Wednesday, December 4, 2013

Willets Developers Seek $42 Million IDA Corporate Welfare

Total project cost to City taxpayers balloons to $536 million

Tomorrow, December 5, 2013, the New York City Industrial Development Agency ("IDA") will hold a public hearing to consider an application by the joint venture of Sterling Equities and Related Companies – known as "Queens Development Group, LLC" ("QDG") – for IDA to authorize more "financial assistance" to QDG.

The additional financial assistance that QDG is seeking for its Willets Point / Willets West mall development will cost the City $42,645,802, and according to the public hearing notice, includes "payments in lieu of City real property taxes with respect to the WP Parking Facility and exemptions from City and State mortgage recording taxes with respect to mortgages recorded to secure financing for the WP West Retail Facility, the Hotel Facility, the WP Retail Facility and the Parking Facility."

Given that the IDA board of directors consists of such people as Kyle E. Kimball (a Bloomberg appointee who also happens to be the President of NYCEDC, the agency responsible for promulgating the Willets Point development), Amanda M. Burden (a Bloomberg appointee who also happens to be the Chair of the Department of City Planning, which approved the Willets Point development) and Michael A. Cardozo (New York City's Corporation Counsel and legal counsel to Mayor Bloomberg, whose legacy involves Willets Point), we anticipate IDA rubber-stamping QDG's application for the $42 million with no serious consideration of denying the application, and no serious analysis of the actual costs versus benefits of QDG's Willets Point / Willets West project.

In fact, the City has never publicly offered any comprehensive accounting of the actual costs to City taxpayers of implementing the Willets Point / Willets West mall development.

To the contrary: A "Cost/Benefit Analysis" document published by IDA in connection with tomorrow's public hearing claims that the financial "benefit" to the City of the QDG project over a 25-year period will be $211 million – but the only costs identified by IDA are the $42 million worth of financial assistance that is presently sought by QDG. This creates the false impression that the QDG project will result in a net benefit to the City over 25 years of $169 million – but that is demonstrably not the case, when all of the actual costs to the City of the QDG project are properly taken into account. Indeed, the actual costs vastly outweigh the $211 million alleged benefit, making the QDG project a losing proposition for City taxpayers.

Below we are summarizing the major costs to City taxpayers of QDG's Willets Point / Willets West mall development. To our knowledge, this is the first time that all of these costs have been compiled and publicly presented at once so that the total cost can be understood. All of the following costs are missing from the "Cost/Benefit Analysis" document published by IDA.

Value of City-Owned 23 Acres / Willets Point Phase One Property . . . . . $250,470,000+
On information and belief, the City has spent on average at least $250 per square foot to acquire Willets Point property (and in some cases, many times more than that). The Phase One area consists of roughly 23 acres, or 1,001,880 square feet. Therefore, a fair estimate of the cost incurred by the City to acquire the Willets Point Phase One property is at least $250,470,000. In 2008, the City Council was told that the City would recoup the cost of the property through the eventual sale to the developer. Now, instead, the City intends to gift the Phase One property to QDG for the price of $1 (one dollar). Nowhere has this price ever been justified.

Sewer Construction Cost . . . . . $35,572,000+
The City is currently constructing storm water and sanitary sewer lines – and incurring the associated costs – specifically to facilitate re-development of Willets Point and thus the IDA Project. The Request for Proposals for the sewer construction work describes the project as "126th Street Outfall and Sanitary Sewer Reconstruction projects for the EDC's Willets Point Development Plan".

Van Wyck Expressway Access Ramps Construction Cost . . . . . $66,000,000+
The new access ramps are prerequisites for any construction of "Phase 1B" of the IDA Project, and are components of the project. The IDA Project cannot be completed unless the access ramps are constructed, first. The City incurs the cost of constructing the access ramps. "$66 million in the City's budget will be allocated for the design, construction and buildout of the new ramps off the Van Wyck Expressway." – Council Member Julissa Ferreras' statement during City Council Stated Meeting, October 9, 2013.

Grant of Taxpayer Funds to QDG . . . . . $99,000,000
Per the project contract between QDG and the New York City Economic Development Corporation, "the City will provide the Joint Venture with a capital grant for the Development in the amount of up to $99,990,000 (the “Capital Grant”) which the Joint Venture will apply to reimbursement of the Joint Venture’s cost of the items set forth on Exhibit 'E' and Schedule '4' hereto". – Amended and Restated Purchase and Sale Agreement dated August 1, 2012; section 13.1.

Loss of Real Estate Taxes Previously Paid by Willets Point Phase One Property Owners . . . . . $42,500,000+
A conservative estimate of the real estate taxes paid collectively by the previous private owners of Willets Point Phase One property is $1,700,000 per year. Even without allowing for inflation, taxes that the City would have collected over a 25- year period from those same property owners would have totaled $42,500,00.

The subtotal of all of the above-identified costs to City taxpayers is $493,542,000.

When added to the $42,645,802 financial assistance that QDG is presently seeking from IDA, the grand total cost to City taxpayers is $536,187,802.

The actual total cost of $536,187,802 vastly outweighs the $211,993,947 alleged projected "benefit" to the City. In fact, the QDG Willets Point / Willets West mall project will result in a net loss to City taxpayers of $324,193,855 – nearly a third of a billion dollars. The only beneficiaries here are the developers.

Moreover, just as the costs to the City identified by IDA are incomplete and misleading, the alleged projected "benefits" – $211,993,947 – are suspect. For example, the projected benefit to the City includes $23,593,087 attributed to the "Impact of Construction Activity". It must be noted, however, that when it came time to award the contract for construction of storm water and sanitary sewers for the Willets Point development plan, NYCEDC awarded that contract not to any firm based in Queens, in New York City, or even in New York State. Instead, NYCEDC awarded the contract to a firm located in Holmdel, New Jersey – thus sending $35,572,000+ out of state and failing to deliver purported benefits to New York City. Nothing prevents a similar circumstance from occurring again, such that the projected $23,593,087 benefit to the City which IDA attributes to the "Impact of Construction Activity" will not materialize.

Our information above demonstrates that QDG's Willets Point / Willets West mall development will result in a net loss to City taxpayers of nearly a third of a billion dollars – but unfortunately the losses are not capped at that amount, and will be even worse. For example, we have not discussed the cost to the City that results from waiving collection of fair market rent from QDG for its use of the 30.7-acre parkland property site to operate its 1.4 million square foot Willets West mall; nor have we discussed the City granting QDG an exemption from sales tax totaling $20 million on construction work; nor have we discussed the tax credits that QDG will enjoy as a result of the New York State Brownfield Cleanup Program.

In our opinion, the City's failure to publicly account for all costs of QDG's Willets Point / Willets West mall development is a continuation of the pattern of deceptive and even illegal activity of NYCEDC and the City administration in promulgating the proposed Willets Point development. That activity has included:

Unlawful lobbying by NYCEDC, and unlawful lobbying by the Flushing Willets Point Corona Local Development Corporation, an entity funded by NYCEDC as well as by the Mets (whose owners also own Sterling Equities, which is one half of QDG), as formally determined by the New York State Office of the Attorney General;

Informing the City Council that the high cost of Willets Point property acquisition would be recouped through the sale to the developer, then reneging and instead gifting the property to QDG for $1 (one dollar);

Agreeing in writing with the New York City Central Labor Council to include a living wage provision in the Willets Point Request for Proposals, then reneging and issuing a Request for Proposals without the agreed provision;

Professing in writing that the Queens-based Willets Point Advisory Committee would "participate in" and "help to guide" developer selection, then reneging and dictating the selection of QDG – and its proposal which requires the sacrifice of 30.7 acres of Queens' public parkland to QDG – behind closed doors, while rejecting three other proposals that respected the specifications of the Request for Proposals and required no parkland;

QDG agreeing in writing "to alert [Queens Community Board 7] when all applications are made to NYSDEC", then reneging and submitting its Brownfield Cleanup Program application to NYSDEC without informing the Community Board. Indeed, the Community Board was unaware of the application throughout the entire public comment period, which has since ended. Significantly, QDG has omitted numerous City-owned Willets Point properties from its brownfield application, including properties whose former uses are exactly the type which QDG and NYCEDC insist require remediation;

Touting the affordable housing component of the Willets Point development, then entering into a contract with QDG that delays any housing until at least the year 2025; makes the housing contingent upon new Van Wyck access ramps that no one is contractually obligated to build; and provides an opt-out clause, such that QDG may pay a cost-of-doing-business penalty and build no housing.

Willets Point United Inc. has submitted written comments to IDA conveying all of the above. The bottom line: Apparently development of Willets Point is only financially viable for QDG if it receives corporate welfare from taxpayers in excess of $536,187,802 – and even then, the alleged "benefits" of the QDG project do not offset that cost. The only explanation we see for nonetheless proceeding with this project is patricianage, as we have written previously. Officials are abdicating their fiduciary responsibility to New York City taxpayers, and we will continue to expose and oppose this.