At tense Council hearing, James, Lander cite AY delays, construction changes, press NYC EDC's Pinsky on need for updated cost-benefit analysis
Two Brooklyn City Council Members yesterday grilled Seth Pinsky, president of the New York City Economic Development Corporation (NYC EDC) about Atlantic Yards, but Pinsky both defended Forest City Ratner’s potential plan to build modular housing for the project, and argued that it, along with delays in tax revenues from a longer buildout, would not necessarily affect the city’s cost-benefit analysis of the project.
The latter statement, which Pinsky repeated in several ways, left Council Member Brad Lander dismayed and dumbfounded, calling Pinsky’s answers to Council Member Letitia James “deeply inadequate” and warning that the city has “misplaced confidence” in Forest City Ratner (FCR).
I'd also suggest that it requires an independent cost-benefit analysis, by the Independent Budget Office, rather than a self-serving one by the city.
The tense exchanges punctuated an other cordial hearing of the Council’s Economic Development Committee, meeting yesterday morning at 250 Broadway near City Hall.
Brooklyn Council Member Steve Levin, whose district also touches on the Atlantic Yards site, is also a member of the committee, but was not present, at least not for the periods when James and Lander pressed Pinsky.
Lander and James also have been calling for an oversight hearing directly related to the project. Also see Lander’s press release at bottom.
Pinsky's boilerplate testimony
During his prepared testimony, which sketched the NYC EDC’s overall efforts, Pinsky mentioned Atlantic Yards briefly.
“Atlantic Yards is also a state project. The city has involvement through capital contributions that it’s made and is making to the project,” he said. “The administration remains strongly supportive of the project. We’re happy that the project is moving forward. The arena is under construction. The developer has the obligation to build the first tower, which will include a significant amount of affordable housing, and we expect the entire development to be built out over the course of the next several years."
His vague reference to “the course of the next several years" was an acknowledgment that the timetable--officially ten years but allowing up to 25 years--is very much in question.
Need for a hearing
James, in her initial remarks, cited the need for an oversight hearing.
“First, at the outset, let me state that Council Member Lander and I have repeatedly asked this committee as well as the speaker’s office for a hearing on Atlantic Yards,” James said. “I would hope the chairs would join us in that request, since it appears to have been stalled. And in light of recent developments, I think it's imperative that we have a hearing on status of Atlantic Yards, and the overall plan, which continues to change, which I will get to shortly.”
Committee Chair Karen Koslowitz of Queens, who’d gone off to confer with another Council Member, did not seem to be paying attention. The committee schedule is ultimately under the control of Council Speaker Christine Quinn, a supporter of Atlantic Yards.
Challenging Pinsky
James challenged Pinsky on several issues, saying there are no city-sponsored development projects in Central Brooklyn.
Pinsky parried by saying the city’s planning an RFP (request for proposals), working with Borough President Marty Markwotiz, to create a new food preparation business incubator in Central Brooklyn.
James said she was dismayed that the city was supporting a new theater, Theater for a New Audience, near the Brooklyn Academy of Music, as well as streetscape artwork in Downtown Brooklyn, when parks and schools did not have their basic needs met.
“We look at them as investments that will allow us to generate more tax revenue... and enhancing quality of life,” Pinsky said of the city’s strategy.
Atlantic Yards, the bridge, and the city’s commitment
“Let me go to may favorite project of all time, Atlantic Yards, they've been in the news,” James said. “They've been involved in two controversies, sort of unindicted co-conspirators.” She cited the Ridge Hill corruption case and the charges against state Senator Carl Kruger.
Does the $24 million “we so graciously have provided them” for the Carlton Avenue Bridge represent new money?
“No. That's money that's been in the budget now for some time,” Pinsky responded. “As you know, the original investment that the city was going to make in the Atlantic Yards project was about $200 million. Over the course of our negotiations, we finalized an agreement with Forest City last year which brought the total investment by the city to $179 million. the $24 million for work that were doing to help it go forward, $24 million for the Carlton Avenue Bridge, and $131 million for land acquisition.”
“What was original commitment to Forest City Ratner from the City of New York?” James asked.
“I believe the $200 million,” Pinsky responded.
That’s not true. The city initially committed $100 million, only to double that figure in 2007 after the project received initial approvals, and later to dial back slightly. (I think it’s still murky, given the likelihood that the city is also paying for some work on the FCR side of the ledger.)
Noting that the city money was used for land, James asked if any had been used for eminent domain.
“None of our money was used for eminent domain,” Pinsky responded.
True, but it was used under the threat of eminent domain.
Legal action
James asked Pinsky if he was aware of ongoing legal action against the project.
“There have been a number of legal actions against Atlantic Yards,” Pinsky responded. “Fortunately, from our perspective, and unfortunately, from your perspective, all have gone in favor of the project.”
James then said she’d describe the case heard this past week, challenging the failure of the state to issue a Supplemental Environmental Impact Statement analyzing a 25-year buildout. She then proceeded to read awkwardly and at length from her cellphone, leaving Committee Chair Koslowitz with an annoyed look on her face.
“I can't comment on ESDC's procedures. This is a state sponsored project,” Pinsky responded calmly, adding that there would be further discussions after the case is resolved.
“Hypnotizing the public”
“We continue to be supportive of this project, because we think it’s very important that we create thousands of jobs [from/with*] this project.
[Note that I couldn’t hear him precisely, nor is my recording clear, so I’m not sure if he said “from” or “with”.]
“You say thousands of jobs, you continue to hypnotize the public,” James responded sharply. “The reality, as of today, is there are only 100 jobs on that site.” (In February, Forest City Ratner reported 150 workers.)
The need for a cost-benefit analysis
“Have you done an updated cost-benefit analysis to determine how many jobs are being created by Atlantic Yards, because this project has changed?” James asked.
“The project actually has not changed significantly,” Pinsky maintained. The build program still calls for 16 towers. The arena size, though it’s decreased in square footage, continues to have the same number of seats. The MTA yard continues to meet the needs of the MTA.”
(That’s a bit of a euphemism, because, while a replacement railyard remains planned, it’s smaller than originally announced.)
“We haven't updated the cost-benefit analysis since we made the investment, but the analysis that we did showed that this would yield hundreds of millions of dollars in net incremental benefits to the city,” he stated.
James then referenced the recent news that Forest City Ratner is considering constructing the tallest-ever building made via modular construction, to meet its affordable housing obligations.
“Does that concern you?” she asked, noting that it would affect the number of jobs and the cost-benefit analysis.
“As I understand, this is an option that’s being explored,” Pinsky said carefully. ”I think, more importantly, that it's really not our place to stand in the way of innovations in technology relating to buildings.” He added that "it’s obviously incredibly important” that whatever is built complies with the project Design Guidelines and with safety requirements, but said that it’s tough to speculate on the impact until Forest City Ratner makes a decision.
He then went on to speculate a bit. “One thing I do know, in the articles, Forest City said they were looking at using a factory in New York City to do the construction, which is a benefit and job creator that we certainly didn't ever factor into our analysis,” he said. So, “if we were to go back,” that would have to be factored in.
“Well, clearly they're not going to complete this in ten years,” James noted, adding that the city committed funds based on that timetable.
Chair Koslowitz told James her time was up.
“In the agreements that we reached with Forest City, we have a number of requirements for completion, with very, very significant liquidated damages that run into the tens of millions and hundreds of millions of dollars, in some cases,” Pinsky responded. “We expect Forest City to live up to those agreements, and we’ll enforce those agreements in the event that they don’t.”
Actually, the liquidated damages apply mostly to a delayed arena, and then to a delayed Phase 1, not the project as a whole. And the project as a whole was the basis for the city's benefits calculation.
Lander hones in
Lander first had a couple of cordial exchanges with Pinsky about the importance of manufacturing and industrial jobs, then followed up, for an increasingly tense ten minutes, about Atlantic Yards.
“Everything you've said so far, in response to my questions, I think, has been a thoughtful answer. I have to say the answers you gave to Council Member James’s questions, I think, were deeply inadequate,” Lander began. “To begin with, let’s talk about the cost-benefit analysis. If I promise you a dollar today, and then instead I say, ‘I’ll give you a dollar in 15 years, is that dollar worth the same amount?’”
“Well, actually, that's not what the agreement was,” replied Pinsky with a touch of pique. A veteran of grilling by the bombastically prosecutorial legislator Richard Brodsky, Pinsky is no shrinking violet. “If we’re going to play an intellectual game it has to be fair.”
“I'm talking about the cost benefit analysis on the project revenues,” Lander continued, in a genially prosecutorial tone. “Your cost-benefit analysis evaluated a city investment of capital against projected tax revenues to the city, correct?”
“Among other things, correct,” Pinsky replied, a bit cagily.
“A pretty important one, though, the revenues, in terms of figuring out whether it’s a net positive to the city,” Lander asked.
“Absolutely,” confirmed Pinsky.
“So,” Lander continued, with increasing incredulity, “if the project is delayed from the timetable of ten years, and you earlier in your remarks said ‘over the course of the next several years,’ which I think is extremely generous, to a minimum of 25 years, with total uncertainty on whether the full buildout will happen at all, when and whether the office jobs will actually happen, the revenues that are going to come to city as a result of the construction and implementation and operation, are likely to be dramatically delayed from what you originally estimated in the cost benefit analysis that you did when you agreed to put all this capital into that project. I don’t see how you can say that’s not true.”
Pinsky remained unbowed. “That's actually not how the math works, because, what happens is, with delay, you also have the impact of inflation and so, often what will happen is that the inflation, for example, of construction costs over the last several years have grown faster than inflation, so as a result of the delays in construction due, not to Forest City’s delays, but to the litigation that Council Member James was alluding to... the cost of the project actually increased significantly, which meant tax revenue from the project also increased.”
That might mean cumulative tax revenue, but he didn’t reference a calculation based on the 30-year impact of a ten-year buildout.
Lander followed up: “So that implies you’ve re-analyzed the project, and figured out that an inflation in construction fees is going to offset the dramatic delays in tax revenues that are going to be coming?”
Much cross-talk ensued.
“If you’re going to ask me questions, allow me to answer them,” Pinsky answered, a bit snippily. “You posed a hypothetical questions and I said, I'm going to answer, but only if it's reflective of the point that you’re trying [to make]. The point I was making: you were saying, ‘If something is delayed, doesn't that mean necessarily that the cost benefit analysis will change substantially to the detriment of the city?’ And my answer is that, in fact, the answer is to that is ‘No, not necessarily.’”
“My point is, you need to conduct an updated cost-benefit analysis on the city’s investment before you continue to put more resources into the project,” Lander responded.
“We're not putting more resources into the project. we're putting the resources into the project that we promised at the time we did our original cost-benefit analysis,” Pinsky responded.
Actually, the original cost-benefit analysis never even calculated costs. The updated analysis did acknowledge costs. (See documents at bottom.)
“We'll come back to whether we can cut capital on things that we already have contracts and MOUs on,” Lander responded.
More skepticism
Lander then amped up his skepticism. “I don't see how one could not want to know, given a dramatically lengthened time period, the total uncertainty about whether we’ll achieve full buildout and the office jobs, and now, the possibility that the construction work there is going to have half the total wages that we had projected. And a great deal of the tax revenue that’s going to come to the city from those jobs is going to come from revenues spent in construction, he said.
“I agree, it's only a contemplated thing... If it's true that construction of the first of those towers and many future is going to be done modularly, and at half the cost, then there's going to be dramatic reduction in tax revenue... I can't believe we wouldn't want to know what the cost-benefit analysis is."
“Well, if you're telling me, ‘We've already given them the money, so even if it turns out to be a total boondoggle of an investment, I guess it’s just too bad that we didn't actually construct any meaningful, different scenarios on the project when we underwrote it, we just took the developer’s word that it was going to take ten years, we took their word that they were going to build the 16 towers, we took their word on job and wage estimates, and it's just too bad that some combination of the economy, the litigation and their snookering us means it turns out to be a terrible investment,’--but I believe it’s going to turn out to be a terrible investment. It doesn't sound like EDC’s even updating it’s cost-benefit analysis.”
“Now that you've put words in my mouth,” Pinsky replied with a touch of pique, “let me use my own.”
“First, I think the premise of your question is absolutely false,” he said. “First, we have a very high degree of certainty this project is going to move forward. The reasons for that are severalfold. First of all, there are substantial penalties that are built into the agreement that we have with Forest City, in the event they don’t honor the commitments that they’ve made. That's number one. Those commitments are contractual, those commitments are commitments that we would seek to enforce.”
As noted, those penalties, both city and state, apply mainly to Phase 1.
“Number two, there are strong economic incentives for Forest City to build out the entirety of this project. I know it may not sound like a lot of money, but Forest City will have invested literally hundreds of millions of dollars into upfront infrastructure that only makes sense in this project if it's amortized over an entirely built project. It will never make sense if it’s amortized solely over an arena, and one or two residential towers.”
That may be so, but note that Bruce Ratner has said that ten years was never supposed to be a realistic timetable, and that there’s no schedule for the office tower, while the economic analyses presumed a ten-year timetable and office space built at the beginning. Ratner in September 2009 admitted to the Daily News the possibility of 25 years.
“So we have confidence because of both of those reasons that this project is going to go forward,” Pinsky added. “And I'm also confident that, when this project does go forward, it will continue to be a significant positive to the city,” like others that have been criticized.
Not letting up
Lander corrected Pinsky’s statement that the city’s original commitment was $200 million, noting that it was half that.
“Second, my core issue, that you haven't conducted an updated cost-benefit analysis to figure out whether it’s a good investment or not, I haven't heard you answer,” he said. “You could persuade me with an updated cost-benefit analysis, I suppose... What I read in the newspapers makes me extremely pessimistic about tax revenues... receiving them 25 years from now is worth less than receiving ten years from now. ... paying half the total wages is going to result in much less tax revenues... And the fact that we're not concerned about it, that we remain confident that Forest City Ratner is going to want to achieve return on their investment is a misplaced confidence, especially given some of the concerns and scandals that Council Member James alluded to, some of the concerns that investors are being misled regarding the EB-5 visas... there are too many concerns related to this project not to take a serious look and not to update the cost-benefit analysis, at a minimum. The refusal to do that is mind-boggling to me.”
He noted that the city was cutting a capital commitment to Governor’s Island, despite an agreement, but not cutting money to Atlantic Yards. “I would just ask you, one more time, please update the cost-benefit analysis and figure out whether this project is a good investment for the city, or a poor one.”
(Note that the flaws in the cost-benefit analysis mean that even an updated one would be questionable.)
Pinsky's response
“I think I know you well enough to know that, even if we presented you with all the data in the world, that I wouldn’t change your mind about this project,” Pinsky responded.
Lander, with an air of protest, responded: “I wasn't, initially, a die-hard opponent. I've become convinced over time.”
“For as long as I've been talking about this project, there always has been $200 million in the budget,” Pinsky said, waiving away his misstatement.
“As for the cost-benefit analysis, as I mentioned to you, we did a detailed cost-benefit analysis, which is a very time consuming exercise,” Pinsky said. “Nothing that we've seen, to date, indicates to us that the outcome of that would change substantially, which is why we haven’t so far engaged in an update of that.”
“I also think, as I said, that the premise of your suggestion, that if the tax revenues come later, which they may not, incidentally, but if they do come later that that necessarily changes the cost-benefit analysis, is just mathematically false,” he maintained. “I think also the speculation that a different construction method would necessarily result in fewer benefits is also potentially false. This is a speculative change in the project. But, as I said, my understanding is one of the things that’s been discussed is assembling these modular items in New York City, which are jobs in the city that were never considered and expenditures in the city that were never considered.”
“The misplaced confidence, again, I think that's a misrepresentation of what I said,” he said in closing. “I didn’t just say that we had confidence in Forest City. I also said that we had enforceable agreements. And lastly, with respect to the ability to change a contractual agreement, there’s a very big difference between an unenforceable MOU between government entities and an enforceable contract, and what we have here is an enforceable contract.”
The press release
Note that the city's first (6/27/05) fiscal analysis--actually not a cost-benefit analysis--assumed 2 million square feet of commercial space and 7100 jobs, of which 30% would be new, or 2000 workers. It also assumed that 60% of the latter would be new state residents and 60% of the latter new city residents. It assumed a ten-year buildout and a construction cost of $225 psf.
Notably, the document did not include any analysis of costs. Also note that it assumed taxes from new residents of housing, a tactic (also used by Forest City Ratner consultant Andrew Zimbalist) criticized in a report from the Pratt Center for Community Development, which Lander previously headed.
NYC EDC 6/27/05 Atlantic Yards Fiscal Impact Analysis
The second city analysis
The second analysis was undated but based on 2009 dollars and released to me in mid-2010.
As I wrote, it's more responsible than the analysis released in 2005, given that it acknowledges a good number of costs. (In fact, the estimated net benefit to the city over 30 years is down more than 20%, from $524 million to $411.3 million.)
It analyzed a smaller amount of office space, 581,000 square feet, though that could be even smaller.
But it still suffers from some fundamental flaws:
Also, it analyzes personal taxes related to construction workers--a figure that would go down considerably should the number of workers, and their compensation, decline. (Pinsky would say that the impact of the new modular factory should be added.)
NYC EDC Atlantic Yards Cost-Benefit Analysis 2009
The latter statement, which Pinsky repeated in several ways, left Council Member Brad Lander dismayed and dumbfounded, calling Pinsky’s answers to Council Member Letitia James “deeply inadequate” and warning that the city has “misplaced confidence” in Forest City Ratner (FCR).
I'd also suggest that it requires an independent cost-benefit analysis, by the Independent Budget Office, rather than a self-serving one by the city.
The tense exchanges punctuated an other cordial hearing of the Council’s Economic Development Committee, meeting yesterday morning at 250 Broadway near City Hall.
Brooklyn Council Member Steve Levin, whose district also touches on the Atlantic Yards site, is also a member of the committee, but was not present, at least not for the periods when James and Lander pressed Pinsky.
Lander and James also have been calling for an oversight hearing directly related to the project. Also see Lander’s press release at bottom.
Pinsky's boilerplate testimony
During his prepared testimony, which sketched the NYC EDC’s overall efforts, Pinsky mentioned Atlantic Yards briefly.
“Atlantic Yards is also a state project. The city has involvement through capital contributions that it’s made and is making to the project,” he said. “The administration remains strongly supportive of the project. We’re happy that the project is moving forward. The arena is under construction. The developer has the obligation to build the first tower, which will include a significant amount of affordable housing, and we expect the entire development to be built out over the course of the next several years."
His vague reference to “the course of the next several years" was an acknowledgment that the timetable--officially ten years but allowing up to 25 years--is very much in question.
Need for a hearing
James, in her initial remarks, cited the need for an oversight hearing.
“First, at the outset, let me state that Council Member Lander and I have repeatedly asked this committee as well as the speaker’s office for a hearing on Atlantic Yards,” James said. “I would hope the chairs would join us in that request, since it appears to have been stalled. And in light of recent developments, I think it's imperative that we have a hearing on status of Atlantic Yards, and the overall plan, which continues to change, which I will get to shortly.”
Committee Chair Karen Koslowitz of Queens, who’d gone off to confer with another Council Member, did not seem to be paying attention. The committee schedule is ultimately under the control of Council Speaker Christine Quinn, a supporter of Atlantic Yards.
Challenging Pinsky
James challenged Pinsky on several issues, saying there are no city-sponsored development projects in Central Brooklyn.
Pinsky parried by saying the city’s planning an RFP (request for proposals), working with Borough President Marty Markwotiz, to create a new food preparation business incubator in Central Brooklyn.
James said she was dismayed that the city was supporting a new theater, Theater for a New Audience, near the Brooklyn Academy of Music, as well as streetscape artwork in Downtown Brooklyn, when parks and schools did not have their basic needs met.
“We look at them as investments that will allow us to generate more tax revenue... and enhancing quality of life,” Pinsky said of the city’s strategy.
Atlantic Yards, the bridge, and the city’s commitment
“Let me go to may favorite project of all time, Atlantic Yards, they've been in the news,” James said. “They've been involved in two controversies, sort of unindicted co-conspirators.” She cited the Ridge Hill corruption case and the charges against state Senator Carl Kruger.
Does the $24 million “we so graciously have provided them” for the Carlton Avenue Bridge represent new money?
“No. That's money that's been in the budget now for some time,” Pinsky responded. “As you know, the original investment that the city was going to make in the Atlantic Yards project was about $200 million. Over the course of our negotiations, we finalized an agreement with Forest City last year which brought the total investment by the city to $179 million. the $24 million for work that were doing to help it go forward, $24 million for the Carlton Avenue Bridge, and $131 million for land acquisition.”
“What was original commitment to Forest City Ratner from the City of New York?” James asked.
“I believe the $200 million,” Pinsky responded.
That’s not true. The city initially committed $100 million, only to double that figure in 2007 after the project received initial approvals, and later to dial back slightly. (I think it’s still murky, given the likelihood that the city is also paying for some work on the FCR side of the ledger.)
Noting that the city money was used for land, James asked if any had been used for eminent domain.
“None of our money was used for eminent domain,” Pinsky responded.
True, but it was used under the threat of eminent domain.
Legal action
James asked Pinsky if he was aware of ongoing legal action against the project.
“There have been a number of legal actions against Atlantic Yards,” Pinsky responded. “Fortunately, from our perspective, and unfortunately, from your perspective, all have gone in favor of the project.”
James then said she’d describe the case heard this past week, challenging the failure of the state to issue a Supplemental Environmental Impact Statement analyzing a 25-year buildout. She then proceeded to read awkwardly and at length from her cellphone, leaving Committee Chair Koslowitz with an annoyed look on her face.
“I can't comment on ESDC's procedures. This is a state sponsored project,” Pinsky responded calmly, adding that there would be further discussions after the case is resolved.
“Hypnotizing the public”
“We continue to be supportive of this project, because we think it’s very important that we create thousands of jobs [from/with*] this project.
[Note that I couldn’t hear him precisely, nor is my recording clear, so I’m not sure if he said “from” or “with”.]
“You say thousands of jobs, you continue to hypnotize the public,” James responded sharply. “The reality, as of today, is there are only 100 jobs on that site.” (In February, Forest City Ratner reported 150 workers.)
The need for a cost-benefit analysis
“Have you done an updated cost-benefit analysis to determine how many jobs are being created by Atlantic Yards, because this project has changed?” James asked.
“The project actually has not changed significantly,” Pinsky maintained. The build program still calls for 16 towers. The arena size, though it’s decreased in square footage, continues to have the same number of seats. The MTA yard continues to meet the needs of the MTA.”
(That’s a bit of a euphemism, because, while a replacement railyard remains planned, it’s smaller than originally announced.)
“We haven't updated the cost-benefit analysis since we made the investment, but the analysis that we did showed that this would yield hundreds of millions of dollars in net incremental benefits to the city,” he stated.
James then referenced the recent news that Forest City Ratner is considering constructing the tallest-ever building made via modular construction, to meet its affordable housing obligations.
“Does that concern you?” she asked, noting that it would affect the number of jobs and the cost-benefit analysis.
“As I understand, this is an option that’s being explored,” Pinsky said carefully. ”I think, more importantly, that it's really not our place to stand in the way of innovations in technology relating to buildings.” He added that "it’s obviously incredibly important” that whatever is built complies with the project Design Guidelines and with safety requirements, but said that it’s tough to speculate on the impact until Forest City Ratner makes a decision.
He then went on to speculate a bit. “One thing I do know, in the articles, Forest City said they were looking at using a factory in New York City to do the construction, which is a benefit and job creator that we certainly didn't ever factor into our analysis,” he said. So, “if we were to go back,” that would have to be factored in.
“Well, clearly they're not going to complete this in ten years,” James noted, adding that the city committed funds based on that timetable.
Chair Koslowitz told James her time was up.
“In the agreements that we reached with Forest City, we have a number of requirements for completion, with very, very significant liquidated damages that run into the tens of millions and hundreds of millions of dollars, in some cases,” Pinsky responded. “We expect Forest City to live up to those agreements, and we’ll enforce those agreements in the event that they don’t.”
Actually, the liquidated damages apply mostly to a delayed arena, and then to a delayed Phase 1, not the project as a whole. And the project as a whole was the basis for the city's benefits calculation.
Lander hones in
Lander first had a couple of cordial exchanges with Pinsky about the importance of manufacturing and industrial jobs, then followed up, for an increasingly tense ten minutes, about Atlantic Yards.
“Everything you've said so far, in response to my questions, I think, has been a thoughtful answer. I have to say the answers you gave to Council Member James’s questions, I think, were deeply inadequate,” Lander began. “To begin with, let’s talk about the cost-benefit analysis. If I promise you a dollar today, and then instead I say, ‘I’ll give you a dollar in 15 years, is that dollar worth the same amount?’”
“Well, actually, that's not what the agreement was,” replied Pinsky with a touch of pique. A veteran of grilling by the bombastically prosecutorial legislator Richard Brodsky, Pinsky is no shrinking violet. “If we’re going to play an intellectual game it has to be fair.”
“I'm talking about the cost benefit analysis on the project revenues,” Lander continued, in a genially prosecutorial tone. “Your cost-benefit analysis evaluated a city investment of capital against projected tax revenues to the city, correct?”
“Among other things, correct,” Pinsky replied, a bit cagily.
“A pretty important one, though, the revenues, in terms of figuring out whether it’s a net positive to the city,” Lander asked.
“Absolutely,” confirmed Pinsky.
“So,” Lander continued, with increasing incredulity, “if the project is delayed from the timetable of ten years, and you earlier in your remarks said ‘over the course of the next several years,’ which I think is extremely generous, to a minimum of 25 years, with total uncertainty on whether the full buildout will happen at all, when and whether the office jobs will actually happen, the revenues that are going to come to city as a result of the construction and implementation and operation, are likely to be dramatically delayed from what you originally estimated in the cost benefit analysis that you did when you agreed to put all this capital into that project. I don’t see how you can say that’s not true.”
Pinsky remained unbowed. “That's actually not how the math works, because, what happens is, with delay, you also have the impact of inflation and so, often what will happen is that the inflation, for example, of construction costs over the last several years have grown faster than inflation, so as a result of the delays in construction due, not to Forest City’s delays, but to the litigation that Council Member James was alluding to... the cost of the project actually increased significantly, which meant tax revenue from the project also increased.”
That might mean cumulative tax revenue, but he didn’t reference a calculation based on the 30-year impact of a ten-year buildout.
Lander followed up: “So that implies you’ve re-analyzed the project, and figured out that an inflation in construction fees is going to offset the dramatic delays in tax revenues that are going to be coming?”
Much cross-talk ensued.
“If you’re going to ask me questions, allow me to answer them,” Pinsky answered, a bit snippily. “You posed a hypothetical questions and I said, I'm going to answer, but only if it's reflective of the point that you’re trying [to make]. The point I was making: you were saying, ‘If something is delayed, doesn't that mean necessarily that the cost benefit analysis will change substantially to the detriment of the city?’ And my answer is that, in fact, the answer is to that is ‘No, not necessarily.’”
“My point is, you need to conduct an updated cost-benefit analysis on the city’s investment before you continue to put more resources into the project,” Lander responded.
“We're not putting more resources into the project. we're putting the resources into the project that we promised at the time we did our original cost-benefit analysis,” Pinsky responded.
Actually, the original cost-benefit analysis never even calculated costs. The updated analysis did acknowledge costs. (See documents at bottom.)
“We'll come back to whether we can cut capital on things that we already have contracts and MOUs on,” Lander responded.
More skepticism
Lander then amped up his skepticism. “I don't see how one could not want to know, given a dramatically lengthened time period, the total uncertainty about whether we’ll achieve full buildout and the office jobs, and now, the possibility that the construction work there is going to have half the total wages that we had projected. And a great deal of the tax revenue that’s going to come to the city from those jobs is going to come from revenues spent in construction, he said.
“I agree, it's only a contemplated thing... If it's true that construction of the first of those towers and many future is going to be done modularly, and at half the cost, then there's going to be dramatic reduction in tax revenue... I can't believe we wouldn't want to know what the cost-benefit analysis is."
“Well, if you're telling me, ‘We've already given them the money, so even if it turns out to be a total boondoggle of an investment, I guess it’s just too bad that we didn't actually construct any meaningful, different scenarios on the project when we underwrote it, we just took the developer’s word that it was going to take ten years, we took their word that they were going to build the 16 towers, we took their word on job and wage estimates, and it's just too bad that some combination of the economy, the litigation and their snookering us means it turns out to be a terrible investment,’--but I believe it’s going to turn out to be a terrible investment. It doesn't sound like EDC’s even updating it’s cost-benefit analysis.”
“Now that you've put words in my mouth,” Pinsky replied with a touch of pique, “let me use my own.”
“First, I think the premise of your question is absolutely false,” he said. “First, we have a very high degree of certainty this project is going to move forward. The reasons for that are severalfold. First of all, there are substantial penalties that are built into the agreement that we have with Forest City, in the event they don’t honor the commitments that they’ve made. That's number one. Those commitments are contractual, those commitments are commitments that we would seek to enforce.”
As noted, those penalties, both city and state, apply mainly to Phase 1.
“Number two, there are strong economic incentives for Forest City to build out the entirety of this project. I know it may not sound like a lot of money, but Forest City will have invested literally hundreds of millions of dollars into upfront infrastructure that only makes sense in this project if it's amortized over an entirely built project. It will never make sense if it’s amortized solely over an arena, and one or two residential towers.”
That may be so, but note that Bruce Ratner has said that ten years was never supposed to be a realistic timetable, and that there’s no schedule for the office tower, while the economic analyses presumed a ten-year timetable and office space built at the beginning. Ratner in September 2009 admitted to the Daily News the possibility of 25 years.
“So we have confidence because of both of those reasons that this project is going to go forward,” Pinsky added. “And I'm also confident that, when this project does go forward, it will continue to be a significant positive to the city,” like others that have been criticized.
Not letting up
Lander corrected Pinsky’s statement that the city’s original commitment was $200 million, noting that it was half that.
“Second, my core issue, that you haven't conducted an updated cost-benefit analysis to figure out whether it’s a good investment or not, I haven't heard you answer,” he said. “You could persuade me with an updated cost-benefit analysis, I suppose... What I read in the newspapers makes me extremely pessimistic about tax revenues... receiving them 25 years from now is worth less than receiving ten years from now. ... paying half the total wages is going to result in much less tax revenues... And the fact that we're not concerned about it, that we remain confident that Forest City Ratner is going to want to achieve return on their investment is a misplaced confidence, especially given some of the concerns and scandals that Council Member James alluded to, some of the concerns that investors are being misled regarding the EB-5 visas... there are too many concerns related to this project not to take a serious look and not to update the cost-benefit analysis, at a minimum. The refusal to do that is mind-boggling to me.”
He noted that the city was cutting a capital commitment to Governor’s Island, despite an agreement, but not cutting money to Atlantic Yards. “I would just ask you, one more time, please update the cost-benefit analysis and figure out whether this project is a good investment for the city, or a poor one.”
(Note that the flaws in the cost-benefit analysis mean that even an updated one would be questionable.)
Pinsky's response
“I think I know you well enough to know that, even if we presented you with all the data in the world, that I wouldn’t change your mind about this project,” Pinsky responded.
Lander, with an air of protest, responded: “I wasn't, initially, a die-hard opponent. I've become convinced over time.”
“For as long as I've been talking about this project, there always has been $200 million in the budget,” Pinsky said, waiving away his misstatement.
“As for the cost-benefit analysis, as I mentioned to you, we did a detailed cost-benefit analysis, which is a very time consuming exercise,” Pinsky said. “Nothing that we've seen, to date, indicates to us that the outcome of that would change substantially, which is why we haven’t so far engaged in an update of that.”
“I also think, as I said, that the premise of your suggestion, that if the tax revenues come later, which they may not, incidentally, but if they do come later that that necessarily changes the cost-benefit analysis, is just mathematically false,” he maintained. “I think also the speculation that a different construction method would necessarily result in fewer benefits is also potentially false. This is a speculative change in the project. But, as I said, my understanding is one of the things that’s been discussed is assembling these modular items in New York City, which are jobs in the city that were never considered and expenditures in the city that were never considered.”
“The misplaced confidence, again, I think that's a misrepresentation of what I said,” he said in closing. “I didn’t just say that we had confidence in Forest City. I also said that we had enforceable agreements. And lastly, with respect to the ability to change a contractual agreement, there’s a very big difference between an unenforceable MOU between government entities and an enforceable contract, and what we have here is an enforceable contract.”
The press release
Press Release: Councilmember Lander Criticizes EDC for Refusal to Conduct New Cost-Benefit Analysis for Atlantic Yards, Calls for Suspension and Reduction of City SubsidiesThe first city analysis
New York, NY – On the heels of the revelation that Forest City Ratner may build the first residential tower at Atlantic Yards with modular construction, thus dramatically reducing total wages and tax revenues to the City, City Councilmember Brad Lander today criticized NYC Economic Development Corporation President Seth Pinsky's refusal to reevaluate the City's capital contribution to the Atlantic Yards project and conduct an updated cost-benefit analysis in light of significant changes to the project. Lander called for the City’s subsidy to Atlantic Yards to be suspended, and subjected to the same 17% capital cut that EDC is taking overall.
At the City Council's preliminary budget hearing on EDC's budget, Lander argued that changes to the project since EDC committed $200 million to Forest City – a much-longer timeframe, uncertainty about full build-out and the contemplated office space, and now the potential of modular construction significantly reducing wages and tax revenues – are likely to dramatically reduce the project’s tax revenues to the City, and therefore require a fully updated cost-benefit analysis, before the City proceeds to distribute any remaining subsidy dollars.
“The City’s subsidy to Atlantic Yards should be suspended until we have a new cost-benefit analysis, and subjected to the same 17% capital cut that EDC is taking overall,” Lander said. “I was not initially a die-hard opponent of this project, but I had many questions and concerns about whether the benefits would be realized, the public costs would be contained, the developer would live up to its obligations, and the process would be transparent. Unfortunately, those concerns have grown enormously, and it has become clear that City is very likely to lose many millions of dollars on this project, even as many of the contemplated benefits have evaporated. We need a new cost-benefit analysis before we proceed to put City taxpayer money into this project, just as we need real public oversight and accountability.”
Lander, together with Councilmember Letitia James, also asked Pinsky a series of questions about several troubling developments related to the project, including allegations that Senator Carl Kruger took bribes for his efforts to secure New York State subsidies for the Atlantic Yards project, and that representatives of Forest City Ratner and its partners may have misled foreign investors as part of its efforts under the EB-5 program to secure investment through the procurement of US visas, despite the fact that these investments will create no new jobs beyond what had already been promised.
Mayor Bloomberg has imposed a 10% capital cut for parks and infrastructure, and EDC overall has taken a 17% capital cut. Yet the City’s contribution to Atlantic Yards has not been reduced – despite the City’s fiscal difficulties, despite the many concerns surrounding the project, and despite the likelihood that the project’s tax revenues to the City are likely to be significantly reduced.
Note that the city's first (6/27/05) fiscal analysis--actually not a cost-benefit analysis--assumed 2 million square feet of commercial space and 7100 jobs, of which 30% would be new, or 2000 workers. It also assumed that 60% of the latter would be new state residents and 60% of the latter new city residents. It assumed a ten-year buildout and a construction cost of $225 psf.
Notably, the document did not include any analysis of costs. Also note that it assumed taxes from new residents of housing, a tactic (also used by Forest City Ratner consultant Andrew Zimbalist) criticized in a report from the Pratt Center for Community Development, which Lander previously headed.
NYC EDC 6/27/05 Atlantic Yards Fiscal Impact Analysis
The second city analysis
The second analysis was undated but based on 2009 dollars and released to me in mid-2010.
As I wrote, it's more responsible than the analysis released in 2005, given that it acknowledges a good number of costs. (In fact, the estimated net benefit to the city over 30 years is down more than 20%, from $524 million to $411.3 million.)
It analyzed a smaller amount of office space, 581,000 square feet, though that could be even smaller.
But it still suffers from some fundamental flaws:
- it presumes a ten-year buildout, without assessing alternatives
- it presumes a full buildout, without assessing alternatives
- it ignores some opportunity costs and the costs of increased service provision
- it (apparently) still counts income taxes from new residents
Also, it analyzes personal taxes related to construction workers--a figure that would go down considerably should the number of workers, and their compensation, decline. (Pinsky would say that the impact of the new modular factory should be added.)
NYC EDC Atlantic Yards Cost-Benefit Analysis 2009
Comments
Post a Comment