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BROOKLYN     Press Release Main Page


For Immediate Release: December 14, 2009

RATNER’S JUNK YARD BONDS
Forest City Ratner’s Questionable & Risky Atlantic Yards Arena Bonds


Cuomo and DiNapoli Urged to
Investigate These Bonds and
The Empire State Development Corporation

NEW YORK CITY—At a demonstration targeting Bruce Ratner's Junk Yard Bonds, outside Standard & Poor's offices at 55 Water Street in Manhattan, citizen watchdogs raised numerous serious and troubling questions about the bonds that are reportedly imminently about to come to market for Forest City Ratner's money-losing Atlantic Yards arena.

They also dumped mock Ratner Arena Junk Yard Bonds into a real garbage truck, where the real bonds belong.

The demonstrators, led by Develop Don't Destroy Brooklyn (DDDB), called on Attorney General Andrew Cuomo and State Comptroller Thomas DiNapoli to investigate both the bond structure and bad faith acts committed by the Empire State Development Corporation in its advocacy for Forest City Ratner's Atlantic Yards project and Columbia University's expansion, particularly in pursuit of eminent domain for these two entities.

"We are in the midst of a fiscal crisis in New York, yet Governor Paterson is allowing the State to issue an un-vetted, tax-diverting bond for a money-losing arena to go on the market, from which New York's credit rating will suffer should there be a default. He is allowing this while cutting everything in sight to fill enormous budget gaps, including education and health care," said DDDB spokesman Daniel Goldstein. "He also approved a sweetheart deal with Ratner which has cost the MTA dearly. We call on the Governor, again, to follow through, in a meaningful way, on his public statement that he will conduct an objective review of the Atlantic Yards project."

The following was distributed to the press and public at the demonstration, as well as a letter [PDF] (which follows below) to Attorney General Cuomo.

Last week, Governor Paterson signed the Public Authorities Reform bill. The Times reported:

[Paterson] said that passing the law this year was crucial because of the state’s perilous fiscal condition, which the public authorities have added to with the enormous amount of debt they have taken on. "…for a very long period of time, [Public Authorities] have operated really without any oversight and operated very much in the dark, and often have amassed crippling back-door financing that has threatened the stability of our economy." Assemblyman Richard Brodsky, one of the bill’s sponsors, referred to the Yankee Stadium bond, structured the same as Ratner’s bond, to illustrate the need for such legislation: "Three billion dollars in taxpayer-backed debt was issued by 12 anonymous people who were essentially doing the bidding of the mayor."

The Brooklyn Arena Local Development Corporation (BALDC) is a public authority subsidiary, operating "in the dark" and "without any oversight." BALDC, comprised of six anonymous people, is poised to sell $500 million in triple tax-exempt, bonds for Forest City Ratner’s (FCR) Nets basketball arena—the most expensive arena in the world. The bonds would be paid for with diverted tax money—Payments In Lieu of Taxes (PILOTS). As with previous actions by the Empire State Development Corporation (ESDC), there are simply too many unanswered questions, putting the State at high risk.

Here are just some of those questions:

Questions for Empire State Development Corporation/Job Development Authority and its bond-issuing subsidiary the Brooklyn Arena Local Development Corporation.
• Why are bonds being issued for an arena that NYC’s Independent Budget Office said will be a $220 million net loss for NYC?

• How much of a net loss will the rest of the Atlantic Yards (AY) project be now that it has been converted to a mutli-decade option on a no-bid monopoly for Forest City Ratner? What happens if it is never built?

• FCR just defaulted & renegotiated a loan for land in the AY site, so how will they raise the equity they need for the arena?

Questions for Rating Agencies (Moody’s and S&P, which gave ratings just above junk):
• Why can’t Moody’s answer why they envision 225 annual arena events when Ratner projects 200 events?

• Basketball hosts 41 games without playoffs. How will the arena meet 220 events? Where is the independent analysis backing Ratner’s projections?

• Why does the Preliminary Official Statement (POS) for the bonds claim that all that is necessary for professional hockey in the arena is ice-making equipment, when it appears the arena isn’t large enough to accommodate an NHL hockey rink?

• How does the team with the worst record in the NBA, a pitiful NJ fan base, no Brooklyn fan base and an untested facility get the same exact bond rating as the leading sports franchise in the world—the NY Yankees—particularly when recent experience has shown that even a great team like the Yankees has been unable to sell their luxury seats?

• 12/10/2009 was the sixth anniversary since the project was announced with an arena completion date of 2006: How is it reasonable to say in the Preliminary Official Statement that the arena will be completed by June 2012?

• Why is the POS litigation risk assessment—MTA’s violation of the Public Authorities Accountability Act, two lawsuits against the ESDC’s September approvals—reliant only on FCR, ESDC & MTA, rather than independent legal opinion?

• Why doesn’t the POS include the renewed eminent domain challenge to AY after the ruling against Columbia University?

• What if Mikhail Prokhorov is not approved by the NBA, or walks away from his Letter of Intent ­ How does that affect the viability of the Project, and thus, the ability to repay the bond buyers?

• Why didn’t Fitch rate the arena bond?

Questions for Public Officials (Particularly Paterson, Cuomo, DiNapoli):
• Why isn’t this $500 million triple tax-exempt bond being reviewed and considered by the Public Authorities Control Board (PACB) and State Comptroller? Why has the BALDC been created under the JDA, rather than as a subsidiary of the ESDC, the lead agency on the Atlantic Yards Project—particularly when PACB approval was necessary in 2006 for a substantially less risky and different transaction?
     >> 20% smaller arena that costs 70% more than approved in December 2006 ($637million then, $1.1 billion now).
     >> Less functional arena (appears to be unsuitable for hockey).
     >> Proposed new team owner and new partial owner of the arena—Mikhail Prokhorov.

• When will Comptroller DiNapoli and Attorney General Cuomo investigate this financing structure and its evolution?

• The bonds reportedly will not be insured. If the bonds default, won’t the state cover them to avoid a bad credit rating?

• Why are PILOTs being misused and the land value being inflated? What is the tax assessment & what is the PILOT amount?

• Why are bonds being issued when ESDC board didn’t approve the new smaller arena and did not do a review or background check of the new proposed Nets owner Russian investor Mikhail Prokhorov?

• Why has Gov. Paterson told the Legislature to make cuts in healthcare & education but he won’t cut this pork that he controls?

The following is the text of the letter sent on Friday, December 11 [PDF], to Attorney General Cuomo:

December 11, 2009
Via Hand Delivery and First Class Mail
Andrew M. Cuomo, Attorney General
Office of the Attorney General
Department of Law
The Capitol
Albany, New York 12224-0341

Dear Attorney General Cuomo:

I represent Develop Don’t Destroy Brooklyn, Inc. ("DDDB"). As you may know, for the past six years, DDDB has led the community in opposing the proposed Atlantic Yards project, a 22 acre high rise development slated to be erected in the heart of brownstone Brooklyn. I am writing to bring to your attention important developments concerning the legal underpinnings of the eminent domain proceeding for the project and the project financing.

On December 3rd, The Appellate Division, First Department ruled in favor of property owners challenging the Empire State Development Corporation’s (ESDC) use of eminent domain on behalf of Columbia University (Kaur v. NY Urban Development Corp.).

The majority opinion, by Judge Catterson, is a scathing indictment of ESDC’s actions overall and specifically when it comes to utilizing its condemnation powers. Catterson’s opinion calls the agency’s findings "sophistry" and "idiotic." He calls their efforts to trump up "blight" claim to take properties for Columbia’s benefit a "scheme." A concurrence says that they acted in "bad faith" to take plaintiffs’ properties.

In a decision on an appeal of an environmental action brought by DDDB and 22 other community organizations, Judge Catterson wrote also of the ESDC, "I believe that the New York Urban Development Corporation Act…is ultimately being used as a tool of the developer to displace and destroy neighborhoods that are ‘underutilized.’" Develop Don’t Destroy Brooklyn v. Urban Development Corporation, 59 A.D.3d 312, 326 (1st Dept. 2009)

The ESDC is also the condemnor on behalf of Forest City Ratner’s Atlantic Yards project in Brooklyn. In November the Court of Appeals ruled that ESDC could take plaintiff’s homes and businesses in the Goldstein et al. v. NY Urban Development Corp. case, ruling that the Court should defer to the agency’s determinations, specifically its "blight" finding, rather than make an independent determination of the constitutionality of the agency’s actions.

It is clear from the Columbia and Atlantic Yards cases that the ESDC has acted in bad faith. It is clear that when the most powerful public corporation in the State is found by a court to violate due process and act in bad faith to benefit large, wealthy and powerful corporations and institutions, that that agency no longer deserves any deference.

To the contrary it is time to investigate that agency and its actions.

In Brooklyn we have had to observe the ESDC act in bad faith over the past six years of the Atlantic Yards controversy. Identical to the actions of Columbia University, Forest City Ratner identified the property it wanted, and the ESDC, with the help of its retained "expert", AKRF, found blight based on underutilization, the existence of boiler violations, and cracked sidewalks. Nothing the Kaur majority wrote about the agency is a surprise to us.

It is clear from the Columbia and Atlantic Yards cases that the ESDC has acted in bad faith. It is clear that when the most powerful public corporation in the State is found by a court to violate due process and act in bad faith to benefit large, wealthy and powerful corporations and institutions, that that agency no longer deserves any deference.

We call on you to investigate ESDC with the full force of your office. They have done too much damage to individuals and neighborhoods, and to the good will of the citizens of New York, and to the people’s faith in government. They cannot be allowed to continue acting in the way described by Judge Catterson.

We also want to bring to your attention disturbing and potentially illegal aspects of the financing of Atlantic Yards. In 2006 the ESDC approved bonds for $100 million in financing for infrastructure related to the project. In accordance with Public Authorities Law ¤ 51, the Public Authorities Control Board (PACB) approved that financing.

In 2008, the Job Development Authority (JDA), created a subsidiary local development corporation, the Brooklyn Arena Local Development Corporation (BALDC) which in November 2009, approved over $500 million in bond financing for the Arena which is the core of the Atlantic Yards project. That decision to approve the issuance of bonds, characterized as non-recourse bonds, presents at least two significant problems.

First, the BALDC is a subsidiary of the JDA. We do not understand why the BALDC is a subsidiary of the JDA and not the ESDC. However, we do not see how the BALDC and the financing of the arena fit within the statutory purposes of the JDA to promote job growth, training and development.

Second, and more disturbing is that the decision to issue over $500 million in debt is apparently completely exempt from review by the PACB or the State Comptroller. Under PAL ¤51, the PACB must review and approve all financing by ESDC and the JDA after an opportunity by the Comptroller to review the proposed action. The PACB’s review extends to the financing by any subsidiary of the ESDC and JDA. However, only subsidiaries which have the same members or directors as the ESDC or JDA are subject to PACB and Comptroller review. PAL ¤ 51(1). BALDC has different directors than the JDA and thus not subject to PACB review.

This is an absurd and incongruous result. By taking advantage of this loophole, ESDC has manipulated the process to allow $500 million of bond financing to avoid third-party scrutiny and the protections established by the legislature when the PACB was established in 1976. While the BALDC bonds are ostensibly non-recourse bonds for which the State has no obligation, in reality it has long been recognized that the State has a moral obligation for such bonds. It was exactly this kind of reckless financing by the Urban Development Corporation in the 1970’s that lead to State’s fiscal crises when it was forced to meet those moral obligations of the UDC and then lead to the PACB to oversee the financing decisions of supposedly independent authorities.

Keep in mind that in 2006 the PACB resolution for Atlantic Yards did not approve these bonds and the cost of the arena has nearly doubled since that time, while the viability of the rest of the 8 million square foot project has been extremely diminished. Additionally there is an entirely new arena and Nets ownership structure, yet to be approved, since Forest City Ratner sold 80% of the team and 45% of the arena to Russian investor Mikhail Prokhorov.

Thus, we call on you to investigate the decision to create the BALDC in a manner clearly designed to avoid financial oversight and take action to protect New Yorkers from an increased debt burden that has not been subject to review by the Comptroller or the PACB.

Thank you.

Sincerely,
Jeffrey S. Baker
for Develop Don’t Destroy Brooklyn, Inc.

cc via fax and mail:
Governor David A. Paterson (Fax No. 473-7619)
Comptroller Thomas P. DiNapoli (Fax No. 473-3004)
Senator Bill Perkins (Fax No. 212-678-0001)
Assemblyman Richard L. Brodsky (Fax No. 914-345-0436)


DEVELOP DON'T DESTROY BROOKLYN leads a broad-based community coalition
fighting for development that will unite our communities instead of dividing and destroying them
DDDB is 501c3 non-profit corporation supported by over 4,500 individual donors from the community.
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