "AKRF was used by both?"

Laremont: "Yes."



A good idea?

"From a public perception, forget the judges for the moment," Perkins followed up. "Do you think it's a good idea for the developer... and the Empire State Development to be using the same consultants for blight-type decisions, which are so controversial and which there's so much at stake? Why couldn't we find someone else other than that consultant? Why did we have to use that consultant?"

"I don't think there's a problem with it, because the analysis is really, ultimately, ours to make," Laremont responded. "So it's factual data that is being compiled, so I don't view it in the way that you do."

Of course the factual data is being compiled not in the interest of a study of neighborhood conditions but in a study aimed to find blight (and, in the case of AY, ignore data that might argue against blight).

Hiring process

"How do you go about procuring your consultants for the blight study?" Perkins asked.

"Well, we go about it in a number of different ways," Laremont said.

"In the case of this particular controversial one [Columbia], what did you do?" Perkins asked.

"We hired them based on the fact that they were already engaged in working on the Environmental Impact Statement," Laremont said, acknowledging AKRF's head start. "Because of the fact that it was our staff's view that their knowledge of the project area would vastly exceed any other firms and would be more cost-effective and would result in a quicker product being delivered."

(In the video, Executive Director Peter Davidson is at left and Executive VP Darren Bloch is at right.)

Perkins: "What was the--was there a bidding process?"

Laremont: "No, this was--"

Perkins: "Was it a no-bid contract?"

Laremont: "It was sole-source procurement, right."

The way it works

As I wrote 7/17/07, it is apparently OK for:

1) a developer (in this case Forest City Ratner) to hire consultants (in this case AKRF and Philip Habib and Associates) to advise on a development plan

2) those consultants to later evaluate the environmental impact of that development plan on the ESDC

3) that agency to pursue the potentially conflicting goals of fostering economic development and evaluating the environmental impact of such development, and

4) the consultants' work for that agency to be reimbursed by the developer.

(Above right, the cover of the Final Environmental Impact Statement for Atlantic Yards. Click to enlarge.)

Questionable process

"The noncompetitive, nonadvertised aspect is questionable, as is who’s managing the consultant," observed Hope Cohen, then of the Manhattan Institute, who's critiqued the EIS process, when in August 2008 I asked her to comment. "This question of who’s in charge is a fundamental problem in the public sector."

"Rather than [the ESDC saying] Here’s my list of approved consultants," Cohen added, "You have an applicant saying, I hired a consultant, he’s done 10% of the work so far, so please approve a noncompetitive contract to complete the work under your aegis.”

She's now Associate Director of the Regional Plan Association's Center for Urban Innovation.

Another solution would be an explicit effort to ensure competition. Lobbyist Richard Lipsky, a critic of AKRF on projects other than AY (for which he works for the developer on other issues) wrote earlier this month:

[T]he eminent domain process [should] be made more equitable by creating an independent consulting mechanism so that favored consultants aren't always designated to do the state's or a developer's bidding.

In fact, we would argue that the state should be required to pay for an independent review of environmental and blight matters-and award the money to threatened property owners so that they can choose the consultants. This would create a situation where there would be at least two separate opinions that the courts might consider if a project was challenged. The current bag job scenario is no longer tenable-and the AKRF monopoly must be broken up in the interests of both fairness and good public policy.

Small circle

AKRF, hired by the developer to analyze the economic and fiscal benefits of the project, said in its 9/26/03 letter (right), "We remain excited about the project and what it can mean to Brooklyn, New York City, and the New York State."

The letter appears on p. 71 (marked 549) of this PDF a 9/29/03 Forest City Ratner presentation (3.2 MB PDF) to the ESDC, unearthed via Assemblyman Jim Brennan's lawsuit about AY financial data, which surfaced in July 2007. It also appears on p. 75 of a 10/22/03 presentation.

A map from Philip Habib and Associates appears in a 6/17/03 Forest City Ratner presentation (2 MB PDF) to the ESDC. Habib was working for Forest City Ratner when the developer in 2005 made its bid (right) to the Metropolitan Transportation Authority for the Vanderbilt Yard. (See p. 95 of this PDF).

It's unclear when the consultants stopped working for Forest City and started working for the state--I asked ESDC for information and did not receive a response--but the developer eventually hired transportation consultand San Schwartz to advise on the project, thus replacing Habib.

Schwartz, who said at a 12/5/05 Brooklyn Borough Board Atlantic Yards Committee meeting that he had been contacted by Forest City, likely began in early 2006.

Conflict-of-interest policy

A week after I raised the questions in July 2007, the ESDC told the Brooklyn Daily Eagle that AKRF's work was disclosed to the ESDC board, and after it started working for the ESDC, AKRF stopped working for FCR. So disclosure is apparently deemed sufficient.

A year later, I got the AKRF/ESDC contract via a Freedom of Information Law request. As I wrote in August 2008, it does contain a conflict-of-interest provision that prevents the consultant (AKRF) from acquiring "any interest" in the project or associated real estate. It prevents any ESDC official from sharing in any benefits from the AKRF contract. It extends the provisions to subcontractors.

However, it says nothing about serving two masters consecutively on the same project.

(Cohen said she had no good solution to the problem but suggested, at the very least, that there should be more transparency in the process, including an explanation of the exception regarding advertising the contract and competitive bidding.)

Contract cost escalates

It's also good for AKRF's bottom line to get in the door. Its initial contract with ESDC was supposed to not exceed $1.5 million. Over time, that sum more than tripled.

Lawyer's work OK'd

The issue of serving two masters was raised in another Atlantic Yards controversy.

In 2006, a coalition of Atlantic Yards opponents sued to block the ESDC's decision to allow "emergency" demolitions of five properties in the Atlantic Yards footprint. State Supreme Court Justice Carol Edmead denied the motion, but did disqualify David Paget, an environmental attorney working for ESDC who had formerly advised Forest City Ratner. (Case files here.)

A state appellate court overturned Edmead's ruling on Paget in a 2/15/06 decision, noting that Edmead erred in describing simultaneous rather than consecutive representation; that meant there was no prima facie showing of a conflict and no apparent likelihood that counsel's exercise of independent professional judgment on behalf of ESDC would be adversely affected or that counsel would be involved in representing differing interests.

The court also noted evidence that "ESDC and/or the developer had duly waived their rights as to potential conflicts of interest" and that the "appearance of impropriety" was not sufficient to warrant disqualification because it did not violate another ethical or disciplinary rule, among other reasons.

Inevitable tension

Is waiving the right to a potential conflict of interest sufficient? Consider what consultant Sam Schwartz also told the Brooklyn Borough Board Atlantic Yards Committee, according to the meeting notes:
From a consultant’s perspective, you must satisfy your client, but you must maintain your objectivity.

Those two tasks are in inevitable tension.

In court 2/14/06, as I reported, lawyers for the ESDC and Forest City Ratner said the process was not adversarial, but collaborative, since both the developer and agency are interested in having the project move forward. Jeffrey Baker, an attorney for petitioner Develop Don't Destroy Brooklyn, instead characterized it as "an arm's length transaction."

Justice Edmead agreed. She wrote in her decision:
Potentially, the interests of Ratner Companies, as an applicant or project sponsor, are adverse to the interests of the ESDC, which is charged with the responsibility to protect the environment and regulate the activities of individuals and corporations so that 'due consideration is given to preventing environmental damage.' The oft bottom-line, profit-making pursuits of real estate development corporations may not necessarily align with the stated, valid environmental interests of the ESDC.

Though the appellate court disagreed with numerous aspects of Edmead's decision, the judges did not address whether the interests of the developer and the ESDC are potentially adversarial or not.

It may look like the ESDC and Forest City Ratner are working in concert. But the ESDC, ultimately, is supposed to answer to the public. The developer answers to its shareholders.