A press conference on the steps of city hall on Thursday, November, 1st, will bring together good government, community and business leaders from all over the city to object to the proposed restructuring of the NYC Economic development Corporation-a move prompted by the finding that the quasi-governmental agency had broken the law while lobbying in favor of the Willets Point development. The press conference, led by Willets Point United and South Bronx Unite will focus on the illegal lobbying and the outrageous decision of EDC to grant tens of millions of dollars in tax payer funds to FreshDirect. The presser will precede a city council hearing on the merits of the EDC reorganization. The hearing will be held at 250 Broadway at 1:00 pm.
Where: City Hall Steps
Date: November, 1, 2012
Subject: Protesting the Restructuring of NYC EDC
On July, 3, 2012 the Attorney general of the State of New York issued a finding-pursuant to a three year investigation-that the NYC EDC, and its partner the Flushing Willets Point Corona Local Development Corporation, had violated the law in the lobbying effort to get city council approval of the 62 acre redevelopment of Willets Point. The AG found that the EDC had used the local development corporation led by former Queens Borough President Claire Shulman as an illegitimate front group, masquerading as a community based organization.
In this illegal lobbying scheme, EDC had funneled $450,000 in tax payer generated funds to the LDC to conduct the campaign to get the project approval-money that has yet to be restituted back to the tax payers. Even more ominously, EDC then proceeded earlier this year to award the development rights to a newly constituted Willets Point plan to a partnership composed of the Related Company and Sterling Equities. The latter firm was a founding member of the local development corporation that illegally colluded with EDC in the lobbying for the Willets Point development.
In awarding the rights EDC also gifted $200 million worth of property that the city had bought from panicked Willets point landowners back in 2008-land that then Deputy Mayor Lieber had assured the city council would be fully paid for by any developer that was selected for the Willets Point project. So in essence, Sterling Equities participated in an illegal scheme that corrupted the land use review process and mislead the city council and has now been awarded, by its co-conspirator EDC, development rights and $200 million worth of property.
This is how EDC operates, unethically and illegally, outside of any system of checks and balances. Now, having been cited for illegal lobbying, EDC wants to restructure itself into two separate entities so that it can make an end run of state law and continue to lobby!-and to do so by creating a sham corporation that makes a mockery of the alleged separation.
The restructuring would allow the agency to accrue to itself even greater power than it currently exercises, and given the way that EDC has operated over the past ten years, this bodes ill for communities and small businesses that have suffered while mega real estate deals have been promoted with little regard for the collateral economic and environmental damage that they generate. Characteristically, these deals have been sweetened by huge tax payer subsidies that are given to well-connected real estate developers-inducements that are unavailable to the unconnected small businesses.
Willets Point United will be joined by South Bronx Unite, a community based organization that is fighting EDC’s outrageous use of taxpayer money to subsidize FreshDirect’s proposed move from Long Island City to the South Bronx. The FreshDirect deal is characteristic of how EDC operates against the public interest by excluding local community voices from development decisions, disregarding environmental impacts on already overburdened neighborhoods and subsidizing the son of a billionaire hedge fund operator to unfairly compete against local brick and mortar grocery stores.
Given the manner in which EDC has operated, it should behoove the city council to examine the ways in which the agency’s scope of activity and overall unfettered power can be reined in-and not expanded as the agency is proposing. From the eviction of wholesalers at the old Bronx Terminal Market and the outrageous subsidizing of FreshDirect to the illegal lobbying over at Willets Point, EDC has not operated in a transparent manner or in the overall public interest. It is time that the city council devised ways to make it more accountable.
All local development corporations are incorporated pursuant to the New York State Not-For-Profit Corporation Law, § 1411 ("N-PCL § 1411"), which absolutely forbids any such corporation from engaging in any attempt to influence legislation. The New York City Economic Development Corporation ("NYCEDC") has operated since 1961 as a local development corporation. The NYS legislature deliberately restricted the activities of economic development entities, which it intended to incorporate pursuant to N-PCL § 1411; and it obviously did so in the public interest.
N-PCL § 1411, which pertains to local development corporations, was established by the legislature with the plain intent of capturing entities such as NYCEDC that engage in economic development activities. N-PCL § 1411 lists the "exclusively charitable or public purposes" for which a local development corporation may be operated. Those purposes are those of the present NYCEDC. The post-merger NYCEDC intends to carry out substantially the same purposes, while adding a lobbying capability that is unlawful under the NYCEDC's present structure pursuant to N-PCL § 1411.
If the proposed re-structuring proceeds, it will result in a perverse circumstance in which the future NYCEDC performs functions of a local development corporation (including functions of NYCLDC, which is incorporated as a local development corporation), while not being incorporated itself as a local development corporation. And it will do so, in order to add a lobbying capability that is prohibited to local development corporations. Such corporate gymnastics deserve very close scrutiny.
In establishing N-PCL § 1411 to capture entities engaged in economic development activities, the legislature deliberately separated such entities from other Type C not-for-profit corporations. A very significant distinction which the legislature deliberately imposed, is that economic development entities incorporated pursuant to § 1411 are absolutely prohibited from engaging in any attempt to influence legislation.
The fact that the legislature included this restriction for local development corporations but not for other Type-C corporations indicates that the legislature thought it important to separate political and legislative activity from the kind of activities undertaken by local development corporations. This conclusion is supported by the quasi-governmental status of local development corporations. (Local development corporations, unlike other Type-C corporations, are initiated by the government.)
Given such a privileged quasi-governmental status, it is plain that a restriction on lobbying is in the public interest. The local development corporation occupies a privileged "insider" status that gives it a political advantage. The legislature clearly intended that this privileged insider status not overwhelm alternative opinions regarding development initiatives; and so, the legislature imposed the prohibition on lobbying as a reasonable counterweight to the local development corporation's privileged insider status.
Now NYCEDC prefers to throw off that counterweight, which was deliberately established by the legislature and intended to apply to economic development entities such as NYCEDC. NYCEDC may prefer to lobby, but doing so would be contrary to the intent of the legislature. Arguments advanced by NYCEDC – that being able to lobby will somehow increase the efficiency and effectiveness of NYCEDC as it pursues development projects – discount the fact that the inability to lobby is intended by the legislature as a deliberate counterweight to NYCEDC's privileged insider status, and therefore serves the public interest.
Given that the activities and purposes of the pre-merger NYCEDC and the post-merger NYCEDC are virtually identical, it is clear that the public interest would be adversely affected and the spirit of N-PCL § 1411 contravened, by enabling the post-merger NYCEDC to conduct privileged activity while also engaging in lobbying.
It is unnecessary for NYCEDC to lobby. Development projects and land deals are routinely approved under the present structure, without NYCEDC lobbying. To the extent that any lobbying is appropriate, it can be carried out by staff of the Mayor's Office without contravening N-PCL § 1411 and without circumventing the intent of the legislature.
Although the alleged purpose of the restructuring is to "separate" the functions of the post-merger NYCEDC from those to be performed by a local development corporation, there is no intention on the part of the people responsible for the restructuring to actually implement any such "separation". In fact, they intend to unify – not separate – the functions of the post-merger NYCEDC and the newly formed NYCLDC.
NYCEDC is pretending to re-structure in order to "separate" itself from activities of any local development corporation (and therefore, be able to lobbying without violating state law), but the contract between the two “new” entities makes clear that there will be no actual "separation", and that the "separation" is illusory – a charade, to justify circumventing the lobbying prohibition
To the contrary, the contract states that the staff of the post-merger NYCEDC will interact with the staff, "if any", of NYC Land Development Corporation– thus allowing for the possibility that NYCLDC will have no staff of its own, and that the post-merger NYCEDC will be the NYCLDC staff; and the contract states that the post-merger NYCEDC and NYCLDC will jointly own all work product. Such terms shatter the notion of any purported "separation" between the post-merger NYCEDC and NYCLDC, as they essentially unify the operations of the post-merger NYCEDC and NYCLDC.
What EDC proposes to do is to create a shell corporation-fully beholden to the parent EDC. The proposed restructuring of NYC EDC not only doesn’t serve any public purpose, it effectively does the opposite: allowing the agency to obtain even greater power than was envisioned under NYS law will subvert the public good and allow the agency to continue unfettered in its seemingly endless effort to aggrandize the interests of the most powerful real estate firms in NYC.